Rik Jacobs - CEO Rob McKeracher - CFO

Amit Sharma - BMO Capital Markets Mark Siegel - Canaccord Genuity Eric Gottlieb - D.A. Davidson Jon Andersen - William Blair

Good morning and welcome to SunOpta's Fourth Quarter 2015 Earnings Conference Call. By now everyone should have access to the earnings press release that was issued this morning. The releases, as well as the accompanying slides are available on the Investor Relations page of SunOpta's website at www.sunopta.com. This call is being webcast and its 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 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 a more detailed discussion of 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 financials 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, Rik Jacobs.

Good morning and thank you for joining us today. With me on the call today is Rob McKeracher, our CFO. We have just completed the transformational year for SunOpta and I'd like to begin by briefly discussing our investment highlights, Q4 and how we reshaped our business during 2015 as well as where we stand strategically today. I'll then discuss our operational goal for 2016 as we build upon our investments and our production capabilities, people and processes. After that Rob will take you through our fourth quarter results, update you on our expanded financial capacity and then we look forward to taking your questions. I'd like to remind those on the call that there is an accompanying presentation on the Investor Relations page of our website, which we’ll reference today in our prepared remarks. Also note that unless otherwise noted all of our financial commentary on this call refers to continuing operations which is now just our food operations. So, Slide 2 is regarding forward-looking statements which the operator already covered, so if you could kindly turn to Slide 3. With the pending divestiture of Opta Minerals we are now truly a pure play organic and non-GMO Food Company. It was a particular focus on private label, in healthy beverages, healthy fruit and healthy snacks. Supporting our consumer product segment, we’ve built the largest supply chain in organic raw materials and ingredients in the world. And what truly sets as a part of our unique fully integrated Field to Table business model, in fact roughly 40% of our consumable product offerings before factoring in Sunrise Growers are already two touch a day, meaning we source the raw material and package the product from final consumption. We have leading positions in numerous segments including non-dairy aseptic beverages, private label frozen fruit and private label juices. Finally, we believe we’ve build the scalable business platform with significant revenue runway investments completed in the last couple of years that we now need to fill. Our strategy is underpinned by changing consumer trends, these trends are based on the awareness of linkage between Diet & Health to search for cleaner label products and evolving demographics especially Millennials. With that please turn to Slide 4. In Q4, our revenue grew by 5.5% which is faster than the growth rate we've experienced for the full year at 4.1%. Although still below the rate, I believe we should be capable of achieving given the investments in our facilities. The adjusted EBITDA for the quarter came in at 14.2 million and it is important to note that our latest acquisitions Sunrise Growers delivered EBITDA in line with our expectations. Our adjusted earnings per share was $0.03. We anticipate some one-time cost given the Sunrise Growers acquisition closing during the quarter, but several other non-recurring and operational challenges also impacted the results. We are intensely focused on strengthening operational efficiency and execution, expanding margins optimizing our portfolio and business structure and reducing our leverage ratio. To this point, we’ve reset the management incentive program around margin improvement goals and leverage reduction targets. We are shaping SunOpta to take advantages of a very attractive market opportunity and look forward to delivering on our 2016 goals for the benefit of all of our shareholders. Please turn to Slide 5. While we did not meet our financial goals for the year, it's fair to say that we have just concluded the transformational year. We completed three strategic acquisitions, Sunrise Growers, Citrusource and Niagara Natural which combined at about $350 million of annualized revenue to our company. We continue to achieve a notable growth in the international organic ingredients and although we will start lapping tougher comps our international sourcing projects which have been build up over many years put us in the position to continue to take advantage of growing end markets. And we finished several significant capable projects, adding capacity to support growing demand and accepting beverages, healthy portable snacking and premium private label juices. The transformation is also evident in our sales mix, as during the fourth quarter consumer products accounted for 55% of total sales, the first time in our history the CPG has accounted for the majority of our reference. Our acquisitions and capacity expansion solidify our leading positions in the fast growing organization and non-GMO food markets. We've also build scale in our key consumer products platforms, healthy fruit, healthy beverage and healthy snacks. Each acquisition and project achieves our strategic goals to build turnkey category solutions for retailers and food service operators by expanding our focus on the fast growing organic and non-GMO private label market. In fact we expect a majority of our growth to come from private label for three key reasons. First, private label organic and non-GMO is a high growth segments, given the lack of dominant organic brands in categories that are rapidly penetrating conventional retailers, the private label opportunity as significant. Millennials especially are looking not only for organic but also for value, which means they are much more inclined to buy private label brands. Seconds, in these emerging categories it would be extremely rare for retailers or food service operators to invest in physical assets and the pace of change in consumer preferences, enhanced product innovation almost demands that active brands be outsourced and third selling to retail also satisfies our two touch strategy, where we capture higher value and margin by leveraging our unique vertical integration. Please turn to the next Slide. So let me discuss our 2015 accomplishments in a bit more detail and elaborate on how we've build a stronger foundation for growth and improve financial performance in 2016. In healthy beverage first of all we've enhanced our capacity in both the aseptic non-dairy beverages and premium juices. The Allentown aseptic operation began producing late in Q4 and while as expected it did not favorably impact the quarter, we are beginning to win incremental business. The opening of an east coast facility has added to our competitive advantage as we can now produce aseptic products for national and regional customers on the East Coast to mid-West and the West Coast. While we do not disclose specific customers, we've already signed multiyear contracts with two leading national customers given our enhanced geographical footprints. In premium juice, we have now fully integrated Citrusource's volume into our San Bernardino facility beyond the gross profit enhancement from this move we believe we have further opportunities on the extraction and ingredient side with the San Bernardino facility that will take some time to materialize. Second, in healthy fruit, the acquisition of Sunrise Growers immediately puts us into a leading position in private label organic and conventional frozen fruit. The acquisition was closed during the fourth quarter transforms our existing fruit platform. As mentioned earlier in my remarks, Sunrise deliver EBITDA in-line with our expectation during its first quarter as part of this multifamily, despite a double-digit shelf price increase at most retailers early in the quarter that temporarily impacted velocity. Integration is progressing well and we are on track to meet our target of 5 million of 7 million of cost synergies. The first major integration step to achieving our synergies is now underway. We will be closing our Buena Park frozen fruit processing facility by the end of Q1 and consolidating this volume into Sunrises, West Kansas and California facilities. This consolidation alone should achieve the majority of our expected synergies savings with the year. And we further expect to achieve sourcing benefits as the integration progresses. Third in our Healthy Snacks platform we have fully integrated Niagara Natural and have begun strategically shifting production to match our customers and geographic locations. Niagara is also contributing to our innovation pipeline with our innovative food ingredient capabilities. We are showcasing our turnkey solutions for the private label nutrition bar categories two retailers as we speak. This strategy is an important component of our goal to achieve 10% snacks growth into 2016. Our offering is a standardized assortment of products or private label where we can provide category management services and commit to refreshing the offering as innovation in the bar category occurs. With this we can ensure that our retail customers will stay ahead of the ever changing consumer taste in bars. In global ingredients we remain well positioned with our focus on organic and non-GMO forcing and ingredients. We continue to have strong momentum in the international sourcing of organic ingredient which was up 33% in Q4 and by the way this only counts external revenue and not the incremental sourcing they’ve been doing on behalf of our consumer product segments. There is a real benefit to brining the material all the way from the field to the table especially as growth in demand is expected to continue to outpace growth and supply for the foreseeable future. Global commodity declines continue to pressure our reported revenue but market demands remains robust. We've enhanced our capabilities during 2015 as we acquire the majority ownership of Selet Hulling a premier supplier of organic sesame and we were also the first in the United States to achieve the USDA Process Verified Program Certification for Non-GMO products in our Hope, Minnesota facility which we have been expanding to other facilities throughout the year. And further we are pleased that we were able to announce the definitive agreement for the divestiture of our interest and Opta Minerals. We also opened the SunOpta Innovation Center allowing us to deliver more value to our customers by our proactive innovation. And finally we recently entered into a new global asset base credit facilities as better rates, which gives us more flexibility and enhanced liquidity across the company. With that please turn to Slide 7. Last quarter I laid out our operational goal for 2016 and I would like to reiterate on the call today. We’ve put in place a milestones to measure our progress as a team. In healthy beverage we believe that we will increase growth margin and chilled juice by at least 6 million, there by achieving breakeven on beverage as a business, while also concluding our pipeline in aseptic non-dairy to achieve double-digit top line growth. As mentioned earlier we've already won new multiyear contracts in aseptic as a result of our enhanced geographic production improvement. In healthy fruit, we are committed to successfully integrating Sunrise Growers and maintaining its strong growth rate. At the same time we are on track to capture the cost synergies we identified which would add an excellent 5 million to 7 million to the bottom line of 2016. As I mentioned our first step to achieve the synergies is in process with the planned closure of Buena Park facility and consolidating volume into Sunrise facilities. In healthy snacks, we’ve identified fruit snacks as a key growth area, as we look to drive growth of at least 10%. For bars and pouches we plan to fill the available capacity with higher profitability, private label products especially in bars. All three categories must be heavily supported by increased innovation and we are planning on at least $10 million of new product innovation hitting the market in ’16. We will be launching the new line of non-diary beverages with enhanced taste profiles to help grow the category and we will be launching a combination of fruit and nut bars in the spring with a national retailer. We remain committed to reduce SG&A, targeting to be below our stated goal of 8%. We have taken specific actions during the first quarter to ensure that we deliver on this goal. Please turn to Slide 8. I also want to reiterate what we discussed at the end of Q3. We must excelute, which stands for excellent execution in order to capitalize on the investments we’ve made in the last few years. We believe we are well positioned in the right categories with the right assets and the right people, we expect to see steady improve in profitability throughout 2016, as we leverage our recent investments. Our execution focus is on customers, costs and employees. The customer loyalty is up, we measure this each year through an independent third party and we improved our score by more than 10% in 2015. This shows that our efforts in key account management are starting to pay off. On cost as I mentioned we are committed to taking excess of tighten our bet fruit on SG&A cost as a percent of revenue but our cost focus is primarily in our supply chain, we have opportunities in logistics and warehouse cost and inside our factories we must focus on reduction through better planning to reduce downtime as well as improve yields. Employee engagement is also up we've made a lot of structural changes over the last few years, but the management team is now largely in place and employees understand more and more what are purpose core values and strategies are which is translating into higher engagement scores which we also measure every year. So please turn to Slide 9. We are off to a good start in Q1. We are executing against the Sunrise synergy plan and Sunrise sales momentum has sequentially improved over the fourth quarter. In aseptic, we've signed contracts with two large customers reflecting the benefit of our new East Coast production capability and we’re launching private label snacks and beverage innovation. We expect some modest progress in Q1 from Q4 but we will also continue to see some margin pressure as filling out our new capacity additions take time. The fruits of our efforts should be more apparent later in the year, our goal is to demonstrate sequential improvement of EBITDA and CBG margins as the year progresses, which are two of our key measures for 2016. Now with that Rob will walk you through the fourth quarter numbers. Rob over to you.

Thanks Rik and good morning everyone. I recognize that there are a lot of moving parts to our financials given the Sunrise acquisition, onetime cost and Opta Minerals been reclassified as a discontinued operation held for sale. So I’ll take you through revenue margins and earnings as well as highlight our EBITDA and cash flow performance during the fourth quarter. Adjusted EBITDA was 14.2 million during the fourth quarter and we generated cash from our continuing operations of 26.1 million, before a number of costs that I’ll explain in a few moments. Please be advised unless otherwise noted I’ll be referring only to our food operations. Please turn the Slide 10. Slide 10 shows, our revenue breakdown by segment. Revenues for fourth quarter of 2015 was 316 million, an increase of 26% from the year ago period. Much of this growth is driven by the acquisition of Sunrise. After adjusting for the impact of changes including commodity prices, foreign exchange rates, product rationalizations and acquired businesses on a normalized basis, consolidated revenues increase 5.5% compared to the fourth quarter of 2014. Global Ingredients reported revenues were 143.5 million growth of 1% over the fourth quarter of '14, however on a normalize basis revenues in Global Ingredients grew 4.2%, this growth was driven by robust market demand for organic fruits and vegetable, coco, seeds and nuts. Compared to the fourth quarter of 2014, we experienced 33% normalize growth in our Global Ingredients platform that is focused on international sourced organic raw materials. On the domestic side of Global Ingredients, revenues decline 24% in normalized basis due mainly to the strong U.S. dollar pressuring our export business and lower domestic sales of seed. During the quarter Global Ingredients recognize approximately 2 million in cost primarily related to inventory reserves and low margin sales is an efforts to derisking inventory disclosures. Within consumer products revenue grew 59% over the fourth quarter of 2014 to 172.9 million reflecting 53 million of incremental sales from Sunrise Growers which is a partial quarter as well as acquisitions of Citrusource and Niagara Natural. Normalized revenue growth inside consumer product was 7%. In healthy fruit, Sunrise Growers met it’s EBITDA target for the quarter despites sales velocity being temporary impacted by meaningful price increases taken during the quarter to pass along higher fruit cost. The pricing taken and good cost control were key elements in Sunrise achieving its target, it should be noted that Sunrise's fourth quarter revenues also reflects some seasonality as a business often sees a spike in sales in the first quarter. In healthy snacks an equipment failure of the Allentown facility impacted our ability to sell pouch orders, leading to 2.5 million revenue shortfall. During the quarter we experience 2.2 million cost associated to equipment failures primarily as a result of this downtime which lead to lower plant efficiencies, higher spoilage and price concessions to certain customers. In healthy beverages, we are able to continue to have new aseptic business to our national network allowing us to more than compensate for the loss of volume from a major customer that began early in 2015. Focusing on aseptic beverages we realized sequential quarterly growth of approximately 5% versus a third quarter of 2015 and 9% growth over the fourth quarter of 2014. However despite the positive route of revenue development margins continued to be pressured as result of the incremental capacity we added in the 2015. Turning to Slide 11, you will see that during the fourth quarter we generated gross margin of 25.2 million or 8% of revenues as compared to 23.6 million or 9.4% of revenue a year ago. Gross margin was negatively impacted by 4 million and higher cost as a result of the acquisition accounting adjustment related to the Sunrise inventory that was sold subsequent the acquisition date. Reserves for inventory in addition to realizing low margin sales in an effort to reduce inventory exposures which in total cost 2.4 million. 2.2 million of cost due primarily to downtime and spoilage stemming from the equipment failure the Allentown aseptic facility. And 0.2 million of cost as a result of non-recurring logistical issues leading to demurrage, tension and other related expenses that was first reported in the third quarter. Excluding these items gross margin of the fourth quarter would have been approximately 10.7%. During the fourth quarter we also incurred approximately 1.9 million cost related to expansion of our East Cost aseptic facility and a ramp of our Premium Juice facility to increase production levels. For the fourth quarter we reported an operating loss of 1.7 million or 0.6% of revenues compared to operating income of 4.2 million or 1.7% of revenues in the fourth quarter of 2014. The fourth quarter performance was impacted by a number of item that are not reflected of normal operations, including the 10.6 million in cost impact in gross margin that I just mentioned. In addition, during the fourth quarter we continue to incur cost facility of an ongoing litigation for 0.5 million which is offset by a 0.6 million gains due to reversal performance based stock compensation expense. Excluding all of these items operating income during the fourth quarter would have been approximately 8.8 million or 2.8% of revenues. The fourth quarter of 2015 report a loss and continuing operations of 13.6 million or $0.16 per diluted common share compared to earnings from continuing operations of 5.1 million of $0.07 per diluted common share during the fourth quarter of 2014. Excluding the after tax impact of all the items not reflective of normal operations and $17.2 million in other expenses related primarily to business acquisitions, severance and asset disposal charges, offset by 0.09 million gains related to previously unrecognized tax benefits, adjusted earnings were 2.4 million or $0.03 per diluted share compared to adjusted earnings of 5 million or $0.07 per diluted share in the fourth quarter of 2014. We've realized adjusted EBITDA of 14.2 million during the fourth quarter as compared to 9.6 million in the prior year. I'd like to remind you, that the adjusted EBITDA and adjusted earnings are non-GAAP measures and reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this morning. Turning to Slide 12, from a cash flow perspective during the fourth quarter of 2015 we generated 26.1 million in cash from continuing operation versus cash used in continuing operations of 15 million a year ago, the improvement in cash from operations reflects cash generated from reductions in working capital in the fourth quarter of 2015, whereas in the prior year were adding working capital, in particular inside Global Ingredients, to help fuel the growth in that segment. We used 481 million of cash in investing activities from continuing operations during the quarter primarily to fund the purchase of Sunrise as well as 9.2 million net capital expenditures. Finally from our financing perspective we generated cash of 360 million from continuing operations during the fourth quarter primarily as a result of 330 million of second lien debt borrowed to fund part of the purchase price of Sunrise Growers, in addition to borrowings on our line of credit facilities. Excluding the after tax cash impact of approximately 6.2 million of costs not reflective of normal operations, cash flows from continuing operations would have been approximately 32.3 million. In addition during the fourth quarter the company incurred cash financing cost of 13.8 million related primarily to the acquisition of Sunrise Growers. If you please turn to Slide 13, you will see our key balance sheet metrics. At January 2, 2016 our balance sheet reflected total assets excluding assets held of sale of 1.155 billion, total debt of 482.8 million and a total debt-to-equity ratio of 1.15:1. For the year adjusted EBITDA was 62.2 million which includes the results of businesses acquired in 2015 from the date of acquisition. At January 2, 2016 our leverage was approximately five times pro forma adjusted EBITDA after factoring in this 2015 run rate EBITDA of acquired businesses and cost synergies expected to be realized in 2016. We believe we will delever 1 to 1.5 times over the next 12 months to 18 month through a combination of EBITDA growth and positive cash flow resulting in debt reduction. Included in total debt is 320 million in the form of a second lien loan which has been classified as long-term debt. On October 9, 2015 SunOpta borrowed 330 million of second lien debt to fund part of the purchase price of Sunrise Growers. This debt matures on October 9, 2016 and, if not re-financed prior to the maturity date any amount of this debt still outstanding will automatically convert into term loans that would mature on October, 2022. Under the terms of our financing arrangements, our lenders made demand that we enter into alternative long-term financing to replace the second lien debt prior to October 9, 2016, however in either case, the interest rate on this tranche of debt is capture maximum of 9.5%. I would also like to note that subject to certain covenants that exist within our first lien credit facilities we have the ability to repay second lien debt, and during the fourth quarter we repaid 10.0 million principal amount of the second lien loan. Finally, on February 11, 2016 we entered into a new, committed, five year asset-based credit facility that replaced our previous North American and European operating credit facilities. This new facility has 350 million in size, provided by syndicate of leading global banks and provides increased borrowing capacity, lower interest rates and enhance global operating flexibility. This gives us the quick sufficient liquidity to continue to execute on our strategy of maximizing our unique Field to Table or Two Touch business model. With that I'll turn it back over to Rik who will conclude our prepared remarks.

Thanks Rob. And if I can leave you all with five key takeaways as we look ahead, it will be the ones laid out on Slide 14. We've continue to operate in strong and growing markets that are on trend with consumer focus on healthier lifestyle. We have a well-defined strategy to drive our business to higher margins. The Sunrise Growers acquisition makes sense both strategically and financially and it is performing to plan. We have committed financing on our second lien debt through 2022 at capture rates and our new AVL has a five year terms through 2021 giving us ample capital flexibility, exclusion continues to be paramount, especially in our consumer product segment and we have work to do in this regard. With that, I'd ask the operator to please open up the floor for questions.

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

Rik you talk about getting two multiyear contract in the uptake beverage segment, can you just help us to understand where are we with capacity utilization and in terms of as you win these contracts should we expect you to have more consistent margin improvement in this business?

Yes, so breaking down, they are significant contracts, they are with us -- few of our largest customers today. And with that our assets utilization, given the capacity expansion is about at 60% and we think we have a still about north of the 100 million revenue run rate build in this platform. So we obviously have more work to do I'm excited about some of our proactive innovations coming to market and that should already start happening in the first quarter. Obviously that volume should help drive utilization at the facility.

And what about the margins structure, when do we expect that you will return to in historical margin in this segment?

I mean as 2016 progresses and we fill up this revenue runway we have every confidence that it should return to the historical margin rates as you can imagine, it is not the best if you have a 60% utilization, but again I'd like to remind everybody that little bit over a year ago we will completely tapped and we have decided to make a big move in terms of adding capacity. You cannot just add 1/3 of process for example you have to add a full process. So as a result we have some of the utilization asset underutilization is eaten up, we will get back to the historical margins.

And then one more Rik on -- and you've talked about the number of initiatives within the organization then to the cost structure in terms of maybe more efficient logistic and then we look at this aseptic beverage, maybe a little bit more visibility from customer pipeline. Sunrise the PL should be on track and is Global Ingredient more focused on the key organic business as well. If you combine all this, should we expect a little bit more consistent, a little bit more predictable operating performance in SunOpta going forward?

Amit that is always our goal. We've had some of these unfortunate operational events in the fourth quarter if you look at our growth rates overall 5.5 in the fourth quarter, high than what we've achieved on the full year basis. If you look at consumer products growing at 7% I think that is one of the highest that we've had in the year. And obviously in Global Ingredients as you rightly pointed out organic raw materials that we source from all of the world rolling at an incredible pace and that is somewhat offset by domestic which is the storing of sunflower and the corn products. And so yes predictability is what we want and obviously is also what our investors want and I think with all the actions that we are putting in place when it comes through the strategy, when it comes to the people and when it comes to the processors and that's what we’re driving towards and there should become some more and more impairers as we progress the 2016. Again what the three key things that we are bonusing if you like are management team on, is improved CPG margins, grow the EBITDA and reduce the leverage. Those are the three key metrics that we are focused on in 2016.

Got it, thank you very much.

Thank you. [Operator Instructions]. Our next question comes from the line of Mark Siegel with Canaccord Genuity. Your line is open.

Rik can you talk a little bit more on aseptic, not so much the customers that you announced today but progress you are making on selling the capacity with new customers to SunOpta. And then can you also provide us an update on the premium juice facility and what timeframe you believed is a fair one in terms of assessing progress towards reaching breakeven in that operation?

Yes. So on the aseptic business we have traditionally very much been focused on non-dairy beverages and what we are now doing is we are expanding the product categories in which we would operate, think about broth for example, which is a large category and it is growing. Think about nutritional beverages and even think about dairy. We are packing all of those today and so that is part of what we believe is going to fuel our capacity. The next part of that is as you go into new product categories and as we have new geographic locations both of those put us in a good position to attract new customers and in fact again we are not in a position to discuss specific customer names, but our aseptic facility later this year in Allentown, we will be packed a significant amount of other well-known dairy products with the new customer that we have never packed for it before.

Okay, that's helpful. And then just on the juice side.

When it comes to the premium juice side, we've been very clear this business needs to be above breakeven in 2016 on the bottling side I'm very confident with the additional Citrusource, by the way are also the people that have 30 years of juice experience that we have managing our facility, that we’re doing all of the right things in the bottling facility. The bottling facility is now 75% filled and that should be a major driver of improve profitability in 2016 where we are only about 305 filled today is in our what we have rename Fresh Pressed Industries, which is really the juice extraction that we sell in tankers to leading manufactures around the United States. And the reason for that market is quite simple, we have been out of that, out of sourcing oranges and sourcing lemons for about three years as we have been rebuilding this facility. And we just have to basically get ourselves back into that market and that just takes time building the relationship -- rebuilding the relationship with all the California citrus growers.

Okay that’s helpful. And then we’ve heard some instances of quality issues and produce including berries in California early this year, is there any -- did that impact Sunrise or your legacy fruit business? Or does the diversification -- the geographic diversification at Sunrise brings really insulate you from this?

Yes I mean I think what you are referring to is mostly on the fresh product side. We obviously are only operating in the frozen produce side and we have -- they have been investing, in fact what we’re going to be getting in terms of berries out of Mexico will double versus what we were able to do last year. They’ve already installed a second line there to be able to freeze berries so that is very much on track. And of course these are international Global Ingredients platform, we are expanding to our areas of the world. That same strawberry is been grown in Morocco and in Spain as well and we already have feet on the ground over there, so should there be a shortage developing on strawberries specifically, which is still by far the number one product in the Frozen Food category. We believe that we have ample ability to fulfill the demand of our retails.

Okay great. And then I think you called that a number -- a revenue number for Sunrise, I believe its 53 million or 54 million in the quarter. Do you have an EBIT or EBITDA contribution?

Rob?

Yes, I mean Mark what we disclosed, they were on target, so I think what you can see if you go back for the filings is that, the revenues is certainly -- we commented that they took at market and that did have a temporary velocity impact. But the important thing is that there margin raise has extended back to really more traditional level. So on targeted and I’d say in-line, with what the previous guidance was for Sunrise.

So remember this, it was not a full quarter for us, so you have adjust for that. But net-net about the same revenue was last year, higher EBITDA margins than last year as a result of passing through the food cost.

Okay great. And then just lastly for me, obviously you called out the one-timers in the quarter around inventory downtime at Allentown, startup costs, et cetera. Can you talk about which of those truly go way and I think Allentown is obviously up and running, but just we can't dealt with this through 2015 and part of the thesis for margin improving is that a lot of these kind of near term transitory issues don’t continue into 2016, can you comment on that?

Yes, I mean look I think we have more than our fair share of what I call unfortunate operational events. I called unfortunate because I think they shouldn't happen in the first place. Quite frankly the equipment failure was obviously a significant impact not only when it comes to -- you don’t get your absorption if you don’t produce and you don’t get the margin if you don’t produce, you also don’t get the revenue, when you don’t produce. So that is truly a onetime event that should not occur again and then when it come to the inventory we have been selling through a lot of the product in the Q4 inside of Global Ingredients. And this is not necessarily on the organic raw material, this is more on the byproduct streams where we have some long positions and we just wanted to make sure that we didn’t carry those long positions too long because commodity prices are not bouncing back as everybody knows.

And the other one Mark just to point out, it was grouped in as the adjustments as part of the cost related business acquisitions, when you acquire companies a common to the $4 million of non-cash cost related to the inventory that we acquire. That 4 million added essentially 19 million, so there is another 15 million of bad costs, it really is a purchase accounting matter to let's just say come through our P&L in 2016 most likely in the first three quarters.

Okay. Thanks for that.

Thank you. Our next question comes from line of Eric Gottlieb with D.A. Davidson. Your line is now open.

I am looking at Sunrise Growers synergies, 5 million to 7 million that’s what we said before but what's the variability in there that would make you go at the lower high-end?

I don’t believe in lot of variability especially we announced this by the way internal at the end of January already that we will be closing the facility by the end of March. The teams are hard at work making sure that there is no hiccup when it comes to customer service or operations. That is the vast majority of the 5 million to 7 million because not only are we -- of course are we reducing at the fix cost that we have to incur, we are also getting a lot of logistic benefit especially as we transfer the volume to the Kansas City, part of it going to the Kansas City facility which is a lots more efficient when you ship to the East Coast. So, that in its own already is -- should gave us 90% of the way there and there are other things that we're working on. So I am confident that we will be more to the high end, suppose to the low end of that 5% a million.

And looking at to '17, is there any indication one way the other as to how that shaping up, I know it's a far way off.

Look, we've been -- since the acquisition we said that there should be a minimum of $10 million of total synergies, in fact when we said that we stated that we should see about $3 million out of reducing our fixed cost and $7 million out of sourcing. We are getting more than the $3 million out of the closure of the facility and in '17 is when we’re really going to start realizing a lot more of the sourcing because quite frankly by the time we were finally able to acquire Sunrise Growers on the October 9 and most of the contracting had already be done for 2016. So, that's you should expect a similar or larger number than what we are going to able to achieve in 2016 for 2017.

Okay. Moving on for leverage reduction, how much is debt pay down versus EBITDA growth?

So for 2016, the majority of the leverage reduction will come from EBITDA growth. If I was to range that I’d suggested three quarters EBITDA growth and maybe one quarter to debt reduction.

And then how much was FX, if you can take that out?

Sorry, said it again there.

FX in the quarter, the impact, you lumped it in with a bunch of other thing.

Yes, sure. Foreign exchange, it was a $600,000 gain in the quarter.

Okay and last questions, you also mentioned that extraction and ingredients will take some time to materialize, do you have time table on that?

Look I think that should be ramping up towards we end the 2016 and by 2017 we should get at least a 50% utilization out of the effects of the facility. But let there be no mistake, the improvements that we are talking about in terms of achieving inside of San Bernardino, they are mostly on the bottling sides, the opportunity for sustainable long-term profitability is going to add extraction to that because not only do you then end up selling tankers of juice, you also get the organic lemon oil, organic orange oil and those are in very high demand in the end markets right now.

Thank you. Our next question is comes from the line of Jon Andersen with William Blair. Your line is open.

I wanted to ask you a question on Sunrise and Frozen Fruit more broadly. I think you indicated the sales were in value terms relatively flat year-over-year what are your growth expectations for the Sunrise business or your frozen fruit business in aggregate and where are the white spaces or the opportunities for SunOpta to grow that business over the next 24 months to 36 months?

Yes, sure, look that the frozen fruit business at retail has grown in double-digit rates and we actually expect that to continue, what you need to remember when you looking at Sunrise is that about 2/3 of the revenue come from retailer and 1/3 of their revenue comes from food service and food service, where the product that's being used in smoothie mixes, et cetera. That is not growing at double-digit growth. So in aggregates we are looking at Sunrise Growers growing between 8% and 10% basically, in line or slightly higher than what the end markets are. Where do we believe that there are further opportunities for growth, we believe that is obviously with new and unique blends and packaging. We also believe that there is packaging innovation opportunities in the retail and one of the big ones that Sunrise has invested in is basically with the USDA that really, it's been utilized for school lunches, it's utilize all over the world -- all over the country. And they have just installed two high speed lines to be able to satisfy that demand with USDA and there's lot of incremental demand that we think we can filled for the USDA.

From a capacity standpoint in that business, what capacity do you have to growth that business with the current assets that you have and are there capacity additional capital needs, as you do grow in that 8% to 10% level?

They have invested a lot in incremental capacity, incremental freezing capacity in Mexico, incremental packing capacity in Kansas City primarily. We will obviously be utilizing some of the assets that we have in our Buena Park facility, be in Mexico or in Kansas City and Santa Maria. They have had a -- so they have invested a lot and they will not require a lot of incremental investment on a go forward basis. The only thing that we are investigating John to be fair is, are there opportunities for further automation and those obviously will only make sense if you believe it leads us to way to a lower cost. And one last thing I would like to point out when you talked about the Healthy Fruit category we need to all remember that the penetration of this category today is at less of 30%, so therefore it should be a sustainable runway as household penetration increases.

That's helpful last one for me is on the Healthy Snack business, its sounds like there is quite a bit of focus here from an innovation standpoint what could you highlight there, maybe a little bit more in terms of innovation that’s coming to market you talk about providing a turnkey platform for customers and what kind of visibility do you have at this point to -- maybe some new business wins in the Healthy Snacks the way that you’ve been able to articulate a couple of new business wins in aseptic and dairy? Thanks.

Yes. So look our Healthy Snacks category consists really a three products right it's the pouches, which is where we have that equipment breakdown, it is nutritional bars and it is in fruit snacks. If I start with the last one, in fruit snacks there is a lot of opportunity to -- we believe to innovate where we haven’t done so in the past and in fact we are -- we will be launching, it's kind of like the fruits/nut crossover. Totally new concepts, very exciting and we will be launching that with the national retailers. So that is really where we think we have a lot of innovation capability. When it comes to bars what was hot six months ago a nutritional bars is no longer hot today. I mean if you go to the grocery shelf you continuously see a completely new array of bars. That is very difficult for retailers to keep up with, I think with their in house innovation capabilities so what we are saying to retailers is like look you can’t keep up with your in house capabilities, you have a huge array of private label to manage this category is ever changing let us manage that on your behalf. We will make sure that you stay totally on trend, we will come in with a certain set of bar that we can put into your store and we will guarantee you that in six months we’ll come out with a new innovation that will be hot at the particular point in time. That's kind of how we are helping our retail customers stay on trend and ahead of the curve.

And then pouches?

In the pouches, look we have a very good capacity utilization right now. I'm just not happy with the profitability that we are making over there that is partially as a result of some over capacity in the market which basically has led everybody to reduce their sales rises. So again there it is about how do we innovate appropriately and how do we make sure that we what we feel, we actually two touch that. So we provide in ingredients as well as the manufacturing capabilities so our attention more and more there is also shifting towards the large retailers and in facts in the fourth quarter we did launch with the two largest retailers in the country under their private label names with new pouches that offer us a higher, I would say, just an opportunity for profitability because we didn’t reach it in the fourth quarter due to the equipment breakdown.

Okay, that's helpful. Last one for me, the change in management incentive compensation metrics towards margins and debt reduction or deleveraging, is this something -- how is this different then prior program and is this something you are viewing as kind of a one year more short term type of focus given just some of the operational challenges and given the leverage right now or is this, you see this is more of the long-term system and where do you want to focus longer-term? Thanks.

I think that -- so we have basically three metrics and anybody who in the company is on a bonus program, at least 60% of their bonus will be based on this three metrics. For the management team, the senior management team it is basically a 100% of their bonus and it is really about improving the margins, are really trying for 2016 is CPG obviously we believe that CPG inherently where we add more value, we should be able to make a higher margin then what we are making in our raw materials and ingredients business and that is flip-flopped in 2016, which is -- that's just basically wrong. The second one is the EBITDA, so margin improvement and EBITDA. I believe are two that we will consistently have as we go forward. The third one because we are adamant about the fact that we do need to deliver from the current five times 1:1.5 in a 12 to 18 months period. The third one I think is more of a short-term one just to make sure that everybody is totally focused on this deleverage and so I would say that the third one has the potential to change, as we have, as we are proving that to be true so to speak.

Great, thank you so much. Look forward to seeing in the Expo next week.

Thank you. I'm showing no further questions. I'd like to turn the call back to management for closing remarks.

So thanks everybody for joining us on the call, we do look forward to hopefully meeting with many of you as we are at Expo West and sharing some of these innovative products that we have been working on in a live fashion with you and we hoping that you will be encouraged by what you see there. So with that thank you for joining and we look forward to your continue support.

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