Sunopta Inc (STKL) 2014 Q1 法說會逐字稿

Good morning and welcome to SunOpta Inc's first-quarter FY14 earnings conference call.

By now, everyone should have had access to the earnings press release that was issued after the close of business yesterday. The release is available on the Investor Relations portion of SunOpta's website at www.sunopta.com. This call is being webcast and a transcription will be available on the Company's website.

As a reminder, please note that the prepared remarks which will follow contain forward-looking statements and Management may make addition forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

We refer you to all of the risk factors contained in the press release issued yesterday, the Company's first-quarter FY14 quarterly report on Form 10-Q that will be issued at the close of business today, and other filings with the Securities and Exchange Commission for more detailed discussions on the factors that could cause actual results to differ materially from those projections and any forward-looking statements.

Finally, we would like to remind listeners that the Company may refer to certain non-GAAP financial measures during the teleconference. A reconciliation of these non-GAAP financial measures was included with the Company's press release issued yesterday. Also please note that unless otherwise stated, all figures discussed today are in US dollars and are occasionally rounded to the nearest million.

Now, I would like to turn the call over to SunOpta's CEO, Steve Bromley. You may begin.

Great. Thanks and good morning, everyone.

On the call with me today are Rob McKeracher, our Vice President and Chief Financial Officer; Rik Jacobs, our President and Chief Operating Officer; and John Ruelle, our Chief Administrative Officer and Senior Vice President of Corporate Development.

Over the next couple of minutes, I will provide you with a brief overview of our first-quarter 2014 financial results and status of our key strategic initiatives, then Rob will discuss our financial performance, and Rik will provide an update on our operations. Finally, I'll come back with a few closing remarks and then we'll open up the call to questions.

We're pleased to report a great start to the year, driven by solid revenue and earnings growth. Both our first-quarter revenues and first-quarter earnings are a record for our Company. All of our core foods operating segments generated increased revenue and increased operating income versus the prior year. This is the largest revenue quarter in our Company's history and is indicative of the continued growth in healthy eating categories around the world.

These record results are due to a number of factors, including increased sales driven by new customers, new products, and product extensions; our investments in growing our capabilities to address market opportunities; and our repositioned go-to-market strategy; combined with our focus on improving operating efficiencies, cost reduction, and cost control. Our realigned organization structure forms the backbone of all these efforts and we are really pleased to see the benefits of this realignment translate into accelerating revenue growth and improved financial results.

This was a good quarter, and the good news is that we have many opportunities in the pipeline, both from a customer and operational perspective, that will drive further improvement, which makes us optimistic for the rest of the year. We are clearly heading in the right direction and we feel we are well-positioned to achieved continued top- and bottom-line growth in fast-growing natural and organic foods categories.

Demand in these categories continues to grow. Healthy eating and healthy living are not a fad, they are a key long-term global trend. Many retailers and food manufacturers around the world are continually increasing their focus in this area and we feel this is very positive for us.

Recently, you would have heard that the largest retailer in the world is wanting to significantly increase their presence in this space, validating our belief in the growth potential for healthy foods. The recent Natural Products Expo West in Anaheim, California, which was attended by almost 70,000 industry participants, only furthers our conviction in this regard.

Combine this with growing interest in non-GMO foods, rising healthcare costs, obesity, allergen awareness, and changing demographics, with the Boomers aging and becoming much more aware of the linkage between diet and health and the Millennials being the most socially aware consumer ever, all of this leaves us excited and confident in the future of our integrated business model.

Before I turn the call over to Rob, I would like to reiterate our three core strategies which form the basis of our ongoing initiatives: one, to focus our development efforts on becoming a pure-play natural and organic foods Company; two, to aggressively grow our value-added packaged foods and ingredients portfolio; and three, to leverage our integrated platform. We have made progress on all these fronts and truly believe we are well-positioned for the long-term.

And with that, I'll turn the call over to Rob to discuss our financial performance in more detail. Rob?

Thanks, Steve, and good morning, everyone.

I'll take the next few minutes to review our financial results for the first quarter ended April 5, 2014. For the first quarter of 2014, we reported record revenues of $334 million, an increase of 17.9% compared to revenues of $283 million during the first quarter last year. Please note that FY14 will be a 53-week year and the extra week fell in the first quarter, resulting in a 14-week quarter versus 13 weeks in the prior year.

Excluding the extra week of sales, as well as the impact of changes in commodity prices and foreign exchange rates, consolidated revenues increased 13.8% and SunOpta food revenues increased 16.4% versus the prior year. The increased revenues were led by accelerating sales in our Consumer Products segment, which excluding the extra week, grew 21% over the first quarter of 2013.

We generated operating income of $12.1 million in the first quarter, up 13.2% from $10.7 million in the same period last year. The growth in operating income was driven by increased volume and margins on organic raw materials, increased volume of Consumer Products, as well as higher sales and margins of Value-Added Ingredients. This was partially offset by lower organic feed margins, increased Corporate spending in areas such as IT and human resources, all of which are intended to drive efficiencies in our operating segments, and margin pressure experienced in Opta Minerals.

As many of you will know, the winter just [passed] was a tough one and it should be noted that, during the quarter, a number of our operating facilities throughout the Midwest and Eastern regions of the US experienced incremental costs associated with the extreme weather, such as freight delays, temporary shutdowns, and higher utility costs, totaling approximately $700,000 before tax and minority interests.

Earnings for the first quarter of 2014 were $6.6 million, or $0.10 per diluted common share, as compared to $5.1 million or $0.08 per diluted common share, during the first quarter of 2013. The results include approximately $1.2 million in costs related to the retrofit of our premium juice facility, which we have discussed in prior quarters, offset by approximately $1.1 million in other income, primarily related to a decrease in contingent consideration related to a previous acquisition. During the first quarter of 2014, we realized EBITDA of $17.9 million, as compared to $16.1 million during the first quarter of 2013.

At April 5, 2014, we had total assets of $720 million and a net book value of $5 per outstanding common share, and our balance sheet remains strong reflecting a net debt-to-equity ratio of 0.59 to 1. As is typical for a first quarter, we used $12.6 million in cash in operations, compared to $6.7 million used during the first quarter of 2013. The increase in cash used reflects higher working capital levels to fund our growth.

At April 5, 2014, we had approximately $105 million in unused capacity within our current debt facilities. We're forecasting to generate positive operating cash flow over the course of 2014 and the cash generated, along with the available capacity that I just mentioned, provides the Company with sufficient resources to support our various growth projects.

With that, I'll now turn the call over to Rik, who will discuss our first-quarter operational performance in more detail.

Thanks, Rob, and good morning, everyone.

I will now discuss the performance of the three segments within SunOpta Foods: Global Sourcing and Supply, Value-Added Ingredients, and Consumer Products. Just as a reminder, the first quarter of 2014 included an extra week of sales; the normalized revenue growth percentages I referred to exclude this extra week, as well as commodity and foreign exchange effects.

In the Global Sourcing and Supply segment, revenue increased 14.1% on that normalized basis and we reported an 80 basis point improvement in operating margin. Revenues were up due to higher sales in fruit, seeds, and nuts products, as well as a bounce back in our European sales of fruits, sunflower, and seed products.

As growth is strong in both our European and North American businesses, our expertise in sourcing organic raw materials from all of the world is really starting to pay dividends, not just in the sale of these raw materials to customers but also in securing supply for our Value-Added Ingredients and Consumer Products segments.

In our Value-Added Ingredients segment, revenues increased approximately 11.3% on a normalized basis, while our operating earnings increased $300,000, however, the operating margin basically remained flat versus prior year at 6.2%. Our fruit ingredients side of the business again was very strong driven by new customer and product introductions. Fiber and grains ingredients pipeline continues to grow on both current and new products, but on parts of our portfolio, we do have to offer more competitive pricing to gain or maintain the business.

Looking into Q2, we believe our food business will continue to be strong, as many of our customers continue to use our capabilities to introduce new products in the market. As mentioned above, there is some margin pressure in our fiber and grains ingredient businesses, which we are countering through innovation and a continued focused on costs.

In our Consumer Products segment, revenues increased 21.4% on a normalized basis, and we added an extra $2 million to the operating income line versus last year. Our revenue increase was primarily driven by the sales of our aseptic frozen pouch and healthy snack products.

Our margin increase was primarily driven by continued strength in our aseptic business, where we continue to see large opportunities, and that's why we continue to invest in this business, as announced earlier this year. While our pouch business saw significant revenue growth versus prior year, margins here are not yet where we want them to be and we're focused on optimizing our factory performance and launching new products in new categories.

Finally, construction is now ongoing at the San Marino facility, which has been a significant drag on earnings in this segment over the past year. Unfortunately, we do have some further delays in the start-up due to new permitting limitations placed upon us. Net/net, though, we expect to get see continued growth in our Consumer Products segment, both top line and bottom line.

In closing, it's great to see the momentum in Q1 after our Organizational alignment efforts last year. Our segments teams are focused on our customers and growing the top line, while our newly formed operational teams are focused on improving our supply chain performance. Based on the incremental investment in feet on the street, our ability to get incremental growth, especially in the Consumer Products segment, is in large part only limited by how effectively and efficiently we can leverage and expand our capacity.

On the supply chain side, we have identified a number of significant savings to go after. As we get better and better at leveraging our platform, it makes us confident that we will see increased operating margin expansion sooner rather than later in the foods business.

I will now turn the call back over to Steve for some brief closing remarks.

Great. Thanks, Rik.

As the realignment is now behind us, we want to thank everyone within SunOpta for their contributions in transforming our Business in such a short period of time. With our enhanced strategy, our new structure, and everyone focused on their part in improving our top and bottom line, we are confident we will achieve our targets. Looking ahead, we will continue to focus on our portfolio of natural and organic food offerings, refine our cost structure to further drive operational improvements, and prudently evaluate potential acquisition and internal growth opportunities.

For our non-core holdings, we continue to assess all options to maximize shareholder value, and in doing so, create additional capital that can be reinvested in our global integrated natural and organic foods platform. We believe we are better positioned today than ever before to capitalize on the growth in the exciting natural and organic foods industry.

As we noted earlier, there are tremendous growth opportunities, both with new unit growth from supermarket retailers in the natural, organic, and specialty space, as well as more organic natural SKUs being added in conventional and mass retailers at a faster pace than we've historically seen. We believe our integrated model, focused on value-added ingredients in consumer packaged products, is well-positioned to capitalize on these opportunities.

In closing, we are confident in our Business, comfortable with consensus forecasts for this year, and feel strongly that we are solidly positioned to take advantage of future growth. We believe in this for two reasons: one, we're in the right position to benefit from the growing healthy foods space; and two, we are making good progress on executing on our core strategies.

So thanks for joining us on the call today and with that we'd now like to open up the call for questions. Operator?

(Operator Instructions)

Christine Healy, Scotiabank.

First, just on Whole Foods, they reported weak results last week. They cited that there's increased competitive pressures in the sector and that's really the reason for their lower sales and margins. I'm curious, just from the manufacturer's standpoint, are you guys seeing any increased pressure from retailers to reduce your pricing, or from your angle, is it just the same as usual?

For us, Christine, this is Rik, it's pretty much the same as usual. And don't forget that, at the moment in North America, demand is quickly outstripping supply, especially on the organic side. Therefore, leveraging our global platform to keep prices in check for our retailers is much appreciated.

Okay. And then Rik, just moving on to the Value-Added Ingredients, the fiber part of the business, can you tell us roughly, what is the plant utilization in the segment, how is it tracking? And I know you guys are focused on trying to win business in the specialty fibers, but would you also consider consolidating some of your plans to boost margins?

Yes. Our current utilization stands at about 65%. We have been very focused on innovation, as you are hopefully aware, at least all of you that have visited us, our booth at Expo West. We have new insoluble fiber that can be suspended in beverages, which is a huge market for fiber. You're seeing the new dietary guidelines come out that basically say we have to consume more fiber.

So the opportunities for fiber are there. Having said that, we are not fully utilizing our facilities, and while we will continue to focus on the innovation, we have to also be realistic and say we must focus on cost, and that means that utilization in our factories must go up, even if that leads to not having as many factories.

Okay. So it is something that you are considering? Okay. And then just lastly, just Opta Minerals, this segment has obviously reported week results the last year or so. It's been a difficult one to model, too, just given that it's volatile. But I noticed in their press release this morning, they mentioned that they've won some new business that's starting up in Q3.

Is there any color at all, Steve, that you can provide on the size of this business? Is it enough to move the needle? Anything that you can do to help us?

Sure. Opta Minerals had a pretty tough the first quarter. They were really impacted by weather. Of all of the operations, our food operations were impacted, but weather was really also a very big issue for Opta Minerals, so it did mute their results in the first quarter. The good news, and if they have their press release out this morning, is yes, they have won some new business and I would say it is move-the-needle kind of business.

There are a couple big blocks of business that they've been successful in achieving and they don't start right away because there's equipment that needs to be moved around at the customers' locations where they'll be doing the business. But it certainly improves the outlook a great deal for that business and when you combine that with improving weather patterns and some of the cyclical trends turning, they've done a really nice job in weathering the storm, quite literally. They've got some new business coming on, so it's encouraging for them, for sure.

Okay. Great. Thanks so much.

Scott Van Winkle, Canaccord Genuity.

Steve, you mentioned, obviously, Walmart's efforts in adding natural and organic products. We're seeing the distribution gains everywhere. How does that materialize when you see every supermarket in North America adding products? Does that materialize into more co-packing business for you or more inquiries in private label? Where do you see that dynamic hitting you?

We actually see that on all sides. As you know, we do a lot of private label and we do a lot of contract manufacturing. So for us, that's, if you like, that's a double good whammy. The other thing that now that we have a new Organizational structure set up, whereby we have one Consumer Products Group that focuses on selling our entire consumer products portfolio, to all of our customers, there's a ton of white space still out there for us to basically sell more to our current customers, as well.

And then on aseptic, noting the expansion plans this year, where is the growth coming from in that space? Is it a product category, or incremental brands or taking higher share of existing customers' packaging business?

Scott, it looks like you know our business inside out, because again I have to say, yes, yes, and yes. On the one hand side, we are entering into new categories. That's exciting for us. So, we're now in the dairy category in a fairly significant way. We're entering into the nutritional beverage categories. We're in the food categories, soup, broths, and things like that. Think about teas, as well, that you can find at some of your favorite food service coffee restaurants.

And then -- but in the non-dairy category, which is obviously where we started this whole business, there is also continued strength over there. While everybody talks about a very horrible winter, is was actually, for non-dairy, it was not a bad winter. It was one of the best coffee winters that we've had in years, many people say. So in non-dairy we are taking share, we're entering into new categories, and some of our customers continue to grow, as well through expanded distribution.

Okay. And then on the alignment, clearly seen that your realigning efforts have really benefited revenue. When you think about that, how much of your efforts go towards margin versus demand creation, and where are you in realizing those benefits?

I'm going to let -- Scott, it's Steve -- I'm going to let Rik get into what we're doing to improve margins. But a couple things that I'd like to point out. One is, these are the highest operating margins we've had since Q2 of last year, so we're certainly seeing the benefit. And the great news, which I'll let Rik take more time on, is that the efforts ongoing on the operating side are starting to pay dividends now, and combined with the commercial side. So we expect to see some nice margin improvement in there.

And I'll let Rik talk about the things that are going on there.

As I mentioned in my remarks earlier, the segment teams are focused on the customers and they're focused on the top line. Not just the top line, they're also focused on the contribution margin. I believe in the short term, where we have a significant opportunity to improve our gross margin, just by doing a better job in our factories. We have not done such a fantastic job up until now, I don't think, by leveraging the platform, because we've got 30 factories basically throughout North America and once they all get it and start working on the same KPIs et cetera, et cetera, that is at least 2 points worth of margin to the bottom line for us and in a relatively short term.

Great. If I could take that little more detail into the pouch side, you said that you're not happy with the margins you're seeing in that business. What's the magnitude of opportunity? We've talked a lot about the pouch segment for a couple years now. What's the opportunity in incremental EBIT profit dollars if you hit your targets?

That has to have something to do with product mix/customer mix in the facility, as well as factory performance. So the magnitude of that, I can't put a number on that right now off the top of my head, but it is significant. Product mix, what I mean by that is, we have been very much focused on the baby food category, if you like. We've got to get into other categories as well, very much similar to what we're doing on the aseptic side of things.

When you're talking about factory performance, this is a factory that we started less than 18 months ago. And we still have significant room for improvement over there, in terms of utilizing the equipment properly, but also by adding more capacity over there so we get a better overhead recovery.

Great. Thank you.

Mitch Pinheiro, Imperial Capital.

Some housekeeping questions to start. The tax rate, if I did my calculations a little higher than it's been, is that -- in the 40% area, is that the level we should use for the remaining part of the year and coinciding with your view of guidance -- not guidance, of consensus?

Mitch, it's Rob.

Rob will take that.

It was a little higher in the quarter, and what really that is, is we had guided before to be in the 38% to 39% range. That would be the normal effective rate that I would expect to use. But in the quarter the one thing that caused the rate to go a little higher was some changes in foreign exchange on the Canadian dollar, and just the non-cash impact that has on some of the tax assets we have. The 40.2% is a couple points higher than I had would expect.

So, for the remainder of the year, where do you think we should be at this point?

I'd expect to be in that 39%ish range. I'd go with that as a safe guess, based on the mix of our earnings. We have a high propensity for taxable earnings in the US jurisdiction, so that explains the high rate.

Okay. Thanks. And then on the -- accounts receivable was up a little ahead of sales. Is that mix and if there's any detail around that, it would be appreciated?

Sure. It's part mix, but the bigger part, to be honest, is the higher sales levels. So you can see the normalized basis, 16.4% revenue growth coming through in the food business. That's probably one-half, not more of that lift in AR, just really supporting the growth in the business.

And the other one-half is customer mix, especially on the Global Sourcing and Supply side, where there's a greater mix of some longer-term, higher specialty product sales in there this year versus last. So, that's what explains that. But from my perspective, there's nothing really out of the ordinary there. The first quarter is typically a use of working capital, as it was this quarter.

Okay. And then looking at commodities, it's like a mixed bag. You're getting a little more into dairy and dairy is going up. How should we think about commodity costs across your three segments this year?

If you look at Consumer Products and you look at Value-Added Ingredients, I really think that most of those are either flat or on a pass-through basis. And when it comes to the Global Sourcing and Supply, that's where we have actually -- the commodity price have gone down quite a bit on the domestic side, right? If you look at corn and soy at least.

Some of the international commodities, the organic commodities that we trade in, of course, they're all over the board. Cocoa, as we know, has stayed at near all-time highs. Coffee has rebounded tremendously. But in all of those, we feel that we're well-positioned to actually take advantage of what's going on in the markets. That's our business.

So as we--

Don't know if it's right, but we think we've got it right now.

Yes. So as we model this out, on corn and soy, for instance, you're making the same $0.01 profit, I presume; therefore, on a lower revenue, it would be a higher margin. Is that higher gross margin in the global sourcing side? Or net-net, is there things netting that out that make it flattish?

Yes. In principle, you are correct. Having said that, and we refer to that in our Q4 presentation, we did get last year caught into a bit of a long position, right, when the market went down. Obviously when markets go down, you want to be short; when markets go up, you want to be long. What you're seeing right now is that some markets are all trending back up again.

So the long position, while the market was going down, caught us a little bit last year and had a little of a carryover into the first quarter, but net-net, as the $0.01 profits should stay flat and then your percentage margin will be higher.

Okay. And just last question, it gets back to some of the comments you've made regarding the factory and factory efficiency. You've done a lot of adding in the last two years -- pouch, aseptic, cocoa, you're working on San Bernardino. Is there just a long tail of an inefficiency in the other 25 facilities? And why would that be? Why wouldn't there be some sort of continuous improvement at these manufacturing and processing areas? Is it all volume or has--?

What I've tried to make clear is, in the past, when we had all of our divisional leaders before the Organizational realignment, they had to focus basically on the factories and they had to focus on the customers and they had to focus all over the board. What we're really doing right now is we're taking our continuous improvement journey, if you like, to the next level, by having our segment leaders focused on contribution and revenue and their sales teams, and by having our operational teams focus not just on the factories, but on the entire supply chain.

One of the key areas for us to focus on is actually outside of the factories, which is in freight and logistics, which as many of you may know has been fairly challenging over the last six months or so. So that's an area where we're saying okay, you also need to create that leverage, where in our old structure, we weren't necessarily looking across all 30 plans on all of the divisions and in our new structure, having people that are squarely focused against that is going to take our continuous improvement to the next level.

I said last question so I lied. But just a follow-up to that, Rik, could you just provide a couple of examples as to what you're attacking on the supply chain that would be meaningful?

Well, you think about it. If you look at our foods business, if you just looked at our freight cost and warehousing cost and I'm just only talking about the cost from us going to the customer, that's about 4% of our revenues. That's $40 million. If you can save 5% of that, that's a meaningful number.

Okay. That's helpful. Thank you very much. Really appreciate it.

Tim Tiberio, Miller Tabak.

Congratulations on a great quarter.

Thanks, Tim.

My question is a little bit more strategic in nature. With one of the largest box retailers suggesting that they're planning to move into this space, most of the conversation has been around how this is going to impact pricing and the margin structure longer-term. But when I think about SunOpta, it's not just only a value-added consumer product Company, you really have built out a substantial global sourcing capability over the last 10 to 15 years.

And it seems to me, as demand increasingly is outstripping supply, and you're seeing someone who's more volume-oriented really stressing the supply chain, that this really accentuates the inherent value, not only in your Consumer Products Group, but also within your supply chain. So my question is, in light of this announcement, what can SunOpta do from a growth standpoint in expanding the supply chain to be prepared for this? Are there opportunities potentially to lock in long-term contracts to really position yourself potentially for the volume opportunity, which may be able to mute some of the margin impact over time?

Obviously, that is exactly what we are working on. On the one hand side, when it comes to the customers that we're dealing with, we are getting more and more strategically aligned with them rather than just tactically aligned, meaning longer-term, contracts which have impacts on both parties, I would say, both good and where we have to improve. The other thing that we've been working hard on, while we always say, yes, we want to continue to go up the value chain, what we truly believe in is our integrated vertical model and we are making continuous improvements and continuous investments also in our global supply chain.

Just as a reminder, we just started up with the Crown of Holland, so as opposed to just buying their raw cocoa beans and having them full process somewhere else, we are now doing that here. We are now doing the same with sesame seeds in Ethiopia. We're doing the coconut sugar that's coming out of Indonesia, the projects that we've got going on in Vietnam.

We've got these things going on all over the world. So one of the key focus areas for us is making sure that we stay an extremely relevant in the party in chain and bringing that added value, even if it only selling an organic raw material to a customer.

So would that make sense for SunOpta to start thinking about trying to lock in some of your larger suppliers?

Tim, there's a number of different types of suppliers we have, and many suppliers don't want to lock in and they're going to be an annual contract and some of them can't provide you with product every year, because if it's a grain, you may go in and out of their rotation and they may be growing something that isn't really a fit with the portfolio of products that we're streaming to market. But we also have, and Rik talked about a number of these global sourcing supply sources. Those are projects that we've developed with small growers, small holders, and we prepay them, and so we do have longer-term commitments.

Everybody -- and long-term commitments always have to be variable enough that as the price of commodities go up and down, one party or the other isn't losing it, so I don't want to leave with the impression that we don't have longer-term arrangements. We do. And then also at times we don't want them to be longer-term and those relationships are year-to-year. But we have very little churn, if you will, in the grower base that we have, especially on the organic side. So we don't see a lot of churn there and we're continuing to develop and build that out.

I've said for a long time and I'm on record, that I think one of the most strategically significant parts of our Company is our global supply base. And while we get the lowest margins, if all we do is sell the raw material, the reality is it's what searching strategically differentiates us, and so as we move up value chain into Value-Added Ingredients where the margins are getting higher and a little more significant and relevant to our customer, and then moving through into Consumer Products, where, again, we're adding more value, it's really important. So that supply base is essential and we're continuing to grow it and we have more and more growers every year that are part -- growers or suppliers that are part of that chain and it is strategically very important for us.

Great.

Especially, by the way, especially when you see people want to move into the space. I've also been on record for a long time that one of the key challenges of our industry over the next 30 years will be to continue to ramp supply at the pace required here. And so we're very busy in that regard.

Great. And just one last question. When we're thinking about growth in the Consumer Products Group, you obviously announced an expansion project at Modesto again on the aseptic beverage lines. Should we still think about your growth philosophy as primarily organic or is SunOpta at some point thinking about becoming more aggressive on the M&A side?

Sure. We've obviously had good internal growth and we have a little saying around here that we've been drinking through a fire-hose, which means there's been a lot to swallow, and so most of those efforts have been around internal growth projects.

I can assure you that we are active and interested in acquisition opportunities. We've been involved, we're also quite disciplined, and we're believers in -- we're not believers in diluting yourself as you acquire based on future synergies that are on -- so net-net, we're not going to overpay, and the markets are pretty heated. But we're involved, and you should expect us to be acquisitors, but responsible acquisitors.

I don't want to suggest that anybody in our space that's been acquiring hasn't been responsible, but you've got to be able to make these work. The good news for us is that irrespective of acquisitions, we had a 16.4% internal growth rate in our foods business, and so there's lots of growth opportunities and we'll continue to seize on those and look for those acquisitions that make most sense for us.

And they're out there and we have discussions going with a number of different parties. But again, I emphasize, we're going to be disciplined about this and when the EBITDA multiples get up into the double-digits, one needs to be quite careful not to regret what you did.

Overpay. Yes.

Yes.

Great. Thanks for your time.

Chris Krueger, Lake Street Capital.

Following up on the last question about sourcing, what are you seeing as far as at the farmer level? Are more farmers joining the organic trend and converting? I know the last few years when commodities got high, it was tougher to get them to convert. Just wondering what your thoughts are there?

I'm going to turn it over to John Ruelle.

The first thing, to become organic and convert is a three-year journey. You can't just one year plant a conventional crop and then next year plant organic. For the acreage to get certified organic, it's a three-year transition. So when we look at the macroeconomics of some retailers' announcements of late, the journey to get a significant move in the supply side is a three-year journey.

So in the near-term, we are seeing some positive in that as far, as non-GMO goes, with corn bouncing off historic highs and settling back to reasonable levels in the last 12 months, we are -- our phone is ringing a lot more from folks that are interested in specialty crops. But the journey to get a significant move in the North American supply side on organic is a three-year journey.

I'd say as well, Chris, that we're having more success internationally, and that's why having the global footprint becomes so important.

All right. The weather impact -- I know your Opta Minerals investment was impacted by the weather in the first quarter. Was there much of an impact on the food business?

I'd say it's about 50%/50%. 50% of the number that we disclosed would be on the minerals side and about 50% on the food side. The big food impacts were -- other than the fact that trucks were supposed to arrive on a Tuesday and they would show up on Thursday because they just went through the largest ice storm or blizzard that they've been in in a long time, that was one of the impacts. Natural gas was a major impact. There was a pipeline problem in Manitoba, which really impacted a lot of the Midwest, and we had facilities that were curtailed.

And so we had an option. One was to flip over to propane, which went up about -- massively and so it was very inefficient and costly. And for those facilities where we had no choice, and we had to get our customers served, and there was no wiggle room, then we went on propane and ate the extra costs. Other times, we shut plants down for a couple days. So it was about 50%/50%.

Okay. Last question. It's about two years ago that you introduced rice fiber and the thought was it could be used in gluten-free products. Just wondering has there been much progress with the rice fiber and are there any other areas of gluten-free that you're able to try to go after?

There has been progress. Rik will bring you up to speed.

We are -- our Rice fiber is now in a number of products that are up and out in the market -- some of them being, I don't really feel comfortable talking about the brands that have taken these rice fiber, but there are brands that are definitely buying our rice fibers.

And known brands.

Known brands, yes, and big brands. So we're happy with the launch of that one, and there's more and more people interested in that. Even our oat fibers are starting to make a pretty good bounce-back. There's some pretty big dairy company that announced something yesterday that was interesting for us as well.

So we're seeing good progress on organic oat fiber, rice fiber, and we're very excited about our latest project product, which is this OptaSmooth product, because it actually provides a health benefit, as well as a cost benefit, to switch from the soluble fiber solution that many people use right now in bars and in beverages to the insoluble one that we are offering.

All right. Thanks. That's all I got.

Reed Anderson, Northland.

Let me also add my congratulations on a nice start to the year.

Good morning and thanks.

Just a couple follow-ups mainly, but first before, Rob, just curious what was the rough impact of that extra week on the quarter in terms of sales and profit, ballpark, what would you think that would be?

Of course it is a ballpark guess, because we don't know that -- the timing fell both at the front end and the back end of the quarter -- but the easiest math to do would be to take 1/14 of all the food sales, which would be roughly $21 million.

Okay. Good. That's helpful. Thank you. And then Rik, you had commented about margins in pouch and there was a question on that and you had some more commentary. My follow-up to that is simply, from a timing standpoint, to get to what you today might consider to be more or less optimal margins. And, obviously, it's always a moving target, but to get to something that's reasonable, what is a rough time frame for that? What are you thinking today? Is that a several-year process? Can you get there in 18 months, quicker than that? Give us a frame for how to look at that please?

I'll go back to our three strategies. Right? And I've basically say if I start with the leverage of the platform, for me, that is the shortest-term opportunity to make some meaningful impact into our operating margins. And what I mean, meaningful impact, then in the shortest term that would be within a 12-month time frame. Of course, we won't be finished within 12 months, but that's when you should start seeing the time frame, so in this calendar year.

The second strategy being going up the value chain, you're starting to see the effects of that. That's a little bit longer term, so I would call that 12 to 18 months. And the last strategy, which is actually our first one, which is becoming a pure-play natural and organic foods Company, which is not only about selling our non-core assets, but it's also about, as Steve has already alluded to, making the right investments for internal growth, but also the right mergers and acquisitions that will be accretive with the longest time frame.

Good. That's helpful too. Thank you. Steve, more of a high-level question just around this sourcing discussion, but if you look at your sourcing today in the current year, ballpark, what is the non-North America portion of sourcing and today -- where do you think it will be this year? What does it look like versus a year ago?

Well, the non-North American part is representing probably about 50% of it at least and it is growing the most rapidly. So they've been on a tear. Our non-North American part has probably grown upwards of 30% in the quarter.

Thank you. That's exactly what I needed. That's it for me. I'll let somebody else jump in. Best of luck, guys.

And I'm showing no further questions in the queue at this time. I would like to turn the call back over to Steve Bromley for closing remarks.

Great. Thanks very much. It was nice to chat with everybody this morning. We appreciate you joining us for the call, and as always, we look forward to keeping in touch. Have a great day and we'll talk to everyone soon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.