Rogers Sugar Inc
TSX:RSI
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Rogers Sugar Inc
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Good afternoon, ladies and gentlemen, and welcome to Rogers Sugar's Fourth Quarter 2019 Results Conference Call. After the presentation, we will conduct a question-and-answer session which will be opened only to financial analysts. Instructions will be given at that time. Please note that this call is being recorded today, November 20, 2019, 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.
Thank you, operator, and good afternoon, ladies and gentlemen. Joining me for today's conference call is our CFO, Manon Lacroix. Similar to our last call, I will use the call to take time to provide a broader context to the business, providing some insights on trends and/or changes in the industry and update on the evolution of our business strategy.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.Before getting into our results, I wanted to provide you with a brief update on our Taber crop situation and our operating plans. As you have seen in our recent news release, the premature arrival of winter conditions in Alberta this year led to an early end to the sugar beet harvest. These adverse weather conditions caused severe snow and frost damage on unharvested crops and made them unable to be stored or processed. We expect that the crops we were able to harvest, will derive between 60,000 to 70,000 metric tons of refined sugar as compared to our plan of 125,000 metric tons.We have already taken action to ensure we continue to service our customers. Our first priority has been to develop supply chain solutions that support our domestic customers. To accomplish this, we have leveraged available capacity in our cane refineries and reconfigured customer supply chains to allow us to meet our customer needs.For export customers, we have found alternative supply solutions, to meet our commitments and, where possible, deferred supply to future calendar years. While the reconfigured supply chain allows us to meet our customer needs, it will be less efficient than our typical operations. We expect that the impact of these temporary inefficiencies on our cost structure -- we expect that the impact of this temporary inefficiency on our cost structure when compared to last year will be more than offset by business improvements in fiscal 2020 related to nonrecurring Vancouver costs, low energy costs, reduced carbon tax and product mix -- product mix improvements related to increased consumer sales.Now moving on to our fourth quarter results. Fourth quarter results were just released, with consolidated adjusted EBITDA of approximately $22.2 million and adjusted net earnings of $9.9 million in the quarter. While we have made progress on our -- against our core strategies, results for the quarter did not meet our expectations. In the last half of the year, we experienced continued competitive pressure in the Maple segment. However, we remain focused on optimization and cost improvement to maintain and improve our competitive advantage. Market conditions remain positive in our Sugar business with the fifth year -- straight year of volume increases. We remain confident in our long-term strategy and are well positioned for future growth.Let's first talk about our Sugar business. Volumes remain historically strong when combined with the first 3 quarters, if we delivered an annual volume increase of approximately 21,300 metric tons, equivalent to a 3% annualized growth rate. The majority of the growth for the business was driven by the liquid segment that grew 11% in the quarter and 13% on an annualized basis. Industrial sales for fiscal 2019 were slightly above last year. Fourth quarter results fell short of the same quarter last year due to the absence of a nonrecurring sale to a competitor and timing of sales with certain large industrial accounts. Although consumer promotional activity in the fourth quarter was soft, the impact of the new accounts awarded in the last half of the fiscal year delivered a strong annual volume improvement, resulting in year-on-year annual increase of 4.5%.Export sales lowered in the year and fourth quarter, as we adjusted the timing of shipments for contracted sales to better align with our overall operating plans. Excluding unplanned operating costs in Vancouver, adjusted gross margins were within expected results and manufacturing costs were within -- also within our expectations. In the fourth quarter, the optimization project at our Vancouver refinery made good progress towards achieving its targeted refining goals. The process optimization, improved operating controls are now mostly in place. This enhancement will help unlock additional capacity and put Vancouver in a much better place to manage the new refining requirements resulting from Taber's crop shortfall.The Montreal facility performed exceptionally well in the quarter, capping off a year that delivered record volume and very good operating metrics. After 2018 campaign delivered a second year in a row of record production, the Taber facility started the 2019 sugar campaign in mid-September as planned. The beets that were harvested have been well-managed and are processing as expected. However, the impact of the adverse weather conditions in Alberta that I mentioned earlier will result in a significant reduction in production in the 2019 campaign. The Taber air emissions project was completed on time and on budget. Commissioning and air emission testing is progressing as planned and should not be impacted by the shortened campaign. Commissioning should be completed by the end of the first quarter. The new refining competitor we saw enter the granulated refined sugar market earlier this year was not active in the fourth quarter. As we commented last quarter, we do not take our market share for granted. We are confident even in the light of the shortfall in Taber and our ability to retain our customers and compete in the conventional sugar market. History has shown us that quality, security of supply and operational flexibility are crucial to our customers. We have successfully defended our market share by reliably delivering on all 3 factors in the past, and we will continue to compete on this basis.General market conditions for our core sugar business remain positive. Over the last 5 years, we have shown strong growth international volumes, with an increase of roughly 100,000 metric tons. This growth was largely driven by the conversion of liquid customers from high-fructose corn syrup to sugar, and increased export volumes. Looking forward, we continue to grow our sugar business. We expect to continue to grow our sugar business and invest in supply chain and manufacturing solutions that align with our customer needs. Not considering this outlook is -- not considered in this outlook is the ratification of the USMCA agreement, which would add an additional 10,000 metric tons roughly to the Canadian sugar export quota. Although we continue to have to do this agreement will be ratified. We cannot reasonably project any timing.Turning to our Maple business. You will recall, we invested in this business as part of a long-term strategy to diversify our natural sweetener portfolio, add geographic reach to our sales book and include a stronger growth component to our product mix. While diversification and global reach remain important components, recent changes in the competitive environment and the lower growth expectations have led us -- led to tempered expectations for this business. The start-up of a new player, 2 early post-acquisition losses and a realignment of 1 of our key customer supply chain change to align with a more made in America sourcing strategy have together resulted in lower-than-projected volumes and compressed margins.In addition, our Maple business was further challenged by a slowing in market growth to a rate of, we project today, at 2% to 3% compound annual growth rate. And finally, some of the integration synergies we initially expected as part of the acquisition, are taking more time to gain traction, mostly in the area of reduction in syrup costs, product overfill and delays in manufacturing cost improvements. As a result of these changes, we have reviewed the longer-term outlook for the business and taken a $50 million impairment charge to satisfy accounting principles. Given the changes in our market, our focus on optimization and cost improvement is even more important to maintaining and improving our competitive advantage. To that end, work on our footprint optimization project continued in the fourth quarter. When complete, this project is expected to provide increased capacity for future growth and improved operational efficiencies driving a lower cost structure and improved competitiveness.During the fourth quarter, we reduced the level of production backlogs and have moved closer to reaching our order lead times. Interim solutions to increase our short-term manufacturing capacity for both Degelis and Granby were developed, and like many Québec manufacturers, we are working hard to overcome the challenge of significantly lower than normal unemployment rates in rural Québec. The full benefits of our improved manufacturing footprint are expected to be realized at the end of the second quarter of fiscal 2020. Our long-term vision for the overall business is to be a leading North American natural sweetener supplier. We continue to monitor market trends to gain a better perspective on new opportunities and threats in a natural sweetener space.In addition, we remain interested in adding alternative natural sweeteners to our portfolio and are closely monitoring sugar reduction -- the sugar reduction space for sugar-based product solutions that can be engineered into our existing manufacturing capabilities.Before handing the call over to Manon to review the financial results, I want to reemphasize that our outlook for the business is positive, and we remain confident in our long-term strategies. Despite the Taber disruption, our core Sugar business benefits from good momentum and we have a clear plan to improve our Maple business by lowering costs, improving service and bringing innovation to help compete in what has become more competitive -- a more competitive and challenging market. We're implementing the process improvements to increase operational inefficiencies and pursuing innovative strategies to drive growth in alternative markets.Before handing the call over to Manon, and I want to thank our employees for their efforts and ongoing commitments to our business.
Thank you, John. I will now go over the fourth quarter results in more detail, starting with the Sugar segment. As John mentioned, we are pleased to see that the Sugar segment delivered a fifth year in a row of volume increases. However, the fourth quarter saw a slight decrease in total volume of approximately 3,200 metric ton or approximately 1.6% versus the fourth quarter of fiscal 2018. The liquid segment had another strong quarter with an increase of approximately 4,800 metric tons or an increase of more than 10% quarter-over-quarter. This performance is consistent with previous quarters this year, where we have been able to recapture some business loss to high-fructose corn syrup, grow volume with existing customers and gain new business altogether.However, the increase in liquid segment was offset by a decrease by all other segments. The biggest reduction was in the industrial segment with a decrease of approximately 7,200 metric ton for the quarter, of which approximately 1/3 of this variation is explained by the nonrecurrence of shipments to a competitor that took place in the fourth quarter of last year. The remainder of the variation is explained by the timing in deliveries to large customers. Export volume for the quarter was approximately 800 metric tons lower than last year, mainly explained by a reduction in shipments to Mexico as some volume was rolled into fiscal 2020 to manage peak inventory until the next crop.During the quarter, the company was able to take advantage of market conditions, ship some U.S. high tier sales, which helped reduce the gap from the export volume.Finally, the consumer segment was flat versus the fourth quarter of fiscal 2018. The additional volume experienced in the third quarter of the current year from additional shipments acquired from an existing customer, continued into the fourth quarter, but was offset by a decrease from other customers in this category considering lower promotional activities in the current quarter. Adjusted gross margin for the quarter amounted to $24.4 million, representing a decrease of $1.3 million, mainly explained by lower sales volume and additional operating costs.Noticeable improvements were made during the quarter with the fine-tuning of the Vancouver refinery, major capital project undertaken at the beginning of the fiscal year. However, operating costs in Vancouver and Taber were above last year, in part due to the rebuilding of inventory levels and in Vancouver following the commissioning challenges encountered in the second and third quarter. Adjusted gross margin per metric ton was approximately $5 per metric ton lower than last year. Higher operating costs had the most impact on adjusted gross margin per metric ton for the quarter. But in addition, the sales mix also had somewhat of a negative impact with less export sales and more liquid sales.Distribution costs were $0.6 million above last year comparable quarter due to additional transfers between locations. Additional warehousing costs were incurred in the East in a conscious effort to increase inventory levels for the fall, given additional volume gain in the consumer market.Overall, adjusted EBITDA for the quarter amounted to $19.7 million, which is $1.9 million lower than the comparable quarter last year. For the full year, volume increased by approximately 21,300 metric ton versus fiscal 2018 with all domestic segments finishing ahead of last year, of which 18,600 metric tons were related to the liquid segment. Adjusted gross margin for fiscal 2019 amounted to $94 million. Excluding nonrecurring items for both fiscal years with regards to the Vancouver commissioning issues of $4.6 million and a noncash pension revenue of $1.5 million last year. Adjusted gross margin would have been $0.4 million above last year, representing a reduction of approximately $3 per metric ton.Adjusted EBITDA for fiscal 2019 stood at $73.1 million, which represents a decrease of approximately $1.3 million when excluding nonrecurring items for both fiscal years.Now I'll turn to the Maple product segment. Revenues for the quarter were $2.6 million lower than last year. During the quarter the Maple segment continued to experience short-term capacity constraints as a result of the footprint optimization project, which created shipment delays and are currently being addressed. Adjusted gross margins for the quarter decreased by $2.3 million when compared to last year. And ended at 9.7% of revenues versus 13.7% last year. The adjusted gross margin reduction is mainly explained by margin contractions, as a result of an increased competitive landscape, by an unfavorable sales mix, and incremental operating cost as a result of production inefficiencies. Administration and selling costs were $0.4 million higher than the comparable quarter due to an increase in allowance for doubtful accounts, higher marketing expenses and some timing. Adjusted EBITDA for the fourth quarter amounted to $2.6 million versus $4.8 million last year. Year-to-date, adjusted EBITDA amounted to $14.7 million versus $18.6 million in fiscal 2019.On a consolidated basis, adjusted EBITDA for the quarter was $22.2 million or $4.1 million lower than last year. Year-to-date, adjusted EBITDA was $87.8 million or $12.1 million lower than fiscal 2018. During the quarter, Lantic extended its revolving credit facility to June 2024. And amended certain terms and conditions that did not affect covenants or borrowing capacity under the revolver. For fiscal 2019, free cash flow amounted to $30.8 million or $17 million lower than compared to fiscal 2018. The decrease is explained by lower adjusted EBITDA, by higher interest and income taxes paid, as well as higher capital spending, net of operational excellence CapEx. Excluding nonrecurring items such as the air emission project and the Vancouver commissioning issues, the dividend paid of $37.8 million would have been more than covered by the free cash flow generated by the company. During the quarter, the company purchased approximately 123,000 common shares under the normal course issuer bid at an average price of $5.23 for a total cash consideration of $0.6 million. We are pleased to confirm that the corporation declared a dividend of $0.09 per share to shareholders of record on December 27, 2019, and payable on or about January 21, 2020. The total payout is estimated at $9.5 million.I will now turn to the outlook for fiscal 2020. Once again, I will start with the Sugar segment. As John mentioned, we have announced the early termination of the beet harvest, which will reduce the expected sugar to be produced in Taber facility to between 60,000 and 70,000 metric tons of refined sugar. Servicing our customers is our priority. Despite the significant shortfall, we expect to meet 100% of the needs of our domestic customers. And as a result, only a decrease of approximately 6,000 metric tons is expected versus fiscal 2019. The most important volume variation is in the export segment where contracted volume for fiscal 2020 was rolled to the end of the current contract to fiscal 2022 and no cost to us, effectively extending the Mexico shipments contracted by 1 year. The Canada-specific U.S. quota of 10,300 metric tons can only be delivered by a refined sugar from Taber and is still expected to be exported, given its attractive margins. Offsetting a portion of this volume reduction is the anticipated increase in consumer volume, given the additional volume that was achieved starting in April 2019, which should continue into fiscal 2020. A significant portion of Atlantic sales volume is in liquid form and comes from Taber. With the plan we have put in place, we should be able to supply all liquid customers, and as a result, we expect that the liquid segment should be comparable to last year.Finally, the industrial segment should be also similar to fiscal 2019. A lot of changes occurred in Alberta with regards to carbon tax, and it is still evolving. It remains unclear what the final income will be. At worst, the federal carbon tax would be similar to what Lantic was paying under the NDP regime at $1.51 per gigajoule. One thing for certain is that there will be no carbon tax until December 31, 2019. As a result of the early termination of the beet harvest, the slicing and juice campaign will be significantly reduced in fiscal 2020. Overall, we expect to realize approximately $2.7 million in savings in the first half of fiscal 2019 on carbon tax in Alberta and energy versus fiscal 2019.Now turning to the Maple products segment. We are putting some measures in place to increase capacity until the Granby plant has moved to its new location, and the equipment is fully commissioned. Production movement between locations starting in the third quarter and will continue, but it will only be optimal once the new Granby facility is fully up and running. The relocation to the new Granby facility is expected at the end of January 2020. We would, therefore, expect this return on investment project to start generating savings in the second half of fiscal 2020.Capital spending for the Sugar segment is expected to return to approximately $20 million, with the completion of the air emission project, with approximately $6 million dedicated to return on investment capital projects. As for the Maple products segment, approximately $4 million remain to be spent in fiscal 2020 to complete the footprint optimization project. There will be minimal capital requirement outside of this project going forward.With that, I would like to turn the call back over to the operator for the question session.
[Operator Instructions] Your first question comes from the line of George Doumet from Scotiabank.
Just want to clarify some of your comments earlier, John. So I guess, in spite of the shortened beet season, you would still expect the legacy sugar gross -- adjusted gross margins to be up materially, right?
Not material...
Year-over-year.
Yes, if you look at the -- like excluding the Taber issue, we are expecting benefits coming from the additional volume that we have on the consumer, which will be helpful on a dollar basis and also on a per ton basis, on a gross margin. And then on the cost side, what we're saying is that approximately $4.6 million was spent in 2019 for the commissioning issues. We're expecting to save on energy, $2.7 million between energy and carbon tax, and that should offset the additional financial impact that the Taber short crop would have. And then finally, on distribution costs, we expect that it would be slightly over. However, we incurred some costs in fiscal 2019 as well because of the Vancouver commissioning issue of about $800,000, so that will help offset the impact. So overall, if you're looking at the gross margin, the consumer will be beneficial. And then the rest should be relatively offset by the commissioning and the carbon tax, energy.
Okay. So on an apples-to-apples, like how would you -- we expect adjusted gross margins to trend fiscal '20 versus fiscal '19?
It should be better.
Okay. You're not able to quantify how much?
No.
Okay. Right. Can you -- I guess, maybe just looking at the impacts of the shortened beet season. Is it more of an impact to gross margins, or is it more of an impact to distribution costs?
It's going to add to our distribution cost, largely in the last half of the year more so than the first half. First half of the year, it's more business as usual in the first quarter, and then we'll start to roll into the new supply chain solutions at the beginning of the -- well, probably beginning of the calendar year.
Yes. On the per metric ton basis, the Taber facility is the facility that is the most expensive to produce on a per metric ton basis versus the other plants. So on a per metric ton basis that should be beneficial as well.
Okay. And can you guys quantify, like, maybe ballpark, how much you expect the distribution of costs to rise by because of the shortened beet season?
Probably I don't really want to provide any specific answer in that area. I think you could imagine, we're still working through the details of the plan, and we're working with customers as we speak today, we have been already. So I don't think it's the right time to give you any specificity on that.
Okay. And just one last one, if I may. Kind of shifting gears to the Maple syrup business. I noticed that you guys didn't provide any guidance in terms of, I guess, EBITDA. I'm not sure that was the plan anyways. But can you maybe give us a sense of, it looks like just kind of, you called out continued competitive pressures in the -- on to be ongoing. And I think there's also some talk about second half recovery and improved efficiencies. So maybe anything to talk to in terms of the cadence and the margin -- and the EBITDA margin recovery, I think were in the mid-7s. Can you talk a little bit about the puts and takes there that should improve kind of the margins? And what point do you expect them to improve? That's it.
Okay. So on the -- I'll give you -- on the market growth side, we've shared, we've seen a deceleration in growth. From when we acquired the business, we had kind of done a lot of due diligence on that. It was growing at 7%, 8% compound annual growth rate, 7%, 8%. Today, probably 2% to 3%. We continue to be active in trying to grow the business, and we have been growing the business, but at a slower rate, not fully evident because some of the -- just because some of the losses we had in the early days of the business. All this -- no that's being said, we are growing the business. And in terms of the competitive situation, there is a new player in the marketplace. We talked about that. We talked about kind of their behaviors, which were largely price related at the beginning. We can't speculate on what that looks like in the future, we can share with you that we haven't had any losses in the quarter. So that's, in some context, good news. From an operating footprint perspective, we have a lot of work underway to complete the optimization, and that will drive lower cost. We talked about that in the past, we said we're going to be spending in the neighborhood of $6 million in CapEx and that CapEx is put together on a return on investment basis, and we use typically 4 -- 4x, 5x for ROI. So you can kind of see the financial benefit that will come out of that once we have that kind of completed and operating as planned.
Your next question comes from the line of Michael Van Aelst from TD Securities.
Just to start off. If I might have missed this, but you're -- for the Vancouver and Taber press cost inefficiencies in Q4. Did you quantify the number?
No.
Taber in Q4, we didn't -- you said Taber and Vancouver. We had nothing...
I thought I heard that. That's why I was...
No. And yes. So maybe if we -- if you heard that then we misspoke. Taber is a brand. We started the campaign midway through September as we did planned, and we continue to run, what would appear to be at the moment, a normal campaign. It's just going to be shortened, then it will probably end in the middle of December. But it's normal operating conditions and...
But something about rebuilding inventory. Or was that just the Vancouver?
Yes. I think what you're referring to is the additional cost on the sugar side, it's not relating necessarily to the commissioning. The commissioning is largely behind us, although it's not like 100% perfect like we would hope. But yes, we were rebuilding inventories. So we had additional overtime and additional operating costs. And also other fixed costs that were higher than the previous quarter, which is just timing.
Okay. You mentioned looking at acquisitions, but your balance sheet seems a little bit stretched right now. Is that -- can you just talk about your leverage and what your covenants are?
Yes. When we were looking at our covenants, if you were looking at it from the revolver only. So the covenants are more long term. So on the line of credit, we have -- we're at 2x the EBITDA right now. Typically, we prefer to be like more like around the 1.5 or below that. So our next priority will be to deleverage the business.
And I think maybe that was misunderstood or maybe misspoken when we read it, we continue to look at, but we are not in a position right now that we are pursuing acquisitions. We just want to maintain our awareness of what's happening in that market more than an interest in acquisitions. And I think we mentioned that on the last call that we're largely in a pause mode, and I think our immediate focus needs to be on working through the integration, getting the footprint right in the Maple business. That's where we're at. That's what we're focused on.
Okay. And just to finish on the M&A, you said -- did you say sugar-based reduction products?
Yes. We tend to -- we look at that as well. That's a space that we think we need to be aware of, to understand what's happening and what the developments are in that space. And we are looking at and continue to look at solutions that are -- rely on modifying sugar itself and the functionality of sugar and opportunities to investigate or invest in those types of solutions for -- that would allow us to participate in that market in a future point in time.
What is the sugar-based reduction product?
What is a sugar-based reduction product? It would be a product that uses sugar as a base. That change -- and that sugar has modified functionality to enhance its sweetening capacity and allow customers to reformulate to reduce sugar in their recipes and then parallel with that, they need to backfill or fill the absence of sugar with other fillers such as inulin or other soluble fibers.
Okay. All right. On to the Maple side. So you see in the outlook statement that you expect the pressure to continue on margins, I guess, as long as the competitive activity stays like this. And the new competitor seems to have a brand new facility, automated from what I gather with the potential to increase it fivefold long term. How do you gauge how long you think the competitive activity is going to -- you're going to continue in a scenario where you have a competitor that's aggressive and that has ambitions to be substantial market share player?
Yes, I think it'd be speculative for us to kind of determine what their objectives are and exactly how they're going to manage their fares over time. Our response to that is we have, in short order, a brand new facility. We'll be a low-cost producer. We have a significantly larger volume of product that they do, so that advantages us. We have a second asset as well that is very modern, maybe not brand new, but is very automated, and we think we have the right kind of footprint to compete in that market and we'll compete like we have in the sugar market in the past, if necessary, we'll drive to be low-cost, we'll focus on getting our reliables into a reliable supply situation and we'll protect and defend our business. And that's our stance. And it's worked for us in the past, and we believe it will continue to work for us. How that competitor behaves? I can't respond to that.
And how are you basing your assumption that your plant will be the low-cost producer, like do you know the specs of the new plant that of the new competitor?
I know the throughputs of our facility, and I have a rough idea of the throughputs of their facility. And I know there's efficiency and scale and line speeds and packing and automation. So we believe we'd have an advantage there. I guess, it's not going to be public knowledge, but we're going to work on that basis.
Okay. All right. And how much excess capacity will you have once you've optimized your footprint?
So once we have the footprint optimized. We -- as we stated all along, we have the ability to double our output.
So given the growth is now 2% to 3% to 7% to 8%. Like if you were asked to make this decision all over again with perfect foresight that now it's -- the growth rate slowed, would you still -- would you have still made this decision to increase capacity?
The answer to that is, we would have made the decisions that we made because we -- when we acquired the business, we acquired an asset that was leased, that was suboptimal, in our view, on terms of delivering efficiency and just the quality of the facility that we would want to have. So it was the right thing for us to do, at the time we would have done it regardless. It's disappointing that the growth rate is what it is. But things change over time. We've seen growth rates on our Sugar business that were declining in years, and we've now enjoyed 5 years of growth, probably didn't anticipate it much as we didn't anticipate that we were going to go from 7% to 8%, 9% -- 7% to 9% or 8% that we had seen traditionally to 2% to 3%. So I don't think these things are permanent, and we're in this business for the long term not the short term.
[Operator Instructions] Your next question comes from the line of Endri Leno from National Bank.
I just wanted to start a little bit in terms of recovering the volumes that are lost at Taber. Are they all going to come from Vancouver or some from Vancouver and some from the Montreal refineries?
They're going to come from both.
From both. And do you mind quantifying how much can come from each? Or whether you'll be able to satisfy that whole loan volume? Or will you need to be -- or will you need to acquire some in the market?
We're going to from both facilities. At this point in time, we're -- as I said earlier, we're looking at this -- it's in great detail, so we started at a high level, we've gone deeper and deeper, and we're looking at optimizing our cost solutions right now. So we've solved for the problem. And now we're looking at what is the optimal way to solve for the problem. And we'll be able to talk about that as we move probably into the end of the next quarter, and we'll be able to reflect back and say these are the things that we've done, where we have more certainty and more awareness, obviously, within the guidance. We're not going to give away a lot of competitive information either, but that's -- at this point in time, that's where we're at.
Great. And I looked at the refineries in those 2 cities. So Vancouver, you already completed the optimization program, and I'm assuming it will be done by the end of calendar year. But so how does optimization and equipment look in Montréal? I mean does this extra capacity that you put in there or extra production postpone any projects? Will it weigh on the equipment that is already there? And like a little bit of color there, please.
So as you said, for Vancouver, the work that we've done sets us up. We're in a better position now than we were prior to doing that work to support some of the additional demand that we're going to have. If I speak to Montreal, we continue -- we've been investing in Montreal on an ongoing basis, the facility is running well. This additional capacity doesn't interrupt any plans that we had in the short-term with respect to an investment. So we're comfortable in the capabilities of the plant. It has a great track record in the recent last fiscal year. So we're good to go.
Okay. Great. And one more question on the sugar side. Just in terms of looking at the margins and potential high-cost side. Just 2 quick ones there. I mean, first of all, is there a margin differential between sales in Mexico and in Canada? Number one. And number two, are you able to secure labor in both Vancouver and Montréal, given the tight labor markets there? I mean, you talk to your unions or will you need to hire part-time or what is the plan for those two?
So Manon, maybe if you want to answer this or not, the margin question, unless you did. And then I'll talk about the labor situation.
Yes, the Mexico margins are typically lower than Canada and, in particular, lower than the consumer. So on that front, that's why it's going to be positive.
Okay. And on the labor side in Montréal, we're very comfortable with our capabilities and availability of labor. And in Vancouver, we've had open discussions with our labor, and we're very comfortable that we're working together and collaborating on solving what's important to all of us, which is our customers. The issues of our customers are priority #1 for Vancouver as they are from Montreal, and that's easy to get alignment on -- with our labor, with our unions.
Okay. Great. And last question for me. It's on the dividend side. So as you mentioned, I mean, there were a number of onetime costs during this fiscal year, and those onetime costs will be offset. I mean -- or you won't see actually again next year, it will offset some of the headwinds from the beet concerns. So then how -- where does that leave your payout for the next year? I mean, even if we remove $7 million from CapEx. I mean, we're still at very near to 100% payout for next year. Like just kind of your views on how you're thinking about that for next year? And where is your target payout ratio?
Yes, we were expecting to be fully covered on the dividend for next year.
Okay. And what is your target payout?
Well, the -- typically, 85-ish, in that range.
And there are no further questions at this time. I turn the call back over to the presenters for closing remarks.
Okay. Thanks, everybody, for your questions, and we'll talk to you at the end of the next quarter.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.