Nov 10, 2016
Executives
Jarrod Langhans - Cott Corp. (Canada) Jeremy S.
G. Fowden - Cott Corp.
(Canada) Jay Wells - Cott Corp. (Canada) Thomas J.
Harrington - DS Services of America, Inc. Ron Hinson - S&D Coffee, Inc.
Analysts
Mark Petrie - CIBC World Markets, Inc. Derek Dley - Canaccord Genuity Corp.
Amit Sharma - BMO Capital Markets (United States) Freda Zhuo - Goldman Sachs & Co. Bill Schmitz - Deutsche Bank Securities, Inc.
Operator
Good day, everyone, and welcome to Cott Corporation's Third Quarter 2016 Earnings Conference Call. All participants are currently in a listen-only mode.
This call will end no later than 11:00 a.m. The call is being webcast live on Cott's website at www.cott.com and will be available for playback there for two weeks.
This conference call contains forward-looking statements, including statements concerning the company's future financial and operational performance. These statements should be considered in connection with cautionary statements and disclaimers contained in Safe Harbor statement in this morning's earnings press release and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with U.S.
and Canadian securities regulators. The company's actual performance could defer materially from these statements and the company undertakes no duty to update these forward-looking statements except as expressly required by applicable law.
A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP is available in the company's third quarter 2016 earnings announcement released earlier this morning as well as on the Investor Relations section of the company's website at www.cott.com. I'd now like to turn the conference over to Jarrod Langhans, Cott's Head of Investor Relations.
Please go ahead, sir.
Jarrod Langhans - Cott Corp. (Canada)
Good morning, and thank you for joining our call. Today, you will hear from Jerry Fowden, our Chief Executive Officer; Jay Wells, our Chief Finance Officer; and Tom Harrington, CEO of DS Services who will cover water and coffee solutions.
In addition, we have Ron Hinson, CEO, S&D Coffee & Tea with us this morning. Jerry will start this morning's call with an update on our strategy and his observations on the quarter.
We'll then turn the call over to Jay who will discuss our third quarter 2016 consolidated financial performance and an overview of our reporting segments within our traditional business. Tom will then cover our water and coffee solutions segment before turning the call back to Jerry who will complete the call with our expectations for the remainder of the year and our outlook for 2017.
During the quarter, with the completion of the acquisitions of both Eden and S&D, we created the reporting segment, water and coffee solutions, which now includes DS Services as well as Eden and S&D. Following our prepared remarks, we'll open the call up for questions.
With that, let me now turn the call over to Jerry.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thank you, Jarrod, and good morning, everyone. Before we cover our third quarter's results, I wish to make some overall comments, covering our diversification strategy and the progress to-date as well as our performance during the quarter.
So, first, on our diversification strategy. As you are aware, while not forgetting our focus on the four Cs of customers, cost, capital expenditures and free cash flow, we have continued to diversify our business via organic means, such as growing our contract manufacturing and value-added in sparkling waters as well as through acquisitions, specifically within the water, coffee and tea sectors, in order to become a higher margin business with greater emphasis on growing categories versus our historic dependence on declining categories such as carbonated soft drinks and shelf stable juices.
As I look back, I'm pleased with the progress made over the past two to three years in the execution of this strategy that's seen our gross margins move from 10% to 15% to over 30% and has reduced our combined dependence on carbonated soft drinks and shelf stable juices from 55% of revenue and EBITDA to the mid-20% range of revenue and EBITDA. Not only have we meaningfully shifted our business mix, but we have increased our scale, improved our cash generation and increased our valuation, providing benefits to all stakeholders.
That said, the execution of this strategy is not complete. And over the next two to three years, we intend to stay focused on four Cs organic growth and continued complementary and overlapping diversification in HOD water, coffee, tea and filtration such that we further strengthen our scale, route density and leadership positions in these sectors.
Now on to our third quarter's performance which overall saw revenue up 17% to $885 million, gross margins up over 350 basis points to 34.5%, adjusted EBITDA up 17% to $111 million, and adjusted free cash flow broadly in line for the quarter coming in at $67 million, compared to $70 million as the benefit of Eden and S&D, largely offset incremental capital expenditures and $5 million of adverse foreign exchange, leaving year-to-date adjusted free cash flow up $13 million or 21%. These results, however, contain a mixture of puts and takes which I would like to expand on.
So let's look at this Q3 performance in greater detail. The five key factors, I would like to highlight and ensure everyone understand are the following.
Number one, the closing of the acquisition of Eden Springs on August 2 with revenue and EBITDA performance in its first two months in line with our acquisition model. Our expectations for the performance, integration and synergy capture as we look forward to Q4 as well as 2017 are unchanged and in line with our acquisition model.
Number two, the closing of the acquisition of S&D Coffee & Tea on August 11 with strong organic volume and EBITDA performance in its first seven weeks versus our acquisition model and with some very recent customer wins, we have a positive outlook for Q4 and 2017. Number three, a continuation of stable volumes, in fact, up 2% in actual cases in our North American traditional business unit with the ongoing growth in contract manufacturing and value-added in sparkling waters offsetting the decline in carbonated soft drinks and shelf stable juices.
Number four, despite ongoing significant growth and net organic customer wins at DS Services, a softer revenue performance than we would have wished with a 2% decline if you exclude Aquaterra, and continued higher-than-expected operational costs which we currently anticipate continuing into Q4, although we expect the situation to improve as we progress through the first half of 2017. And finally, number five, with the strengthening of the U.S.
dollar and the further post Brexit devaluation of the British pound, we have a more adverse foreign exchange landscape for both Q4 and 2017 as a whole. These five factors on understanding them and their implication is important, not just to understand our Q3 results but also Q4 and our 2017 expectations.
That said, our business is a better, stronger scale business with higher margins and attractive platforms, increasingly positioned to participate in growth markets. We have experienced significant net organic customer growth in DS Services of over 60,000 customers year-to-date versus less than 10,000 last year-to-date which demonstrates the strength of the business on the potential we have as we go forward.
This is especially true when coupled with the ongoing growth we see in contract manufacturing and value-added in sparkling waters in our traditional business as well as the recent new customer wins in custom coffee roasting for 2017. On that note, let me pass over to Jay to cover our consolidated Q3 financial performance as well as some more details behind our Q3 operating performance in our traditional business reporting segment, prior to Tom covering our operating performance in our water and coffee solutions segment.
I'll then return to cover our Q4 and 2017 outlook for the business as a whole.
Jay Wells - Cott Corp. (Canada)
Thank you, Jerry, and good morning, everyone. As Jerry mentioned, we saw some segments and our business continued to grow, such as the delivery of 3-gallon and 5-gallon water bottles to home and offices as well as growth in single-serve coffee at DS Services.
Growth in contract manufacturing and value-added in sparkling waters at Cott North America as well as growth in roasted custom coffee volumes at our recently acquired S&D Coffee & Tea. As you might expect, other parts of our business remained challenging such as carbonated soft drinks and shelf stable juices in our traditional business and brew basket coffee sales at DS Services.
In addition, we saw some recent pressure within DS Services and the demand for and sourcing of small bottles of case pack water that we delivered to our HOD water customers. And sales of 1 gallon HDPE bottles to retailers across the U.S.
Against this backdrop, overall revenue of $885 million was higher by 17%, 20% higher excluding foreign exchange. Excluding Eden and S&D, on a constant currency basis, revenue was broadly flat.
The key revenue drivers for the business excluding Eden and S&D on a constant currency basis were, one, the ongoing mix shift in our North America traditional business unit with 9% actual case volume growth in contract manufacturing with the revenue per cases lower as the brand owner normally supplies the majority of the ingredients and packaging materials. Two, soft sales and brew basket office coffee services and case pack water at DS Services that broadly offset the 3% volume growth in 3-gallon and 5-gallon HOD water and growth in single-serve coffee at DS Services.
And three, the revenue contribution from Aquaterra. Gross profit increased to $306 million with gross margins up 350 plus basis points to 34.5% compared to 30.8% driven primarily by the mix impact from the additions of Eden and S&D as well as costs and efficiency initiatives within our traditional business, offset in part by the negative impact of foreign exchange rates, the competitive landscape within our traditional business and higher-than-anticipated operational costs at DS Services.
Adjusted EBITDA, adjusted primarily for acquisition, integration and transaction costs, increased 17% to $111 million due primarily to the additions of Eden and S&D, offset by $5 million of adverse foreign exchange, over $3 million of incremental investments in organic new customer growth at DS Services, $4 million associated with lower sales within office coffee services, retail and case pack water at DS Services and $5 million of higher operational costs at DS Services. As you all are aware, foreign exchange rates have impacted most, if not all, multi-national consumer goods companies.
And for Cott, the adverse impact to foreign exchange on Q3 EBITDA was approximately $5 million, predominantly from our UK operations. This has driven a $12 million year-to-date impact from foreign exchange and we would expect to end the year with foreign exchange impacting EBITDA by approximately $6 million in the fourth quarter and some $18 million to $19 million on a full year basis.
Based on today's exchange rates and 2017 forecasted rates for the British pound, euro and U.S. dollar, we anticipate an adverse foreign exchange impact on 2017 EBITDA of roughly $12 million to $18 million, with two-thirds of the impact occurring in the first half of the year.
Given the recent foreign exchange volatility, we will update these figures each quarter going forward as we gain more insight into 2017 rates. Turning to income tax.
As noted during our modeling call on August 17, as a result of how we structured the Eden acquisition, we placed a valuation allowance against our existing Canadian net operating loss carryforwards, which increased our reported income tax expense by $9 million in Q3, resulting in income tax expense for the quarter of $5 million, compared to a tax benefit of $6 million in the prior year. Looking to Q4 and full year income tax expense.
We also discussed during our modeling call that we may be required to place a valuation allowance against a portion of our existing U.S. NOL carryovers.
But this determination will not be made until the S&D purchase accounting process has been completed later this year. Please note that these valuation allowances do not impact cash taxes, which were less than $1 million for the quarter, and we continue to expect our full year cash taxes to be minimal in 2016 at approximately $6 million.
Adjusted net income, adjusted primarily for acquisition, integration and transaction costs, as well as the tax valuation allowance just discussed, was $13 million during the quarter. Adjusted net income per diluted share was flat at $0.09.
Free cash flows remain a key focus within our business and strategy. During the quarter, adjusted free cash flow was $67 million, as the addition of Eden and S&D was offset by increased capital expenditures and $5 million of adverse FX.
On a year-to-date basis, our focus on the four Cs has delivered adjusted free cash flows, which were up 21% or $13 million. On that note, I will now cover the operating performance of our traditional businesses.
First, Cott North America. Our third quarter 2016 volumes were up 2% in actual cases, driven by strong growth in value-added water, which increased 19% in actual cases, as well as contract manufacturing which grew 9% in actual cases.
Cott North America's revenue were down 4% at $326 million with revenue growth from improved volume being offset by product mix shift into contract manufacturing with the revenue per cases lower as the brand owner normally provides the ingredients and packaging materials. Gross margin increased by 90 basis points to 13.7% due to the operational leverage of increased actual case volumes and improved operational cost, offset in part by the competitive landscape.
Now turning to the UK. As we've been forecasting for the last year, the UK beverage and retail markets remain challenging as hard discounters pressure the more traditional large format multiple grocers.
But in the face of these headwinds and the loss of volume previously communicated, we have again been pleased with the operational results for our UK business during the quarter as they continue to make good progress against cost and business efficiency programs. And looking at the operating results.
For the quarter, UK volume decreased 6% in actual cases and 1% in servings, while revenue decreased only 2% on a foreign exchange neutral basis. In local currency, gross profit as a percentage of revenue was flat at 14%, as strong growth at Aimia Foods, tight cost controls and lower inventory levels were able to offset the lower volumes in the quarter.
Looking forward to Q4. We continue to expect the UK market to be a challenging environment.
And even though we have performed better than expected over the past four quarters, we continue to expect full year 2016 UK EBITDA to be down approximately 10% as a result of an increasingly adverse post Brexit foreign exchange environment, the UK retail and beverage market competitive pressures, lower UK volumes and the lapping of cost and efficiency programs that we began implementing in the back half of 2015. In effect, our successful cost and efficiency measures and stronger operating performance has been able to postpone the EBITDA headwinds we forecasted for 2016 from the customer loss communicated.
The impact of this customer loss started in Q2 2016, thus, we will not fully lap the effects of this until the third quarter of 2017. With regards to Aimia Foods in the UK, we were again pleased with the performance of Aimia Foods, which had another good quarter with 18% local currency revenue growth and good EBITDA growth.
I will now hand the call over to Tom to cover our water and coffee solutions segment.
Thomas J. Harrington - DS Services of America, Inc.
Thank you, Jay, and good morning, everyone. Let's start with DS Services.
Overall, revenue was up 4% to $279 million, due primarily to the addition of Aquaterra. Revenues were down 2% when we exclude Aquaterra as the decline in the sales of brew basket coffee, case pack water sold to HOD customers, and 1 gallon water sold to our retail customers, offset the 3% volume growth that we saw in returnable bottles and growth in single cup coffee.
The decline in brew basket coffee has been an ongoing trend for DS Services. We believe that our OCS business will benefit from the acquisition of S&D in two key areas.
First, by converting our coffee supply from a third party roasted to S&D, we believe we will be able to upgrade our portfolio by offering higher quality coffee in the right packaged sizes, relying on S&D's proven track record in the area of product offering. Secondly, we will take advantage of the decades of coffee knowledge and expertise of the S&D management team in improving our daily operations.
In relation to the lower sales of case pack water, our Route Sales Representatives have spent less time and energy cross-selling as a result of their focus on new customer installation. In addition, we did experience product shortages as part of our transition from one external co-packer to another in 2016.
This impacted both our home and office delivery sales as well as our sales to our retail customers. While our inventory position is improving during this quarter, and we do not expect these issues to continue into 2017, the effects will continue to be felt in Q4.
Adjusted EBITDA decreased $5 million to $49 million. The decline in EBITDA came from a number of areas, including; our investment of $3 million behind new customer programs, which drove strong net new organic customer growth in the quarter.
This is principally related to incremental commissions paid to our sales associates as well as to our retail partner, driving the bulk of the growth. $4 million associated with reduced sales in brew basket coffee, retail and case pack water, and $5 million plus in higher operating costs generated from a number of key areas including health and welfare costs, all partially offset for $5 million reduction in incentive accruals and the addition of Aquaterra.
At this point, I would like to spend a little more time covering the higher operating costs in our DS Services business. These costs are partly a result of the significant customer growth that we have seen throughout the year as we have incurred direct cost increases from this growth in terms of route operations, particularly in the area of overtime.
With this significant growth, it is taking more manpower and more time to properly setup the new customers for this service. We have also adjusted our routing on an ongoing basis and have needed to take short-term actions such as adding ad hoc routes to adjust the growth in certain markets in the U.S.
In addition to these costs, we have seen operating challenges in terms of production efficiencies and some increased costs to properly maintain our fleet of route trucks. While we see these cost pressures remaining in the fourth quarter as we continue to setup the 20,000 plus net new customers signed during the quarter, we anticipate the level of these incremental costs reducing as we move through 2017.
In terms of the non-growth cost impacts, our teams are working diligently on these issues and are implementing a number of other cost reduction initiatives for 2017. In other parts of our water and coffee solutions segment, primarily Eden Springs and S&D Coffee & Tea, we have acquired two good businesses that we will look to grow over the coming years.
We will grow these businesses through a combination of organic growth, new customers and a broader product portfolio. An example of this would be S&D's recent success in business development of their cold brew coffee and coffee extract segments.
In addition to this growth, we will benefit from synergy capture and vertical integration which should further support growth in EBITDA and free cash flow. During the quarter, Eden and S&D provided $157 million of revenue and $20 million plus of adjusted EBITDA to our consolidated results.
Our S&D team recently landed a number of new contracts which positions them to drive incremental volume in EBITDA for 2017. We feel positive about our outlook for S&D and their ability to meet or exceed our acquisition model in 2017.
Eden has also seen modest growth this year on an FX neutral basis. And we are confident in the business delivering 1% plus of top line FX neutral growth next year.
Eden's EBITDA remains on track to meet the target that we noted in our modeling call. As a reminder, we have provided modeling information on the Eden, S&D on our website and did a modeling call on August 17.
With this modeling deck, we also included estimates for revenues and EBITDA for the period from closing on the acquisitions in August of 2016 to year end which we believe remain reasonable. I will now hand the call back to Jerry to cover our outlook for the balance of the year and 2017.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thank you, Tom. I'll now review our outlook for Q4 and 2017 as a whole by providing a view on each business segment as well as certain macro and companywide factors.
First, our traditional business. We expect the North American beverage landscape especially CSDs to remain challenging.
But overall, we believe our North American business unit can continue to maintain the broadly stable actual case volumes via growth in contract manufacturing and value-added in sparkling waters, offsetting the ongoing market and private label decline in CSDs and shelf stable juices. This volume stability should allow us to continue to generate the good level of healthy, stable free cash flows we've become used to from this business.
With regard to top line revenue, we expect the same trend in 2017 that we've seen in 2016 as we continue to shift the mix within our business towards products that have lower revenue per case, but broadly similar cash margins per case such as contract manufacturing where the brand owner typically provide the ingredients and packaging materials. In the UK, we will remain focused on running a low cost and efficient business as we progress through 2017.
We will start to lap the adverse impact of the lost customer volumes as we get into the third quarter of 2017. We also have a plan to introduce and drive a similar range of value-added in sparkling waters in the UK that have been so successful for us here in North America.
These products will again leverage the same production lines that we used for CSDs today. We do, as Jay mentioned, anticipate lower UK EBITDA in Q4 in 2017 primarily as a result of the adverse British pound versus U.S.
dollar exchange rate discussed as well as, to a lesser degree, lapping the Q4 2015 cost and efficiency savings as well as the lost customer volume that will impact us until the end of the third quarter of 2017. As our UK traditional business starts to work more closely with Eden, we believe we have the opportunity to expand our presence within various speciality water segments that will both leverage our existing facilities and extraction rights and allow us greater penetration into new channel such as hospitality.
Now let's turn to water and coffee solutions, in particular DS Services. As we enter the fourth quarter, we expect to continue to generate new customer sign-ups across the first six weeks of the quarter, followed by a slowdown in customer sign-ups as we reduce or turn off our marketing campaigns for the holiday season.
This is due to a combination of factors, A, not getting the same return on the marketing dollars during this time period as customers are focused elsewhere, and B, the suspension of our in-store retail booth program from Thanksgiving to New Year. Thus, when you add in the normal level of seasonal customer churn and the reduced seasonal new customer marketing programs, we believe we can start to revert to a more normal level of new customer activity.
And as a result, catch up on our Q3 new customer installations and start to plan the reorganization and optimization of our routes for 2017 in order to more efficiently absorb and service the significant level of 2016 new customer additions. While this will not immediately remove the increased operational expense that we've seen this year, as well continue during Q4, it should allow us to position ourselves to progressively reduce these incremental operating costs across 2017.
Thus, in general, we see the shape of DS Services and its Q4 performance as being very similar to Q3. However, we would not expect any incremental reversal of incentive accruals in Q4 which assisted Q3's performance.
And as noted in our press release, DS Services Q4 will be a 13-week quarter versus a 14-week quarter last year. Now, as we look at Eden Springs and S&D Coffee & Tea, our outlook is in line with our modeling call of August 17, although it's fair to say we're off to a strong start in S&D as mentioned earlier.
We also included S&D in the financial calendar section of our press release as they will have a 12-week Q4 this year as opposed to our typical 13-week quarter. Turning to commodities for 2016.
We continue to see a year in which, on a net basis, commodities inclusive of our advanced coverage and hedges are fairly benign. As we look to 2017, there appears to be on an FX neutral basis some modest inflationary pressure across a broad range of commodities.
However, the impact of the strengthening U.S. dollar will drive a much greater degree of commodity inflation on certain specific commodities such as aluminum, corn, apple concentrate, et cetera, which are traded in U.S.
dollars. Thus, driving significant commodity inflation when those commodities are used as part of our manufacturing process outside the U.S.
in places such as the UK, Europe and Mexico. On capital expenditure for 2017, our views are unchanged from that we've covered in the past or on the recent Eden and S&D modeling call.
That is $50 million to $55 million for our traditional business, approximately $75 million for DS Services inclusive of Aquaterra and around $43 million to $48 million for Eden and S&D combined. On foreign exchange, Jay covered this earlier in his remarks, and with the recent appreciation of the U.S.
dollar and depreciation of the British pound, we see the adverse Q4 foreign exchange impact being some $6 million and the 2017 adverse impact being in the $12 million to $18 million range. However, given the significant foreign exchange volatility we have seen recently, we will update you on this each quarter as the year progresses.
Now, while talking about foreign exchange, we updated you last quarter that the immediate impact of the initial post Brexit UK exchange rate meant that our full year 2016 free cash flow would come in at around $135 million and be at the bottom of our $135 million to $145 million range. Since then, we have had further devaluation in the UK exchange rate and we have also closed our Eden and S&D transaction.
So, bringing all of this together, we see our 2016 adjusted free cash flow as now being back in the $135 million to $145 million range with the Eden and S&D half year contributions more than offsetting the further weakness in sterling. Thus, as I stand back and look to the future, I believe we have a more attractive shape to our business.
I believe that our organic focus and actions, plus the potential of small overlapping tuck-in acquisitions, as well as the Eden Springs and S&D transactions, along with synergies and the ability to reduce the cost of servicing our debt will generate strong free cash flow over the next three to four years and rapid deleveraging. Our strategy is focused on the diversification of our business towards cash generative, higher growth or higher margin businesses while continuing to follow our four Cs proceeds and generate strong free cash flow from our traditional business such that Cott's overall business progressively becomes a lower risk company that should trade more in line with other CPG and service industry peers.
The quarter, as discussed, contained a number of positive factors such as a strong start for S&D, but also, a softer performance and higher operating cost than we would have wished from DS Services, although we need to remember the significant demand for their services and the 68,000 net new customers signed up this year versus just 7,000 last year, even though that has placed an unprecedented strain on our business and cost structure that we now need to address. The net effect of all of this is we are today a much stronger, more diversified cash generative business with a meaningfully more attractive outlook from two years to three years ago.
So, on that note, I'd like to turn the call back to Jarrod to open up our question-and-answer session.
Jarrod Langhans - Cott Corp. (Canada)
Thank you, gentlemen. During the Q&A, so that we can hear from as many of you as possible, we would ask for a limit of one question and one follow-up per person.
Thank you for your time. Operator, please open up the line for questions.
Operator
Thank you. We'll go first to Mark Petrie with CIBC.
Mark Petrie - CIBC World Markets, Inc.
Hey, good morning, guys.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Good morning, Mark.
Jay Wells - Cott Corp. (Canada)
Good morning.
Mark Petrie - CIBC World Markets, Inc.
I guess my question is around the DS business, and obviously, the growth has been pretty remarkable over the last nine plus months. And it seems like it's impacting service levels to some extent, and obviously, is bringing some excess cost into the business.
So, sort of stepping back, when you think about the progression into 2017, and obviously, the customer growth that you end up achieving is a big caveat to this. But, how should we think about the structural profitability for that business once you address some of the one-time costs that you've had to incur?
I mean, do you just need more people on the ground, and so the margin structure reduces, or is there positive leverage for you guys as that business grows?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thanks, Mark. And I think that's probably the core area of questions and understanding for this call today.
And as you've rightly pointed out, I think it's 68,000 odd net new customers we've added this year versus organically, that is, versus 7,000 last year. And probably to help everyone understand that, and then I'll pass over to Tom to elaborate on a couple of areas.
When we talk about adding 68,000 net new customers, you got to remember the average customer life is somewhere just over four years, and therefore, there's customer churn each year. So, to add 68,000 net new customers, we have added some – I won't get the number right, 250,000 to 300,000 customers this year have had to be installed, and of course, we have taken equipment back from some less than 200,000 customers to end up with a net, 68,000 growth.
So that's a tremendous amount of activity, meaningfully higher than we've had in prior years. And what – we've not really got the balance right on yet.
And that's what we have to get right in 2017 is on the right level of net new customer additions and how we more efficiently and effectively install these new customers. So I'll ask Tom to expand on some of that and some of the cost action plans that we do have in place for 2017.
Tom?
Thomas J. Harrington - DS Services of America, Inc.
Yeah. Mark, good morning.
A couple of force is at play. Jerry is correct.
So net 68,000, we generally bring in approximately 300,000 gross, but this year, it's a 100,000 plus higher. So it's meaningfully different than anything we've experienced in the past.
So that we have been creating serious inefficiencies and that's driving the operating cost as we burden our RSRs with the significant increase route by route. And as you would expect, in a perfect world, they'd come in 200 a day and they'd be spread ratably across all routes in the U.S.
Well, it doesn't work out that way. So that we have concentration of where these customers and what you're burdening pieces of the business differently than others.
As we referenced in the call, we are now just about caught up in 2016 and expect to return to more normal, but it really is about putting in place the right operating structure to take advantage of the leverage that you referenced which is, in fact, greater route density. So, while the, I'll call it the frontline team of route sales reps and operating management are focused on this tsunami of growth, a separate team is working on our route plan for 2017, which is a detailed approach that says, we will need to add routes in this town at this rate in anticipation of the growth, while at the same time, developing approach that while we still certainly expect to enjoy the growth, is that we manage that growth a little bit differently in 2017, so that we can properly service the customers, reduce the inefficiency in the system, and then leverage the benefit of the customer and route density.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thanks, Tom. And, Mark, I guess the only thing I'd say with 200 plus depots and over 2,000 routes, this is something along the day-to-day execution has a lot more wrinkles to it than this kind of high level conversation.
And while 7,000 net yield organic customers last year was not the right level and we want more than that, it's pretty clear that 68,000 this year has placed too much strain on the organization and we haven't quite honed in on whether it's 30,000 or 40,000 or what the right number is for next year, where we can get a better balance between installing them efficiently and not putting an excessive burden on the organization. So, while not a perfect answer, I think it kind of lays out pretty clearly some of the different dynamics going on there, Mark, and I hope that helps you.
Mark Petrie - CIBC World Markets, Inc.
Yeah, no, that's very helpful. I mean I guess my follow-up would be, do you have a sense of how far into 2017 you'll end up being, assuming the growth rates normalize at a rate that you're comfortable with and feel like you can manage, do you have a sense of when the profitability sort of kicks in and some of these excess cost really fall away?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah. I would kind of hope that by the time we get to the second half of next year, we would be in a better shape.
I mean, Tom briefly mentioned, but we are putting some other cost and efficiency and straightforward good old fashioned type cost controls that Cott used to in place that will help us next year. So we do know there are some specific and firm cost reduction things that we've already decided on for next year.
But as it comes to the route side of things and optimizing those routes and rebalancing them, I think that we'll be progressively beneficial through the year and we should expect a reducing level of that kind of friction cost. They'll be there in the first half of the year, and hopefully, they'll either not be there or be much lower in the second half of the year.
And we'll also kind of firm up on a number. I don't know if it's 30,000, 35,000, 28,000 or 40,000, but some level of new customer additions as we look at next year.
That's a nice rate of growth, but one that we believe we can handle in a much more balanced fashion, somewhere between 2015 and the kind of high level of growth for this year 2016.
Mark Petrie - CIBC World Markets, Inc.
Okay. That's great.
Thanks a lot.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thanks, Mark.
Operator
And we'll take our next question from Derek Dley with Canaccord Genuity.
Derek Dley - Canaccord Genuity Corp.
Yeah. Thanks...
Jeremy S. G. Fowden - Cott Corp. (Canada)
Good morning, Derek.
Derek Dley - Canaccord Genuity Corp.
Good morning, guys. Can you just touch on some of the integration plans.
It sounds like S&D is going slightly better than expected in the early months here and Eden Springs as well. Can you talk about some of the potential cross-selling or synergy capture that you expect to get next year and where you could be potentially higher on that?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah. And I'll have Ron in a minute make a couple of comments, which might catch him by surprise, which is why I'm saying it because Ron is on the call at a remote location and Ron is the CEO of S&D Coffee & Tea.
But to say a few comments, Derek, as you remember, we had that modeling call on August the 17. We laid out within that our go-forward plans for both Eden and S&D.
And from memory, I think it was 1% kind of organic top line growth for Eden next year, growing to 1.5% in the outer years, and for S&D, it was about 3%. And then for the two businesses together, over a full (43:52) year period, it was about $22 million of synergy.
Tom was just discussing that DS would be able to take advantage of S&D's expertise and our intent would be for DS's office coffee business to procure it's coffee supplies through S&D. Whereas today, they're bought from alternative outside third party.
So that would be one classic example of a synergy. We also held a big multiple supplier gathering in Europe just about four weeks ago, bringing DS Services and Eden Springs together and all the suppliers of coolers and the different equipment they install in their customers to work on the consolidated range of coolers that we would want to leverage our procurement, scale and the quality and type of machines that we could both use that helps them provide the supply chain and reduce the service cost for the combined Eden and DS businesses we look forward.
So that's another area on water cooler procurement where there will be synergies. We've also now agreed our approach towards implementing the appropriate SG&A structure between DS Services and Eden Springs.
And we would imagine that that would go live during the first quarter of next year, and therefore, there'll be some SG&A savings in that regard. So there's a number of areas where we see synergies, $22 million in total over four years.
And I would say, at the moment, we feel pretty comfortable about the synergies we originally had in our plan for 2017. But if you recall from the modeling call, was $2 million for S&D and $2 million for Eden.
We feel comfortable about that. But you also mentioned S&D got off to a good start which they did and they had signed some new customers.
So, Ron, do you want to chat a little bit about what's going on in the custom coffee area with regards to your customer approach?
Ron Hinson - S&D Coffee, Inc.
Well, I think pretty much what I would say would be redundant, Jerry. You summed it up very well.
There are other synergies that S&D and DS are certainly working on. As it relates to our category management model, we're talking to some of our larger food service customers, for instance, about their private label water program where DS can come in and talk to them and present a category management program similar to S&D does on our custom coffee and tea program.
So that's very exciting and we've already got that underway. Our business comes in chunks, and that we present a category management program where we talk to them about our customers about what is it we can do to help them grow their business.
So that is coming along extremely well. I think we're ahead of schedule and 2017 looks extremely bright for us as we go to a lot of potential new customers in the queue.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Okay. Thanks a lot, Ron.
Derek Dley - Canaccord Genuity Corp.
Thanks. And Ron, just a quick a follow-up on that.
Can you remind me the average length of a customer contracted S&D, is it closer to seven years?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Well, Derek, it's less contracts in S&D because it's less like the DS office coffee business. You got to remember S&D supplies convenience stores, quick service restaurants, hotel chains.
But I think from all of the due diligence we did for something like the top five or 10 customers in that business, it was an average life of around 10 years.
Derek Dley - Canaccord Genuity Corp.
Okay. Great.
Thank you very much.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thanks, Derek.
Operator
And we'll take our next question from Amit Sharma with BMO Capital.
Amit Sharma - BMO Capital Markets (United States)
Hi, good morning, everyone.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Good morning, Amit.
Amit Sharma - BMO Capital Markets (United States)
Jerry and Tom as well, can you just help us like-for-like (48:06) context around the new customer additions, so 68,000 through the first three quarters. What is it as a base number like?
Is it additional 1%, 2%? How should we think about that?
Or is that even the right way of thinking about that?
Thomas J. Harrington - DS Services of America, Inc.
The net customer is up roughly 3% on a year-over-year basis.
Amit Sharma - BMO Capital Markets (United States)
Okay. So if that...
Jeremy S. G. Fowden - Cott Corp. (Canada)
And the only thing I would add to that, Amit, and we did mention this earlier in the year and it's still a bit early to kind of go to definitive, but we did say that a lot of these incremental new customers had a very strong residential bias to them. If you remember, particularly flooding in strongly around the time of most newspapers carrying stories about the poor quality of municipal water, led in northeast schools, school water flint this side and the other.
Therefore, the time we said we should assume that they have a slightly lower consumption level and that we would need to track their retention rates over time. Now, as we do track these new customers, they are residential biased.
Their consumption is maybe 15%-ish lower than where we would have historically been. They're still attractive customer that we would want.
And while we have not seen any difference, certainly no adverse difference, maybe there's a smidge of favorability, but we don't really know yet. So their churn rate, they appear to have in these early few months which might only be three or six or eight months, they appear to have the same churn rates as the balance of our other residential customers.
So we'll continue to update this as time passes. But obviously, Amit, I think you can understand, although we're tracking these new customers as a separate group on churn, it could end up being three or four or whatever years before we can provide a definitive answer.
Amit Sharma - BMO Capital Markets (United States)
I think that's really help. Just one more clarification on that.
How many of that 68,000 have come online or how many – so as Tom talked about, he was trying to catch up with those. Does that mean, as we are modeling for contribution from these new customers going forward, we had (50:36) a three-month lag or longer?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah, so, Tom, have you got a...
Thomas J. Harrington - DS Services of America, Inc.
Yeah, Amit, the – our online percentages are pretty similar to the historical amount. So both of these customers come from our in-store booth that we execute and we referenced that we typically suspend that in November, December because of the holiday season for the retailer.
So the vast majority will come in from the direct contact inside that retail outlet with our sales people and our customer.
Jeremy S. G. Fowden - Cott Corp. (Canada)
And just to add to that, Amit, because I think you were kind of asking something else in addition. I'm guessing we will, by the end of the quarter, we would have installed probably all that 8,000 or 10,000 of those incremental 20,000 that came in, in Q3.
Amit Sharma - BMO Capital Markets (United States)
Got it. Okay.
That's what I was asking.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah, did we have 58,000 of the 68,000 onboard or something like that. I won't get it right, but that gives you a flavor.
Amit Sharma - BMO Capital Markets (United States)
Yeah, absolutely. And...
Thomas J. Harrington - DS Services of America, Inc.
Amit, just to – it's less than 5,000 as of this morning. So the point is that, as the growth has slowed because of that that suspension that we've now closed the gap and almost caught up.
So another week or so, we'll pretty much be caught up and they'll all be installed.
Amit Sharma - BMO Capital Markets (United States)
Okay. And then the last one on this topic is that how do we then reconcile the decline of net 2% in the organic business.
Does that mean the rest of the businesses maybe down 4% or 5%-ish and is that temporary, we expect it to come back?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah, I think the best way to expand on this and Jay might want to comment, and we did provide a revenue breakdown schedule within the press release. There was something like $7-ish million of decline that wasn't three-gallon and five-gallon water to HOD water customers.
It was things like office coffee services where we believe the combination of DS's OCS business with S&D will give us a proposition where we can win in coffee. Because it's not just about offices, we want to win in coffee whether it's a deli, a convenience store, a gas station, a quick service restaurant, a hotel, et cetera.
So we do believe that both synergies and business proposition with DS's OCS and S&D working together. So, as we look out over the next year or two, we're going to be in a winning position in coffee.
The other area was weaker case pack water sales which was from a couple of factors. Frankly, we had some supply issues over the summer in changing a supplier because one of them was letting us down on service a bit in terms of meeting the quantities we were ordering.
And our RSRs that sell the three-gallon and five-gallon water as well as do the cross-selling of small pack products were frankly so busy rushed off their feet with all these installations and new customers, the focus on the success of cross-selling these additional add-on sales took a bit of a hit as Tom mentioned. So it's about 3% of revenue mix versus where we would have wanted to have been in those kind of nothing to do with three-gallon and five-gallon water cooler sales.
And I don't know if we'll close all of that gap next year. Certainly, we feel we'll make substantial progress in coffee when we leverage OCS and DS and S&D together.
We think we'll be in a better position on case pack water. Because unless a new third party supplier lets us down, we shouldn't have that issue in the summer months.
And retail is always a bit volatile. We had a good quarter one on retail this year, Amit, I think in DS if we go back and look, and we didn't have such a good quarter three.
And as we know, supermarkets, promotional programs, everything else, it does move up and down.
Thomas J. Harrington - DS Services of America, Inc.
Yeah, on retail, Amit, our goal is we look at that as more of a fixed cost coverage on that. We just want to keep that flat.
And if you look over the past year, it is lumpy and bumpy. But if you look back the last 12 months, I'd say it's flattish.
This was just a down quarter.
Amit Sharma - BMO Capital Markets (United States)
Got it. Thank you so much.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thank you, Amit.
Operator
And we'll take our next question from Judy Hong with Goldman Sachs.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Hi, Judy.
Freda Zhuo - Goldman Sachs & Co.
Hi, this is actually Freda filling in for Judy.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Hi, Freda.
Freda Zhuo - Goldman Sachs & Co.
So I think I guess I had a question, a follow-up on DS and I guess we've talked a lot about some of the issues in terms of the weakness in the underlying top line. But as we think about 2017 and the 3% to 4% underlying sales growth algorithm, based on easy comps, a potential benefit from energy costs rising and maybe some of the flows through of the customer additions trying to hit the P&L next year, how are we thinking about that 3% to 4% algorithm next year.
Could you potentially overshoot that?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Well, at the moment, we're undershooting it. So I might not be so positive as to talk about overshooting it.
So we have said that we believe the operating costs will slowly improve as we go through 2017 but still be present in the first half of the year. We do have this kind of 3% growth which 3% to 4% is what we would look for in the three-gallon and five-gallon water cooler business.
And on the energy side of things, we don't benefit from energy and we don't really get hit by energy either in DS Services because we have this energy surcharge that goes up or down on a monthly basis based on prior the federal reported cost of diesel. So, in effect, that's a pass-through.
It can take our revenue up or down depending on whether that surcharge increases or decreases, but we should be neutral on the EBITDA line.
Freda Zhuo - Goldman Sachs & Co.
Okay. Got it.
And then just going into the growth that we saw in the quarter on sparkling water, what are the plans to expand that a little bit further as you look to 4Q and 2017 in terms of either shifting capacity, targeting new channels and how big do you think it can get for next year?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Well, certainly some of that is the fact that this is a category, is a very attractive growth category. And I think the category, albeit different people define it slightly differently, I think the value-added water category in total was up about 10% or just over 10%, and obviously, up 19%.
That's an area where we're performing at least in line with frankly, at the momentum, but I'm sure individual quarters will vary, better than the category. It is a priority focus for us, and it contains quite a variety of different products and that there are still products and sparkling products.
There are unsweetened products and there are sweetened products. There are organic products as well as some that use enhanced sweetness.
Therefore, it's across that range of products including some ice type beverages that we have seen this 19% growth. We believe that's an area that we will see further worthwhile growth as we look forward, not just for the fall but also 2017.
It is an area that we see is key, and we've targeted something like double-digit, a 10% growth in that area as part of our three-year strategic plan on a year in and year out basis. And the fact that it runs on the same identical lines, that we would otherwise be producing carbonated soft drink from, it's a very attractive offset to that ongoing decline in CSDs, that it ensures we maintain good high levels of asset utilization.
So it's a growth category in general. We're exceeding the category growth at the moment.
We're targeting 10% compound annual growth in volume per annum there and it provides this offset to what would otherwise be deleveraging of the lines that we use for CSDs. I don't know if that covers it well enough.
Freda Zhuo - Goldman Sachs & Co.
No, that's great. Thank you.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Super. Thank you.
I think we've got time...
Jarrod Langhans - Cott Corp. (Canada)
We've got one more.
Jeremy S. G. Fowden - Cott Corp. (Canada)
...for one more question.
Operator
Okay. Thank you.
And we'll take our final question today from Bill Schmitz with Deutsche Bank.
Bill Schmitz - Deutsche Bank Securities, Inc.
Hey, guys, thanks for squeezing me in. I've been going back and forth in all the different calls.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thank you, Bill, and always nice to hear from you.
Bill Schmitz - Deutsche Bank Securities, Inc.
Thanks so much. You say that to all the girls.
Can I – can you – maybe I missed it, but can you just talk about what the EBITDA impact was in aggregate like year-to-date from like the over time, the shortages like the co-packed water, maybe like lower customer service from existing customers because of all the new adds? And then like...
Jeremy S. G. Fowden - Cott Corp. (Canada)
Okay. Different bits there, but I think the easiest thing to break them down into some segments is the incremental cost, the positive cost of marketing to get 68,000 customers instead of 7,000 customers is some $3 million to $5 million per quarter.
So here we are after three, four quarters, that's going to be in the $10 million to $15 million range for a full year-to-date basis. And that's the positive side of the equation where we will get the customers and the future benefit.
We have also had the more adverse side of that equation which is the friction costs associated with all the pressure that that has placed on our business. And that was some $5 million this quarter and I haven't got in front of me a year-to-date number.
Jay Wells - Cott Corp. (Canada)
$3 million to $4 million in the quarter.
Jeremy S. G. Fowden - Cott Corp. (Canada)
But it's $3 million to $4 million in the earlier quarter. So, if you take $5 million and you add on two lots of $3.5 million of $7 million, you've got $12-ish million there, Bill.
And the OCS and case pack water which was more – and retail which was more of a this quarter phenomenon than anything else, I think was about $3 million or $4 million.
Jay Wells - Cott Corp. (Canada)
OCS has been a bit of a headwind every quarter. It was really more the retail and the case pack water more slightly (01:01:53) this quarter.
Bill Schmitz - Deutsche Bank Securities, Inc.
Okay. I mean so, I mean is this being like way too aggressive, but is there like, I don't know, $30 million of EBITDA that's latent that comes back.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Well, the higher than we would have wanted friction on operating cost should progressively come back as we go through 2017 and the rate of incremental marketing expenditure on new customers is what I referred to earlier and you've might been on one of those other calls, we need to work out, Bill, what's the right level of new customer acquisitions as we look forward to 2017 and 2018. What we know is, we don't want it to be the 7,000 customers year-to-date for 2015 and we don't want it to be the 68,000 customers that has overstrained our system year-to-date for this year.
And we are thinking it's probably more likely to be, in fact, 30,000 to 40,000 net new customer additions per annum that provides an attractive ongoing incremental lift to the revenue performance without being so great that it overwhelms our ability to efficiently run the routes to absorb these new customers. And Tom gave a more detailed answer to someone earlier on, Bill, whereby he said, look, you might like that it was just 200 customers every week that turned out spread across the whole country and you can stick one customer on every 10th route.
Well, it's not like that. You get 8,000 out of one marketing push in one geography and it overwhelms that location and then a week or two later, a similar thing happens somewhere else.
So we've got to find a different balance to bringing these new customers on.
Bill Schmitz - Deutsche Bank Securities, Inc.
Got you. And do you have a sense for what the ROI on the $10 million to $15 million is?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Well, the average customer life is 4.2 years. These are residential customers by and large, which are some 15%-ish lower consumption.
We're only six to eight months in to the churn of these customers and we are trying to track whether they have any different characteristics with regards to customer churn that would make the economics different. What we can say so far, after six to eight months, we are not seeing any different or adverse customer churn.
So, assuming they have the same, four-and-a-bit year average life, we would be in the position that we're looking at something like a 15-ish month, could it be 16-month payback on these customers. Therefore, we still see them as financially attractive.
Bill Schmitz - Deutsche Bank Securities, Inc.
Okay. Got you.
And can you just break out the buckets for me in like the $10 million to $15 million that's sort of like strategic marketing spend in the $12 million year-to-date friction, like what do you sort of define as marketing and what do you define as friction?
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah, and the marketing cost really are the costs of – the complete cost, end-to-end, from attracting, speaking to, signing up and installing a new customer to the point that the cooler is in his home, and it is up and running. And we say that's around $150 to $200 per customer, and it would contain things like the following, but obviously, depends if we got them through the Web, we got them through a door knocking salesman, we got them through our retail booth program, et cetera.
But if it was, for example, a retail booth program, there is the cost of putting the booth into that retailer for the Wednesday through to Sunday. There's the cost, the base cost of the two members of staff that would service that booth.
There's the commission to those members of staff each time they sign up a new customer. There's the commission to the retailer for each new customer signed up, where there is the requirement to return that if they don't stay a customer for a period of time.
And there is the cost of the RSR going round to install the cooler, train the new customers to how the cooler works and how the program works. And if it wasn't a retail booth customer, and it was one you got through print on paper, there's buying the ad in the coupon stuff that's in the newspaper, there is probably a $50 offter within that ad for new customers and then there'll still be the cost of the RSR going round and installing that cooler and training the customer.
So $150 to $200 per new customer is what's in that sales and marketing cost. The friction cost is really, if you got 68,000 net new customers what it means is, we have installed something like 250,000 over 300,000 customers this year as new customers.
And then you've had your normal customer churn off that four-year life, Bill. So you've uninstalled 150,000 to 200,000 or something.
So it's a tremendous amount of work. And what we've learned is going from 7,000 or 68,000 has overstrained the organization and we need to pick, as I was mentioning earlier, that right balance is it 30,000, is it 35,000, is it 40,000, what's that right balance for 2017 where we can manage it more efficiently?
Bill Schmitz - Deutsche Bank Securities, Inc.
Okay. That's helpful.
And then I talked to Jarrod about this a little bit but like the December quarter usually is a pretty good digestion quarter, right. So it's like you're not really adding customers like the booths are down because they're selling Christmas trees.
Customers aren't really (01:07:47)...
Jeremy S. G. Fowden - Cott Corp. (Canada)
Yeah, we should start to catch up on, Tom was mentioning, as of this morning, we still had 5,000 of last quarter's customers to install. We should catch up within the next week or two.
We'll stop our retail booth program, Thanksgiving to New Year, and we'll reduce our marketing spend. So, for the first six weeks of this quarter, we'll still have new customers coming in from marketing and the normal level of churn.
In the back six or seven weeks for the quarter, we should have stopped having new customers in as we hold that booth program and stop our marketing spend and we'll still have some regular churn. So we should start to get back on an even keel as we get to the end of Q4 and that means we can really work on optimizing our routes in getting back to a more efficient cost structure as we go through the first half of 2017, Bill, as long as we don't overload ourselves again.
Bill Schmitz - Deutsche Bank Securities, Inc.
Okay, great. And then one last one, I know this call is going forever, but are you getting any pricing in the UK?
I mean I asked a question on another call, I mean it seems like given the currency devaluation like normal macro economics like that happens, most guys push pretty aggressively to get some pricing through. I see people have had mixed success, but ultimately, they get it.
So I mean this is still too early or do you – is there a scenario where they – pricing starts to inflate?
Jeremy S. G. Fowden - Cott Corp. (Canada)
That's a good question for the UK and I'm sure the actual outcome will be a bit likely described, Bill. We'll take two steps forward in asking for all that we need.
And we'll take one step backwards and end up somewhere in the middle where the – a lag of is it three months or is it four months. I don't know how many people on this call disproportionately not from the UK like me read about and understood (01:09:32) in the UK which is a leading...
Bill Schmitz - Deutsche Bank Securities, Inc.
But you got a 15% price increase.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Well, after getting D-listed (01:09:40) and thrown out of the stores for a while and that's a major leading brand and not a private label, Bill, where we all know the dynamics are a little bit different. So, of course, yes, we're going for pricing.
We're already in certain discussions with the trade, talking about it being effective in the early part of next year and I'm sure the outcomes will vary slightly but there is something we need. But we'll still have that adverse lag because devaluation hits you pretty quickly and then it takes a time to floor it back.
And we've always said our traditional business has a lead and a lag when there's commodity inflation or deflation.
Bill Schmitz - Deutsche Bank Securities, Inc.
Okay. Great.
That's helpful. Thanks, guys.
Jeremy S. G. Fowden - Cott Corp. (Canada)
Thanks, Bill.
Bill Schmitz - Deutsche Bank Securities, Inc.
All right. Bye-bye.
Operator
And at this time, I'd like to turn the call back over to our speakers for any additional or closing remarks.
Jarrod Langhans - Cott Corp. (Canada)
Thank you very much for joining our call today. This will conclude Cott Corporation's Third Quarter 2016 Call.
Thanks for attending.