David Colo - Chief Executive Officer Rob McKeracher - Chief Financial Officer

Jon Andersen - William Blair Amit Sharma - BMO Capital Markets

Good morning, and welcome to SunOpta’s Fourth Quarter Fiscal 2017 Earnings Conference Call. By now everyone should have access to the earnings press release that was issued this morning, and is available on the Investor Relations page on SunOpta’s website at www.sunopta.com. This call is being webcast and its transcription will also 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 additional 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 risk factors contained in SunOpta’s press release issued this morning, the Company’s annual report filed on Form 10-K and other filings with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The Company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would also like to remind listeners that the Company may refer to certain non-GAAP financial measures, during this teleconference. A reconciliation of these non-GAAP financial measures was included with the Company’s press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded to the nearest million. And now I’d like to turn the conference call over to SunOpta’s CEO, David Colo.

Good morning and thank you for attending our fourth quarter fiscal 2017 earnings call. With me this morning is Rob McKeracher, our Chief Financial Officer. It has been just over a year since I joined SunOpta as CEO and spoke with you on my first earnings call. In that introductory call, I laid out the three phases of our turnaround, highlighted our plans supporting each pillar of our Value Creation Plan and told you we had significant work to do in the first phase of this turnaround and that the first phase is the bumpiest and its where we would build the foundation for a long term value creation. We said that we would invest in our people, assets and capabilities all while finding ways to streamline our portfolio where it makes sense in order to increase our focus on the core business. I’m pleased to report that we have done what we said we would do. In 2017, we worked hard to strengthen the foundation of our business, while this [Indiscernible] difficult decisions and led to significant changes across the organization, we are entering 2018 with an improved business mix and a more efficient reliable and higher quality production network. Additionally, in 2017 we reinvested in savings generated from our Value Creation Plan into the talent and infrastructure necessary to drive the long term growth and profitability of SunOpta. As I have previously stated, our goal is to create sustainable, long term shareholder value. There is still work to be done but we have begun to see the benefits of our efforts even if they are not readily apparent in our financial results today. We are still in the first phase of the turnaround, however we have a good line of sight on the transition to the second phase during which we will begin to realize the benefits of our productivity initiatives and drive revenue growth through our got-to-market effectiveness efforts. The driver of our confidence is the growing sales opportunity pipeline reflecting early success under the go-to-market effectiveness pillar. We continue to add to the pipeline across the healthy beverage, healthy fruit and healthy snack categories and are entering the New Year with a strong book of business in our international organic ingredients portfolio. Adding to our confidence, we are beginning to see the pipeline convert, including new sales wins and private label non-dairy conventional and organic orange juice, improved wins into the food service and industrial channels. During the fourth quarter, we continue to make progress against all four pillars of our Value Creation Plan. We have substantially completed the [Indiscernible] of our pouch and bar operations and announced an investment in our roasted snacks operations including the consolidation of facilities. We continued to implement additional food safety and productivity initiatives. We are increasingly realizing the benefits of our enhanced go-to-market efforts and we added additional new talent across the organization. I am pleased with the impact of Value Creation Plan has had on our business performance. With the exception of our frozen fruit platform, we saw increased gross margins across all of our businesses during the fourth quarter reflecting our portfolio optimization and operational excellence efforts. We feel good about where the businesses are today, and fortunately these improvements are being massed by the underperformance of fruit which I will discuss in a moment. However, across the remainder of our business we are well positioned heading into 2018. Let me recap the highlights of the fourth quarter. Total revenue declined 1.7% as reported or was essentially flat excluding the impact of changes in commodity prices, foreign exchange and sales related to our bar and pouch product lines. In the global ingredients segment, we reported 1.8% year-over-year revenue decline. The decline was driven by lower sales in the domestic sourcing and supply operations, partially offset by growth internationally and across the organic sourcing platform. However, the declines in domestic sourcing and supply reflects our efforts to shift to more value-added roasted products. While domestic sales are down, both gross margin and gross profit dollars are up year-over-year. Gross margin in the organic platform is also trending in line with where we expect the business to perform while we are still in the commissioning phase of our portfolio enhancement projects related to organic cocoa and organic sunflower oil. As we have repeatedly noted, maximizing revenue with not our goal in the first phase of the turnaround. The improved gross profit dollars on reduced sales domestically is evidence that our efforts are working. Turning to consumer products, we generated improved results with the exception of frozen fruit. There were good growths in healthy beverage, driven by 2% growth in aseptic and 24% growth in premium juice. The efforts under our go-to-market effectiveness pillar are beginning to positively impact the aseptic volumes and we are optimistic about the pipeline of sales opportunities. Aseptic utilization is up in Q4 and we are now evaluating alternative work schedules and other changes to support the growth we are anticipating if we are successful in converting a portion of our sales pipeline. Despite the loss of a significant private label non-dairy contracts, that stopped shipping in April of 2017, that we have discussed on previous earnings calls, we were able to increase aseptic volumes during the quarter, which adds to our confidence in delivering growth in 2018. We believe our Q4 performance is evidence of the turnaround taking shape in beverages. Our healthy snacks sales were down as expected given our assets of both refillable pouches and nutrition bars, however, our fruit snacks revenue was up 10% during the quarter and was up 7% for the year. Before I provide an update on the Value Creation Plan, let me address frozen fruit. In the fourth quarter, sales declined 4% in the healthy fruit platform and were virtually flat if we exclude price variances. [Indiscernible] fruit shipments were down while industrial ingredients sales increased. However, the results came in below our forecast and gross margins were significantly below our expectation. As we have noted, the category has been in a state of modest decline, is evidenced by the latest indicated data as of January 27 for the most recent 12 and four weeks period with declines of 2.2% and 0.8% respectively. Earlier in the year we held pricing to protect margin as we work through higher cost inventory. This impacted our competitive position and volumes. During the fourth quarter we reduced pricing resulting in increased pressure on gross profit, which as I noted is masking the improvement across the rest of the business. Going forward we are taking action to right size our cash [ph] plan for 2018 relative to our forecasted demand. This will include lower purchases of fruit [ph] in 2018 allowing us to work through the unfavorable inventory position we have held during the past year. We will also leverage our procurement and processing capabilities at our Mexican facility where we are nearing completion of a project to add retail bagging capabilities that will allow us to shift directly to customers. We are also planning to utilize the most cost effective combination of our California-based facility as we process to review strawberry crops versus last year. As we enter 2018, we have been focused on building a pipeline of sales opportunities, rebuilding relationships with key customers, developing opportunities with new customers and working on the most effective assortment, merchandising, pricing and innovation strategies. We believe the combination of these efforts will allow us to stabilize and return this business to growth over time. Now let me turn to an update on the Value Creation Plan. As we have discussed over the last few quarterly calls, the first phase of the Value Creation Plan is targeting implementation of $30 million of productivity driven, annualized EBITDA enhancements over 2017 and 2018. Recall that for 2017, if EBITDA benefits, we are offset by structural investments made in the areas of quality, sales, marketing, operations, engineering and other functional resources as well as nonstructural third-party consulting support, severance and recruiting costs. The plan also calls for increased investment in capital upgrades at several manufacturing facilities to enhance food safety and manufacturing efficiencies. Over time, these investments are expected to yield EBITDA improvements that go beyond the $30 million that is being targeted in the first phase. We expect to deliver ongoing productivity improvements as our go-to-market strategies drive revenue growth, which drives higher planned utilization and improve profitability. Our portfolio optimization efforts included the progress we made exiting both our flexible resealable pouch and nutrition bar operations. We have substantially completed each business exit. As I mentioned, we have shifted our domestic sourcing and supply operations toward an enhanced focus on roasted snacks. During the fourth quarter, we announced a significant investment to expand our roasted capability in our Crookston Minnesota facility, which also involved a facility closure. The new equipment and enhanced capability is expected to come online in the third quarter of 2018, and will support further growth of a variety of roasted grain, seeds and plant based snacks. We are also nearing completion of the expansion project to add incremental freezing capacity, storage and retail bagging capabilities to our Mexican frozen food facility. As discussed, this project is expected to drive incremental cost savings in addition to enhanced profitability from retail bagging capabilities and will support diversification of fruit variety sourced from Mexico. We have also begun commissioning the expansion project to add a second roasting and processing line at our organic cocoa processing facility in Holland, doubling processing capacity in addition to adding new capabilities. We also began commissioning the new organic sunflower oil processing line of our Bulgarian sunflower facility. Since the initiation of the Value Creation Plan, we have now implemented portfolio changes expected to yield $7.9 million of annualized EBITDA benefits. The focus of the operational excellence pillar is to ensure food safety and quality, coupled with improved operational performance and efficiency. These efforts are expected to generate productivity improvements in cost savings in manufacturing procurement and logistics. I remain pleased with our progress to date, we will continue to focus on and increase our diligence in becoming the leader in food safety and quality across the healthy food industry. At the same time, we continue to identify and implement cost savings initiatives to increase productivity in our manufacturing operations and lower procurement in logistics costs. During the fourth quarter, we continue to advance food safety and quality efforts across the entire manufacturing footprint, including a new partnership with the third party sanitation firm. Additionally, the SunOpta 360 continuous improvement program has been deployed across the Company’s aseptic platform, targeting a 20% improvement in output from existing aseptic lines in 2018. As I discussed when addressing frozen fruit, we have taken steps to right size the incoming 2018 crop which is expected to reduce storage cost and lower working capital and operationally better prepare the business for the start of the upcoming California fruit season. The rollout of new sales and operations planning tools is facilitating this improved business plan. Further, we are working with growers to enable additional fruit varieties to be sourced from Mexico, allowing procurement of lowest cost sourcing alternatives. We also continue to upgrade talent in plant leadership across the network of manufacturing operations with approximately 40% of locations now employing new leaders. Since the initiation of the Value Creation Plan, the company has implemented process improvements in cost savings expected to yield $6.9 million of annualized EBITDA benefits. The focus of the go-to-market pillars is to optimize customer and product mix and existing sales channels, and to identify and penetrate new high potential sales channels. Efforts under this pillar are expected to improve revenue growth and profitability over time. As we discussed last quarter, we have continued to grow the pipeline of future commercial opportunities across the healthy beverage, healthy snack, and healthy fruit categories. We picked up new sales wins in private label non-dairy beverage into the natural and mass channels, as well as continued growth through innovation into the broad line foodservice channel leveraging a non-dairy control label. We also expanded distribution of private-label organic and conventional juice and had new sales wins in frozen fruit serving mainly the foodservice and industrial channels, as well as commercialization of new custom fruit ingredient formulations, and in contract manufactured fruit snacks. We continued to experience strong re-orders of innovative private label broth, both organic and conventional, into the club and mass channels on products launched earlier in the year. As I previously stated, we are also entering the New Year with a stronger book of business in our international organic ingredients portfolio versus the prior year and expect the growth of organic ingredients to continue as consumer trends support increased consumption of organic foods. Since the initiation of the Value Creation Plan, the company has implemented go-to-market improvements expected to yield $1.2 million annualized EBITDA benefits. As we have noted, we continue to expect revenue growth in the back half of 2018, as a result of these efforts in our growing sales opportunity pipeline. The focus of the process sustainability pillar is to ensure the company has the infrastructure, systems and skills to achieve and sustain the business improvements and value captured from the Value Creation Plan. During the fourth quarter, we made progress on the ERP implementation project at the Mexican frozen fruit facility and expect the new system to be operational during the second quarter. We revamped the process and tools used for sales and operations planning that we noted in our discussion of frozen fruit with continued focus on customer service, and working capital levels. We also hired a new Internal Audit leader, shifting the focus of the audit function towards value-added business process improvements that are designed to support and ensure the Company sustains improvements made as part of the Value Creation Plan. Several enhancements have been made to the key performance indicators that were used to measure our business including a more robust customer relationship management tool that provides transparency towards to our sales opportunity pipeline. For fiscal 2018, we also established an objectives, goals, strategies and measurement program that clearly define our key priorities and have been cascaded throughout the company to ensure alignment and individual accountability at all levels of the organization. We are on track with all of our Value Creation Plan initiatives and look forward to updating you on our continued progress. I will now turn the call over to Rob to go through the fourth quarter financial results. Rob?

Thanks Dave. I’ll tell you the rest of the key financial statistics, as well as balance sheet and cash flow metrics for the fourth quarter. As Dave mentioned, fourth quarter revenue was $292.4 million or 1.7% year-over-year decline as reported but up 0.2% excluding the impact on revenues from changes in commodity related pricing and foreign exchange rates and removing the impact of the bar and pouch lines of business that are being wound-down. The global ingredient segment generated revenues from external customers of $130.3 million a decrease of 1.8% compared to $132.6 million in the fourth quarter of 2016. Excluding the impact of changes in commodity related pricing and foreign exchange, revenues in global ingredients decreased 3.5%. The decrease in revenue reflected lower volumes of domestically sourced specialty soy and corn products, partially offset by higher volumes of organic cocoa, nuts and dried fruit as well as roasted grains and seeds. The Consumer Products segment generated revenues of $162.1 million during the fourth quarter of 2017, a decrease of 1.7% compared to $164.9 million in the fourth quarter of 2016. Excluding the impact of commodity pricing and removing the bar and pouch lines of business. Revenues in the fourth quarter increased by 3.4%. As Dave mentioned, the increase was largely driven by refrigerated juice and aseptic beverage products as well as fruit snack sales. During the fourth quarter of 2017, sales of frozen fruit were essentially flat to prior year after adjusting for the impact of lower commodity prices representing continued declines in retail sales offset by increased food service and industrial sales. Consolidated gross profit was $28.3 million for the fourth quarter of 2017, compared to $17.0 million for the fourth quarter of 2016. As a percentage of revenues, gross profit for the fourth quarter of 2017 was 9.7% compared to 5.7% in the fourth quarter of 2016. Excluding the impact of $1.3 million in costs associated with inventories write downs related to our exit from the bars and pouch lines of business, adjusted gross margin for the fourth quarter of 2017 would have been approximately 10.1% compared to 8% in the fourth quarter of 2016. Adjusting further, if the bars and pouch lines of business were removed entirely from both years, the normalized fourth quarter 2017 gross margin would have been 10.7% compared to normalized gross margin of 9.1% in the fourth quarter of 2016. In Global ingredients during the fourth we realized gross margin of 11.7% compared to 7.3% in the prior year. The prior year gross margin would have been 9.6% after adjusting for inventory reserves recognized at the end of 2016 and the estimated impact of the sunflower recall. This 210 basis point increase reflects improved performance in domestic ingredients as a result of portfolio optimization decisions made as part of the Value Creation Plan as well as growth and the impact of the strengthening euro on purchases inside of our international operations. This benefit was partially offset by foreign exchange losses that are not presented as part of cost of goods sold on a consolidated statement of operations. In consumer products, during the fourth quarter, we realize gross margin of 8% compared to 4.5% in the prior year. The prior gross margin would have been 6.8% after adjusting for inventory reserves, the impact of purchase accounting and other costs recognized at the end of 2016. Adjusting further, if the bars and pouch lines of business were removed entirely from both years, the normalized fourth quarter of 2017 gross margin would have been 9.8% compared to normalized gross margin of 8.7% in the fourth quarter of 2016. This 110 basis point increase in margin reflects significant improvement in the beverage and fruit snacks operations, driven by productivity initiatives within our Value Creation Plan which has resulted in lower cost and increased production efficiencies. As Dave mentioned, these improvements were partially massed by weaker frozen fruit margins. The frozen fruit performance reflects lower-than-expected sales, due in part to an extended declining consumer consumption trends, which led to lower production and in turn higher inventory levels. As a result of our inventory position, we recognized inventory reserves and experience higher storage and handling costs during the fourth quarter totaling approximately $2.5 million. As noted, a key focus area in 2018 will be right sizing our fruit inventory levels to our current forecasted demand which is expected to reduce storage and inventory obsolescence cost as well as working capital. The benefit of these efforts will start to materialize in the second half of fiscal 2018. Also, in response to the unfavorable operating performance in frozen fruit, and the extended period of marketing sales uncertainty, during the fourth quarter of 2017, we recognized the non-cash goodwill impairment charge of 115 million. For the fourth quarter, we reported an operating loss of $3.9 million compared to $10 million in the fourth quarter of 2016. The operating loss in the fourth quarter of 2017 would have been $1.1 million, excluding $2.1 million of nonstructural SG&A cost and other cost related to plant closures all incurred in relation to the Value Creation Plan as well as 0.5 million gain from the reversal of previously recognized share-based compensation expense, as compared to an adjusted operating income of $0.5 million during the fourth quarter of 2016. On a GAAP basis for the fourth quarter, we reported a loss from continuing operations of $117.5 million or $1.38 per common share which includes the goodwill impairment compared to $33.5 million or $0.41 per common share during the fourth quarter of 2016. Fourth quarters results include several charges and gains that are not reflective of normal operations and have been excluded and calculated in adjusted earnings. The items include 4.5 million after-tax of cost primarily related to the Value Creation Plan reflecting facility closure costs and associated inventory write-downs, asset impairment charges, third-party consulting, employee termination recruitment costs as well as the previously mentioned $115 million goodwill impairment charge, and the effective $8.9 million in discrete pac [ph] gains due industry tax genes due largely to the recent tax reform in the U.S. For the fourth quarter of 2017 we reported an adjusted loss from continuing operations of $8.8 million or $0.10 per common share compared to $7.3 million or $0.08 per common share in the fourth quarter of 2016. For the fourth quarter of 2017, we realized adjusted EBITDA of $9.4 million compared to $9.4 million during the fourth quarter of 2016. Excluding the bars and pouch lines of business and their entirety, adjustment EBITDA for the fourth quarter of 2017 would have been $10.1 million compared to $11.3 million in the prior year. I’d like to remind listeners that adjusted EBITDA and adjusted earnings or non-GAAP measures and a reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this morning along tables breaking out the impact of bar and pouch lines of business. From a cash flow perspective, during the fourth quarter cash provided by operating activities was $48.9 million compared to $36 million in the fourth quarters of 2016, an increase of $12.9 million. The strong operating cash flow in the fourth quarter reflects our seasonal drawdown in working capital due mainly to the timing of the fruit harvest in Q2 and grain crop change over in the fall. Cash used in investing activities was $16.8 million during the fourth quarter compared to $7.5 million a year ago. The increase in cash used reflected elevated capital expenditures due in part to the buyout of leased assets associated with their exit from the pouch line of business. During the fourth quarter, we also drew an availability inside our first lien asset based credit facility to pay down $7.5 million in outstanding principal on our second lien debt. For fiscal 2017, we generated cash and working capital of $19.6 million compared to cash used to finance working capital of $12.9 million in 2016 representing a $32.5 million year-over-year improvement. As previously mentioned, one of our key focus area is to level set the inventory inside the fruit platform to the current forecasted demand. For 2018 from a working capital demand standpoint we expect a minor increase in working capital, mainly inventories which will reflect lower fruit inventory offset by increased raw materials primarily in Global Ingredients in order to support expected growth in that business. Also looking ahead to 2018, we expect to spend between $25 million and $30 million in capital expenditures mainly in support of growth and productivity initiatives inside the Value Creation Plan as well as ongoing maintenance capital. From an interest perspective we expect to incur cash interest of approximately $30 million which does not include the quarterly dividend of roughly $1.7 million on our Series A Preferred Stock nor approximately $3 million in non-cash interest expense. From a tax standpoint following the recent tax reform in the U.S., our normalized effective tax rate moves from approximately 30% down to 24% to 26%. At the end of the fourth quarter total debt was $462.1 million reflecting $215.8 million net of issuance costs of 9.5% senior secured second lien notes due in 2022, $230.5 million drawn our first lien global asset-based credit facility with the balance representing smaller credit facilities lease and other financing arrangements. The global asset-based credit facility is a syndicated credit agreement maturing in February of 2021 within aggregate commitment of up to $365 million. Under the global credit facility, we are bound to in current covenants only and subject to excess availability we are not required to maintain or report monthly financial ratios of any kind. At the end of fiscal 2017, we had approximately $60 million of available capacity within our operating credit facilities. With that let me turn the call over to the operator to facilitate Q&A. Operator?

[Operator Instructions]. Our first question comes from the line of Jon Andersen with William Blair. Your line is now open.

Good morning everybody.

Hey, Jon. Good morning.

I wanted to start with frozen fruit. If you could talk a little bit about consumption, I know that’s one of the issues that the category you’re experiencing in the category right now, what have you seen more recently in terms of consumption trends and what are your expectations as you look to the balance of kind of 2018? And are there specific levers that you feel you can poll as the private label market share leader in the category to drive better performance as we move to the year?

Sure, Jon. This is Dave. I think the consumption trend as we quoted, the overall category is still showing decline -- it’s down about 2% roughly as a category in the last reported periods. One of things that we spoke about previously is the issues affecting the category in general is more prevalent, supply of fresh fruit in the perimeter of the stores and that’s the trend that realistically we don't see going away. So I think the levers that we’re going to be polling as we go forward here really focused around making sure that we've got the right category, management approach to support our retailers in the frozen fruit space. So, what I mean by that is we’re working on what’s the proper assortment, the proper merchandising plans, the proper pricing, and what’s the proper innovation formats to be bringing to the category. We think the combination of those factors will help stabilize and return the category to growth. The primary fruits that are consumed in IQF [ph] historically have been strawberry and blueberry. And what we’re seeing is there are signs of growth within the categories specifically around organic fruits, as well as fruits that are not as common if you will as the strawberry or blueberry and maybe require more effort by the consumer at home to prepare. So, things such as tropical fruits; mix blends, smoothie blends, things of that nature. So our focus is going to be not walking away if you will from the core fruits in the category but augmenting them with more innovation around the fruit types that we see growth in particularly around the organic blends and more ease-of-use if you will and convenience items for the consumer at home.

Can you talk a little bit about the decision to lower prices? I think in the third quarter there may have been some volume loss at least one customer. Talk a little bit about depend on the pricing strategy in fruit, it sounds like you did lower prices. And have you seen a stabilization in your volume trends or customer base at retail or has there been additional kind of market share shift that prompted that response? Thanks.

Yes. I think as we’ve talked about before this has been a kind of a transition year where you're coming from the 2016 crop, there was a higher cost crop into the 2017 crop, there was a lower cost crop, specifically related to strawberries. And we had a long position as we're coming into the new crop for 2017, so basically we held pricing to work through that higher cost inventory as a result of that we lost some distribution with some customers and recognize that you can only hold pricing for so long as you try to work through those long inventories of higher cost and that’s ultimately would lead us to start taking pricing down was to prevent further loss in distribution and really position ourselves to be competitive in the marketplace reflective of the lower cost of the crop that came in at 2017. So that’s the corrections that you’ve seen us make here in the last half of Q3 and the Q4 that put some margin pressure on the business. As we go into 2018, we’re doing a much better job of putting in an S&OP process, so that we understand what’s are carry-in position as we go in to new crop of this year. What’s our forecasted demand look like for the business, so that we don't over procure fruit and put ourselves in a long position similar to what we are in the prior year. So we had a lot of focus on improved process is to make sure we right-size the inventory relative to our forecasted demand not only on strawberries but with all the fruit that we procure to support our business. So I think we’re going to be in a much better position as we go throughout the year rightsizing inventories, making sure that we have a cost structure that’s competitive with the market and then take pricing actions and some of the other actions I mentioned Jon relative to how we think we can return this category to growth.

That’s really helpful. Couple more on fruit. How quickly or how soon will you be ready to stand up the new retail bagging operation in Mexico? And then the ability to source more fruits from Mexico and do tropical blends. What kind of timeframe are we talking about before that’s up and running and you're able to kind of ship then we see products on shelf using that distribution method and/or those new varieties?

Yes. The Mexican retail bagging operation is going through commissioning currently, so we plan to bring that online in basically the start of April of this year, so in the very near future. And we’ll have retail bagged item shipping from Mexico in Q2 of this fiscal year. Our additional sourcing of different fruit varieties in Mexico, we’ve laid out a five-year plan for that. And as each year goes by we’ll be sourcing more fruit types and more pounds of fruit type. We've already started that process. So this year’s an example we’ll be souring mango, blueberries, blackberries et cetera from Mexico. It starts out with small volumes as we build the grower base and then it grows overtime. So that’s a multi-year effort to expand the varieties that we can procure from Mexico and then expand the volumes of those varieties as well.

Great. On the EBITDA productivity driven EBITDA enhancement target is $30 million by the end of 2018 I guess. They were somewhere in the neighborhood I think of $10 million of non-structural cost this year. And I know there were other things happening in 2017 that masked some of the underlying improvement that you are able to get. Should we be thinking about 2018 is a year where we see a nice step-up in the underlying EBITDA of the company to the tune of kind of $20 million based on productivity target in the absence of some of the non-structural cost I guess $20 million of nonstructural cost. Or does the fruit dynamic your kind of set that back trying -- I know you don't provide guidance but just trying to kind of quantify or trying to how think about 2018 in the context of what we just saw in 2017?

Sure. Hi, Jon. It’s Rob, I’ll take that. Our target as far as the first phase of Value Creation Plan is 30 million which is now actually closer to 33 million given some of the additional portfolio decisions we made. Still keep that $20 million in year 2018 target intact. And so we continue to implement additional investors [ph] and really in 2018 you’ll hear that it mainly comes out of the operational excellence pillar, that’s the one that got the most left to deliver if you will. But that 20 million intact, if you look beyond the 20 in terms of puts and takes in the business there is some rollover of SG&A that comes up a little bit to sort of get to the full run rate of our investments that we made this year. But then looking beyond that, I think it will be fair to expect and I think I gave in the prepared remarks we’re expecting back revenue growth. And so I think it’s kind of a situation where we got really good things, improved margins and growth in all parts of our business really with the exception of fruit as Dave mentioned and that’s going to stand out and it will be further stand out in the first half, but by the time we get to the second half we start to see more so engines, the engine going and sort of overcoming that first half headwind a little bit. So we don’t give guidance, but I think the way you ask the question and certainly our productivity intact kind of lead folks hopefully with some line of sight as to what we’re seeing and the trend line look like over 2018.

Just two quick housekeeping questions, the impairment charge for the frozen fruit business, what impact does that have on annual DNA in other words, how much do we need to reduce kind of the add back to EBITDA for the write-down?

It was a goodwill impairment charge, which goodwill subject to annual review. It doesn't compare with it any amortization, so no impact on ongoing DNA. It’s literally just the taking 115 million off of that bounce in the balance sheet.

Great. That’s helpful. I’d see, I had one more. No. I’ll come back and get back in the queue. Thanks.

Thanks, Jon.

[Operator Instructions] Our next question comes from the line of Amit Sharma with BMO Capital Markets. Your line is now open.

Yes. Hi. Good morning everyone.

Good morning.

Rob, very quick one, on the $2.5 million excess cost in the frozen fruit, are you expecting more of those excess costs rather than inventory write-down or excess warehouse cost in the first half as well?

Yes. The part that will certainly continue here until we can get right-size is excess storage, right. So it obviously holding more pounds of frozen inventory we’re incurring more storage costs on that, a little bit handling. So I do expect that to continue in the first half as we get pass the point where we've done our 2018 berry harvest, that’s when you can start to see that it subside, and the level of our stock relative to the demand plan be more in sync.

So similar magnitude of impact in the first half to what we saw in the fourth quarter?

It should be a little bit less. I’m not anticipating as much on the obsolescence inventory write-down side if you will, but certainly storage handling, those will continue, so I’d scale it back a bit in the first half at a quarterly run-rate but it will still be there.

Got it. And then, David, you did say that you pass the higher cost inventory in frozen, so just to confirm that. So now inventory that you’re holding, the cost structure or cost base of that is reflecting the lower strawberry prices that we saw inclusive 2017?

Yes. For the most part it is, it’s there – so the cost basis more in sync with where our sale price is, but the cost profile of the business obviously as we just discussed as now.

Sure. Absolutely. And then as we look forward David and you talked about looking at your California cost footprint. Can you talk about that a little bit? If you do decide to reduce your footprint in California what does it do to your cost structure in this business, and then how much of that is reflected in your current cost saving goals under the Value Creation Plan?

Yes. I think as we look to go into this crop and run a less pounds than we ran in the prior, what I meant by the utilization of our facilities in that, we obviously have more capacity that we’re going to need to process the crop this year. So basically we’re going to run. We have three primary facilities in California that process berries. Last year we ran all three. This year we’ll definitely run two of the three with probably a limited amount of pounds potentially to go through the third facility. So that’s what I meant by kind of rightsizing and cost optimizing the footprint this year. As we go forward, we constantly look at network optimization and are we producing the products in the right locations with the investments we’re making in our Mexican operations. Over time, we can definitely see a trend where we would grow and source and produce potentially more product coming out of our Mexico facility which would also have an impact on how much we process out to California. That’s going to be more of a two to three-year transformation as opposed to just this year, Amit, but that’s kind of directionally how we see this playing out.

And just if you give us any indication of what does that do to your cost structure or margin structure as you move from a higher cost facility to a lower cost?

Yes. That means, it’s obviously improve, I think one of the most important things that we’re talking about here is also diversity of where we’re getting the product and diversity of our footprint. We don't want to have certainly all of our eggs in the California basket or in the Mexico basket. So if you think about where the fruits coming from and the fact that in California there’s always shifting and where the acres exist. Could it be – it’s a meaningful benefit to margin obviously to be balance through Mexico, but we’re not going to – there’s not a single solution here – it’s very much spread and diversify growing region and your footprint to maximize the…..

And the last one from Mexico, NAFTA, is that any issue? If the NAFTA -- TVD does fall off? Does it do anything to your cost structure there?

I mean, the TVD, I guess would be the answer, it certainly depends on if that does place what would happen to the cost base. But again, kind of going back to my previous comments for that reason we don’t want to be overly exposed to anyone jurisdiction here. It does not going to cause more fruit necessary we plan right away. So we want to make sure that we got good balance and a good footprint as to where we both get the raw materials and process them. So I don't have an answer until we learn more about where those negotiation land.

Got it. And then just one more on the aseptic business, Dave you did talk about picking up new volumes. Just remind us you will [Indiscernible] loss in April, right, where is the utilization now? And just on that last business as well, have you had any conversation with them in terms of is there a bad back for you to get back into at least that retailer as well?

Yes. I think in Q4 our utilization across the aseptic network increased from mid-50s to the mid-60s, so we’re about in Q4 around 65% utilization. As we look at the opportunities we have in our sales pipeline, I’ve mentioned in the prepared remarks that if we’re successful in converting a portion of the sales pipeline we’re really good to be in a position where we’re looking at putting those facilities on alternative production schedules to support the anticipated growth, which obviously that would provide good news and help from a cost structure point of view as well. So we’re optimistic about what we see in the beverage business particularly as it relates to the loss business in the club channel, we definitely been having conversations with that specific retailer, with our new sales team that’s in place, all of the new capability that we’re bringing to bear. We do have good growth occurring in that channel with our organic juice business, our conventional juice business. We’ve launched some – brought items into the channel. And we’re having ongoing discussions about ways to help bring growth back to the non-dairy aseptic product category within club as well. So we’re working hard at it and we’re making good progress.

Got it. Thank you so much.

Thank you.

We have a follow-up question from the line of Jon Andersen. Your line is open.

Thanks for the follow-up. Your FX loss was up $3 million, I think that’s embedded in or captured in SG&A, can you talk a little bit more about what that consists of and what your expectation for that is going forward based on I guess your credit hedge positions and some of the currency movements, because it's seem like pretty big increase year-over-year that effective EBITDA in the quarter?

No. You bang on that, Jon. That FX loss and then in my prepared remarks I’d indicated that’s not obviously included in gross margin, but fundamentally the majority of that is us taking action if you will to protect our margin as it relates to us buying products generally in U.S. dollars and having exposure when we sell in the euros. And so the way to really think about is the large loss in the fourth quarter reflects the significant swing in the euro relative to the U.S. dollar and it really reflects kind of mark-to-market losses on the forward currency derivatives, the protection that we put in place which from a modeling perspective if you will you should really just think about that going forward as an offset to margin. And so you get some of the benefit in the gross margin line and there some of the loss in the FX line side. The County rules require you to value derivative instruments and put them on that line called foreign exchange, but the reality is what we’re doing is we’re taking away foreign-exchange exposure if you will in our supply chain as we buy and sell in different currencies.

Okay. One other quick one from me. The bar and pouch exits, are those fully complete now? What was the full-year EBITDA drag from those? And do we start now with a clean sheet in 2018?

They’re substantially complete and so substantially complete basically means that as we work to build inventories to enable the customers of those businesses to properly transition to new suppliers, there’s a very small amount of sell-through that would happen likely to be done by the end of the first quarter here. You're talking $2 million to $3 million likely not big revenue and then no real margin impact expected there. In terms of what’s left? There's the wrap-up, there’s the closure costs that there will be some of that coming through likely in the first quarter as it relates to us finally vacating that the bar facility in Carson City, which I would expect the majority of that to be reported outside of EBITDA. So it’s a little bit of trailing cost that we just couldn't recognize in the fourth quarter and that will come through finally complete those actions, but substantially complete is probably the best way I’d refer to that. From a EBITDA perspective if you go towards the back of the press release that we issued this morning, in the non-GAAP tables we’ve got a column in our EBITDA reconciliation that highlights the EBITDA drag from those two businesses both for the quarter and the year, in an effort to provide users of these financials. What were the business of been without all bars and pouch. So if you go to the back it was EBITDA $5.8 million for the full-year related to bars and pouch.

Great. Okay. And – okay, that's it from me. Thank you very much. Good luck, guys, going forward.

Thanks Jon.

And that concludes today's question-and-answer session. I would like to turn the call back to Mr. Colo for his closing remarks.

Thank you, operator, and thank you all for participating in our fourth quarter conference call. Before we close let me remind you of what we rolled [ph] here. We were focused on food safety, quality and execution. We will be focused and decisive as we execute our strategic plan, we will focus on long term, value creation and we will make decisions with a long term focus even if those decisions do not maximize near term earnings. I look forward to speaking with you in the future and updating you each quarter on our progress as we unlock the opportunity in value in SunOpta. Have a great day.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.