Feb 12, 2014
Executives
Robert Meyer Jerry S. G.
Fowden - Chief Executive Officer and Director Jay Wells - Chief Financial Officer and Vice President
Analysts
Perry Caicco - CIBC World Markets Inc., Research Division William Schmitz - Deutsche Bank AG, Research Division Karru Martinson - Deutsche Bank AG, Research Division Amit Sharma - BMO Capital Markets U.S. John A.
Faucher - JP Morgan Chase & Co, Research Division Judy E. Hong - Goldman Sachs Group Inc., Research Division Jonathan P.
Feeney - Janney Montgomery Scott LLC, Research Division
Operator
Welcome to Cott Corporation's Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] The call is being webcast live on Cott's website at www.cott.com and will be available for a playback there until March 1, 2014.
We remind you that this conference call contains certain forward-looking statements reflecting management's current expectations regarding future results of operations, economic performance and financial conditions. Such statements include, but are not limited to, statements that relate to estimated revenues, volumes, general and administrative expense and net income.
This conference call also includes forward-looking statements reflecting the company's business strategy and include statements related to the company's capital deployment strategy, the redemption of our 2017 senior notes and the refinancing of our 2018 senior notes. The reduction of interest expense in investment inorganic and bolt-on opportunities, goals and expectations concerning our market position, future operations, product mix and estimated capital expenditures, commodity cost, taxes and tax rates.
Forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to materially differ from current expectations. These risks and uncertainties are detailed from time to time in the company's security filings.
The information set forth herein should be considered in light of such risks and uncertainties. Certain material factors or assumptions were applied in drawing conclusions or making forecast or projections reflected in the forward-looking information.
Additional information about the material factors or assumptions applied in drawing conclusions or making forecasts or projections reflected in the forward-looking information is available on the company's press release issued earlier this morning and its quarterly report on Form 10-Q for the quarter ended September 28, 2013. The company does not, except as expressly required by applicable laws, assume any obligation to update the information contained in this conference call.
A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP is available on the company's fourth quarter and fiscal year 2013 earnings announcement released earlier this morning, as well as on the Investor Relations section of the company's website at www.cott.com. I'll now turn the call over to Robert Meyer, Cott's Director of Investor Relations.
Robert Meyer
Good morning, and thank you for joining our call. Today, I'm accompanied by Jerry Fowden, our Chief Executive Officer; and Jay Wells, our Chief Financial Officer.
Jerry will start this morning's call with some introductory remarks before turning the call over to Jay for a discussion of our fourth quarter and fiscal year 2013 financial performance. Jay will then turn the call back to Jerry, who will complete the call with his perspective on our 2013 performance, as well as a discussion of business drivers and expectations for 2014.
Following our prepared remarks, we will open up the call for questions. With that, let me now turn the call over to Jerry.
Jerry S. G. Fowden
Thank you, Rob. Good morning, everyone.
Before Jay reviews our financial results, I wanted to offer a few introductory comments. First, I will comment on cost performance, and then go on to cover changes during the year in the broader market environment we operate in.
While the fourth quarter and the full year were challenging for Cott, we continue to run the business very tightly, focusing on our 4 C's of customer service: cost, CapEx and cash. As a result of this, you will see we have reduced our already low SG&A cost and continued to focus on cash generation, achieving $108 million of free cash flow before taking account of the $8 million cash cost for the early redemption of $200 million worth of our 2017 senior notes, thus significantly reducing our debt and future interest expense.
This strong cash generation has supported our return to shareholders of $32 million in 2013 through a combination of dividends and stock repurchases. We were also able to execute on our bolt-on diversification strategy with the acquisition in the U.K.
of Calypso Soft Drinks during the year. Calypso is an excellent example of a bolt-on acquisition that diversifies our product, our package and our channel mix as Calypso brings new products and packaging formats such as single-serve Combi cartons, single-serve cups and cuplets and 2 freezable product formats into our portfolio, alongside providing us with opportunities in the U.K.
food service channel. Now with regard to the broader market we operate in.
At this time last year, our outlook was one of mature CSD and shelf-stable juice market, with forecasted volume declines within those broad categories of 1% to 3%. Modest low-single-digit commodity inflation with high-fructose corn syrup and others sweeteners as the main drivers of those increases, alongside high but more stable input prices for PET and aluminium with a mixed outlook across different fruit juice cost.
Within those market dynamics, the commentary from most beverage producers was one of rational pricing, a continued emphasis on managing the product and package mix and on innovation, alongside an increase in marketing investment to support the category and enhance brand values. As I now look back on 2013, most of you know the market did not pan out as expected.
With the overall CSD category taking a turn for the worse with a full year volume decline of 4%. This high rate of CSD market decline and the associated manufacturing fixed cost deleveraging that affected us and the major branded players who now own their own CSD manufacturing facilities, as well as some retailers who suffered falling foot traffic and weaker comp store sales led to a significant increase in national brand, deep cup carbonated soft drink promotional activity and lower pricing over extended periods of time.
From the market data available, this activity has done little to restore or improve market growth and has shown no signs of improving revenue. As any small volume benefit from the promotional activity has been more than offset by higher declines at the revenue line from the lower pricing.
Once more, this promotional activity also seems to have failed to shift CSD market share much across the various branded players, as all participated in the same activity and with the same price discounts for very similar periods of time. That said, these lower retail prices, especially on to 2 liter CSDs of $1 per bottle or less, remembering that $0.75 was the national TV advertised price over the Thanksgiving holiday have compressed and reduced the price gap between the national brands and private label from 39% to 16% in certain retailers, and on occasions, as just mentioned over Thanksgiving, led to private label holding a price premium over the national brands.
The impact of this promotional activity has understandably been adverse on our and all private label CSD volumes. And when added to the weak CSD market had adversely impacted both our top line and our margins through lower fixed cost absorption.
I've said before that I do not see this dynamic changing in the short term. And I believe we will continue to see a challenging landscape ahead for 2014.
Now before I hand the call over to Jay, I would like to confirm that we remain committed to the strategy of running our business tightly, while generating significant cash flows to support our capital deployment strategy of not just debt reduction, but also return of funds to shareholders and continued diversification of our product, package and channel mix through both organic and acquisition-based activity. Each year, we undertake a full strategic review and strategic planning exercise.
During this exercise, we asses all factors surrounding the market and the segments and geographies in which we currently compete, as well as those that offer additional opportunities. We look at all aspects of our business and look out over the next 3, 5, 7 and 10 years as to how these various factors might change and influence our management of the business and how best to build shareholder value.
Thus, over the last 5 years, we have undertaken this exercise 5 times. And on 3 of those occasions, we have engaged external advisors to assist us in looking at and analyzing multiple scenarios and alternatives.
Last week, we issued a press release following some inbound media inquiries explaining that we were currently undertaking our latest iteration of this strategic review or strategic plan consistent with past practice. Now over to Jay to cover our financials, and I'll comment more on the quarter, the business units and our current outlook later.
Jay Wells
Thank you, Jerry. The fourth quarter total sales beverage case volume, excluding concentrate sales, was 180 million cases compared to 199 million in the fourth quarter of 2012.
Including concentrate sales, total sales beverage case volume was 264 million cases compared to 280 million. The volume decline was due primarily to a general North American CSD market decline, prolonged aggressive promotional pricing activity from the national brands and our continued exit from our low margin case pack water business.
Revenue for the fourth quarter was lower by 7% at $482 million compared to $517 million. The gross profit margin for the quarter was 11.2%, a decrease of 50 basis points compared to 11.7% in Q4 2012.
The gross margin reduction was due primarily to lower global volumes, which resulted in unfavorable fixed cost absorption. SG&A expenses were lower by 9% at $39.5 million compared to $43.6 million.
The decrease in SG&A was due primarily to lower employee-related costs, as well as lower professional fees. Interest expense for the fourth quarter was lower at $12.2 million compared to $13.6 million in Q4 2012.
The $1.4 million reduction in interest expense was primarily a result of redeeming $200 million of our 2017 notes, senior notes, during the quarter. Excluding bond redemption costs and other adjustments, adjusted net income was $2.8 million compared to $3.2 million in the fourth quarter of 2012.
Adjusted earnings per share and adjusted EBITDA were both flat versus Q4 2012 with adjusted earnings per share of $0.03 and adjusted EBITDA of $42.5 million. Now turning to fiscal year 2013.
Filled beverage case volume, excluding concentrate sales, was 793 million cases compared to 867 million in the prior year. Including concentrate sales, total filled beverage case volume was 1.1 billion cases compared to 1.2 billion.
The volume decline was due primarily to a general market decline in the CSD category, prolonged aggressive promotional pricing activity by the national brands and our continued exit from our low margin case pack water business. Revenue for the fiscal year of 2013 was lower by 7%.
Gross profit as a percentage of revenue was 12%, 90 basis points lower than the 12.9% in the prior year. The gross margin reduction was due primarily to lower global volumes that resulted in unfavorable fixed cost absorption that was not offset by pricing and operational efficiencies.
SG&A expenses were lower by 10% at $160 million compared to $178 million in the prior year. Just over half of the decrease in SG&A expenses was driven by lower employee incentive accruals that we will be lapping in 2014 as we reestablish on-target employee incentives.
The remainder of the decrease in SG&A was due primarily from reduced information technology costs, other employee-related costs and professional fees as we continue to focus on our 4 C's and drive costs out of our business. Excluding bond redemption costs and other adjustments, adjusted net income and adjusted earnings per diluted share were $36.3 million and $0.38, respectively, compared to $51.9 million and $0.55 in the prior year.
Adjusted EBITDA was $197 million compared to $213 million. Although some aspects of our performance were disappointing, we continue to focus on our 4 C's and controlled CapEx by managing projects tightly and rigorously manage working capital.
This allowed us to deliver our fifth straight year of strong free cash flow with our free cash flow for fiscal 2013 being $100 million or $108 million if you exclude the $8 million cash cost for the early redemption of $200 million of our 2017 senior notes. Turning to our balance sheet.
Cash on hand at the end of the year was $47 million, net debt was $411 million and our unused borrowing availability was $180 million. Now I would like to review the progress we made on our capital deployment strategy during 2013.
As we have discussed previously, our capital deployment strategy provides that approximately 30% of our free cash flow is returned to shareholders, 40% toward reducing debt and the remaining 30% for investment, both organic and bolt-on acquisition-based with the specific aim of accelerating the diversification of our business in term of product types, packaging formats and channel opportunities, thus slowly and consistently improving our product, package and channel mix over time. In fiscal -- In fiscal year 2013, we returned over $32 million to our shareholders, primarily through dividends supplemented by our share repurchase program.
We lowered our gross debt by $146 million by redeeming $200 million of our 2017 senior notes with cash on hand and drawing on our ABL. This debt reduction strengthens our balance sheet, improves our financial metrics and with the redemption of the remainder of our 2017 senior notes this month, we will reduce interest expense by approximately $14 million in 2014.
We were also able to execute on our diversifying bolt-on strategy with the acquisition of Calypso Soft Drinks during 2013. For a purchase price of approximately $30 million, we added the capability to produce Combi cartons, cups and cuplets and freezable products in the U.K.
alongside adding new customers in the food service channel. Calypso is a $50 million revenue business that was immediately EPS and EBITDA accretive.
During 2014, we planned to continue to follow our current capital deployment strategy. By the beginning of 2015, our goal is to have our gross debt reduced to our targeted level and our long-term debt structure in place.
At that point, we would no longer allocate free cash flow to reducing debt, but allocate a greater percentage of our cash flow to return to shareholders and investing behind diversification. With that, I will now turn the call back to Jerry.
Jerry S. G. Fowden
Thanks, Jay. I'll now review the performance in each of our reporting segments.
In North America, our 2013 volumes were down 11% and our revenues were down 10%, from a combination of the previously mentioned declines across the CSD and shelf-stable juice categories, a higher rate of decline for private label CSDs due to the narrower price gaps between national brands and private label, alongside the continued exiting of our case pack water business. While our shelf-stable juice and juice drink performance improved as the year progressed, with volume growth in the fourth quarter as a result of increased retailer support of the category and new customer wins, the CSD environment worsened in the second half and in particular quarter 4 predominately due to national brand deep cup promotional pricing activity reducing the price gap to private label and adversely impacting our CSD volumes.
As the overall CSD market remains difficult, excess capacity grows and until a more active approach to rationalizing excess capacity is taken across the industry, we will likely see increased pressure on margins and an escalation in the amount of tendering and bidding across the North American retail trade. As part of the strategic planning process that I mentioned earlier, we undertake an annual review of our manufacturing footprint, it's efficiencies and capacity utilization, and assess this versus the transport and freight costs, thus identifying the best landed or delivered cost into our customers' distribution centers and the best manufacturing footprint for us to operate.
We expect to have this footprint review completed by the end of the first quarter. In addition to this footprint review, we also continued to focus on North American contract manufacturing wins, which we see as an area of growth in 2014 and over the next few years.
We have started with the production of some new contract manufacturing business over quarter 3 and quarter 4 in North America and feel comfortable that we will grow this segment of our business by some 10-plus million raw cases during 2014. Now turning to the U.K.
We had another good year in the U.K., even though with the exception of July, the weather tried its best to hamper the total beverage category. Our U.K.
volumes rose 2% and revenues increased 5% across 2013 as a whole with fourth quarter volume up 3% and revenue up 8%. The strengthening performance was driven by the bolt-on acquisition of Calypso Soft Drinks, which I'm pleased to say is tracking to our acquisition model.
Based on our current 2014 expectation, Calypso would deliver a 4x to 5x post-synergy EBITDA multiple. Across the balance of our U.K.
business, the private label and value energy sector continues to suffer from narrower price gaps to the national brand. However, this factor was less marked in the fourth quarter and in general, our U.K.
business benefited from a slightly better fourth quarter in terms of margin and a strong Christmas trading period, which is more of a seasonal peak in the U.K. than in North America.
As we look out for 2014, we continue to see modest growth, both at the top line and the bottom line for our U.K. business, made up of ongoing Calypso benefit, increasing capacity from line installations and some new customer wins.
Now turning to what we have recently named our all other reporting segment. This segment contains our Mexico and RCI businesses, which together account for less than 10% of our revenues, volume and operating income.
While volume and revenue for this all other segment was lower in 2013 versus 2012, operating income improved from $4 million to $7 million. This was due to a combination of new customer wins and an improved product mix in the RCI business, as well as a continued shift in Mexico from high volume, low margin 3-liter private label CSDs to more contract manufacturing of alcohol, energy and other specialty beverages, alongside some new contract manufacturing wins and a continued focus on operating efficiencies and cost.
Now looking to 2014. As I mentioned earlier, I expect the North American beverage landscape, especially carbonated soft drinks to remain challenging in 2014, with continuing pressure on category and private label volumes, as well as on margins from excess capacity and increased promotional activity and pricing.
Our outlook for the shelf-stable juice category, however, is one of great stability. Our intention, as we've stated before, is to pass back juice commodity reductions when they arise to assist the category's performance after a number of very difficult years of commodity increases that led to an overall category decline.
With regards to SG&A, you have seen that we managed this very tightly in 2013 at $160 million, down some $18 million over 2012. However, as Jay has mentioned, just over half of this reduction was from the elimination and reversal of various bonus and incentive programs, which will not roll forward as ongoing savings in 2014.
We will however, continue to control SG&A tightly and implement some further cost containment measures during 2014 to help offset normal inflation and ensure we stay a low cost provider. We'll continue with our 4 C's approach of managing cost, cash and CapEx tightly.
And in regard to 2014 CapEx, we see expenditure in the $50 million to $55 million range. We continue to expect our cash tax costs to be minimal in 2014, and our effective tax rate to stay in the mid-teens.
On commodities, it's pleasing to see 2014 as a year when commodities overall are not a headwind. Apple cost for 2014, as a whole year, are expected to be down on 2013, although up on the spot prices that were available during the middle and latter parts of the year.
Cranberry costs are down for the recent crop. Although Cott, like many others, has carry-over inventory from 2013.
For certain other fruits such as prune, we have seen significant increases. As previously mentioned, our aim is to pass back juice commodity reductions where they exist in order to assist the category's growth performance.
The high fructose corn syrup, 2014 sees a reversal of last year's run-up due to a much better corn harvest. For PET and aluminium, including the Midwest premium, the market is forecast to stay high, but stable at this stage.
Thus while commodities for 2014 are not the headwind they have been for the last few years, we still see 2014 as challenging with excess capacity, a sluggish CSD industry and the potential for irrational pricing to continue. Against this backdrop, we'll continue to run our business tightly, follow the 4 C's and execute our capital deployment strategy and continue to diversify our business by product, package and channel over time.
I would now like to turn the call back to Rob.
Robert Meyer
Thank you, Jay and Jerry. [Operator Instructions] Thank you for your time.
Operator, please open up the line for questions.
Operator
[Operator Instructions] Our first question is coming from Perry Caicco from CIBC World Markets.
Perry Caicco - CIBC World Markets Inc., Research Division
Jerry, I'm not sure you want to give out the exact number, but did you give out the exact volume decline for you in carbonated soft drinks in North America?
Jerry S. G. Fowden
We didn't, but it was in the mid to high-teens for carbonated soft drinks in North America with our shelf-stable juice business growing in the kind of low- to mid-single digits.
Perry Caicco - CIBC World Markets Inc., Research Division
Okay. And then when you look at the current state of promotional intensities, has there been any alteration to the promotional strategies?
Has there been any change in, for instance, the packages that are being promoted? What have you seen recently?
Jerry S. G. Fowden
I'd say no change to our expectation for the overall landscape, Perry. But to give you a bit more kind of detail behind that, the current round of $1 2-liter-plus various other aggressive promotional activities started about 2 weeks before Thanksgiving, somewhere around the kind of 12th, 13th, 14th of November, and that ran all the way through and finished around about the end of the first week, start of the second week of January.
So it was over a very long period of time. And we did that over Thanksgiving that kind of $1 for 2 liters drop to $0.75 for 2 liters.
So as of second week January, we have seen a lift in that promotional pricing. But, of course, what we're not sure is when will it start again.
We're still of the belief that, that promotional landscape will stay a challenging one as we look out over 2014.
Perry Caicco - CIBC World Markets Inc., Research Division
And sorry, Jerry, have the other packages been an issue or is it mostly 2 liters?
Jerry S. G. Fowden
I would say it's mostly 2 liters, but there has been sharp price points but for much shorter periods of time, which I would say is more like the norm for our industry, albeit slightly elevated. What's quite unusual of these kind of 7, 8, 9, 10 week ongoing equivalent to everyday low prices on major package formats that we've seen really start during the second quarter and then be replicated despite many of the national brand commentary saying they won't going to do that anymore.
In effect, it was replicated in the same way across quarter 4.
Perry Caicco - CIBC World Markets Inc., Research Division
Okay. And then my last question would be, how has this impacted the relationship with your largest customer?
And are there any growth prospects there?
Jerry S. G. Fowden
As you know, we like not to talk about our individual customers. But I think what I would say is I think our customer relationships in North America are positive.
We have not kind of seen any impacts on space or range or anything with a customer that you're talking about. And therefore, I'd say everything is fine and we're now, what, 5 years after that much talked about change in contractual relationships and we still supply all of that business.
So I think you know we take our 4 C's to heart, Perry, of which the first of those 4 C's is our customer service and our customer relationships and on that side of things, we think everything is in good shape.
Operator
Our next question today is coming from Bill Schmitz from Deutsche Bank.
William Schmitz - Deutsche Bank AG, Research Division
A couple of things. First, on the strategic alternatives, is this different than the other processes that you guys have embarked on?
Because this is the only, like, big public one that we never heard that you hiring an outside advisor before. So is there a difference this time and why was it announced and maybe what are some of the things you're working on as part of the process?
Jerry S. G. Fowden
Good question, Bill. And I think as mentioned during the call, each year, we undertake one of these full strategic reviews or strategic planning exercise.
During that, we do look at everything that surrounds the market and segments and geographies that we're in. We also look at the segments and opportunity areas where we don't currently operate and we try and look out over what I call a 3- to 10-year time frame factoring in how we see the markets and segments and landscape changing.
Over the last 5 years, we've done this each year. And on 3 of those occasions, over the last 5 years, we have engaged external advisors to assist us in kind of doing the various analysis of the multiple number of scenarios and alternatives that come out of those kind of exercises.
Because we had received a couple of inbound calls from the media that had become aware of our engagement at Credit Suisse. But from what they were saying, they appear to be a long way off of the mark as to the reasons why we'd engage them.
On the advice of the TSX, we issued a press release because you know our goal is always to provide full transparency to all constituents. And we thought that was the best way to cover everything, Bill.
William Schmitz - Deutsche Bank AG, Research Division
Got you. Great, that's a great answer.
And then, it seems like the industry, broadly, is kind of like, I'm okay, you're not okay, so we're being rational but everybody else is being irrational and then the other commentary is, like, there's way too much capacity in the industry, but it doesn't seem like anybody is doing anything to change that. So your point is very well taken and I get the predicament you are in, but why don't just bite the bullet and start ripping capacity out and kind of hoping everybody else to go follow?
Jerry S. G. Fowden
Yes, I mean, as we mentioned and it's linked to that strategic review we do which has multiple streams within it, Bill. I mean we do undertake an annual footprint exercise.
We are currently in the midst of that work now. Obviously, within that, we have to look at the landed cost to the individual DCs of our customers because we don't want to save on the production side and put it all back in to extra freight.
And we expect to have that footprint review complete by the end of this quarter and we will, of course, update everyone accordingly on the outcome of that. But my experience more generally says, there's often a kind of circa 3-year lag when it comes to how industry reacts to excess capacity and when they take it out.
So I think we will find across the board action is taken in this regard. You just tend to have to go through a bit of a lag before everyone mentally gets around to that position.
And the other thing I'll say, this kind of I'm all right, you're not all right, sort of thing, I don't know. If I was running one of the world's most iconic brands, I don't think I'd be selling at below private label prices.
And then to spend extra money sticking it on TV at below private label prices doesn't show the best worked out kind of plan to me. If we look at the Nielsens for quarter 3 and quarter 4, in quarter 3, I think the volume was down 3.5% and the value was down 4.3%.
And by quarter 4, the volume was still down 3.5%, but the value was down 5%. So across the entire market, there was value destruction when you compare quarter 4 to quarter 3.
And I can't think that that's good and it's certainly not sustainable.
William Schmitz - Deutsche Bank AG, Research Division
Great. I have one quick last one.
I know you don't like giving guidance, but do you think you can keep sales flat for 2014? And if you can do that, it seems like there is some commodity moderation, I know there's a lot of puts-and-takes, but do you think gross margin is going to be up next year or this year?
Jerry S. G. Fowden
I mean, I think in the current environment where we see the landscape was being challenging, while we still believe that 14% to 15% is a sensible kind of gross margin for our kind of business, I'm not so sure 2014 will be the year where we see real progress on there. Disappointing that might be, but I think as you know, Bill, everyone knows I try to be a very realistic individual in that regard.
On the sale side, I think we are making progress in shelf-stable juice. We are making progress in contract manufacturing.
We do see the ability to win some 30 million to 50 million cases of contract manufacturing over a 3-year period of time, with 10-plus million of that coming in 2014. That will be a good offset to the CSD market decline.
But at this point in time, I don't see it as sufficient to stabilize where we are on the top line in 2014, albeit I do think we can get to that stability over time.
Operator
Our next question is coming from Karru Martinson from Deutsche Bank.
Karru Martinson - Deutsche Bank AG, Research Division
Can you just remind us again what your gross debt target is?
Jerry S. G. Fowden
Yes, I'll pass that one over to Jay to pick up on.
Jay Wells
Sure. When you look at our business and the type of business we're in, we are targeting to get our gross debt down to about 2x EBITDA.
And that would get us the flexibility to diversify our business when opportunities come up. We also watch to make sure we have funds and options to return to our shareholder and it will give us a solid balance sheet.
So right now, we're targeting 2x, but that's not to say we won't flex back up for the right opportunities.
Karru Martinson - Deutsche Bank AG, Research Division
Okay. And when I look at cash flow, realizing that you haven't given guidance on that yet, but with the step-up in employee compensation.
I mean, it still would kind of get you kind of close to that $100 million range, I mean is that kind of in the ballpark of how we should be thinking about it?
Jerry S. G. Fowden
I think you're probably thinking it in a similar way, I mean, Karru, which is, but one year I did give guidance, I think, I increased it, decrease it, increased it, decreased it and then we came in better and I felt like a twit. So the plan was not to really try and give guidance.
Having said that and along the themes that you were just saying, we delivered 5 years now of free cash flow of around $100 million. And while we don't give official guidance, I think it's pretty safe to assume that Jay and I and the team will all be heading to try and get to a figure pretty close to that or around that for 2014.
Operator
Our next question is coming from Amit Sharma from BMO Capital Markets.
Amit Sharma - BMO Capital Markets U.S.
Just to follow up on Bill's question earlier. Given that some of the promotional environment has at least improved for the time being, is it reasonable to expect flattish volume at least?
Or is that too optimistic for 2013?
Jerry S. G. Fowden
I think that would be too optimistic. I mean, we historically used to build a strategic plan with a 1% to 3% volume decline for carbonated soft drinks and a not dissimilar view for shelf-stable juices.
If you take our view, which I don't think is a million miles away from many industry people's views at the moment, we would consider that the carbonated soft drink market overall in North America more to be in the 3% to 5% volume decline range and most people would look at shelf-stable juice and consider maybe minus 2% in volume. Now on the latter, our view is that a little bit more optimistic.
We did see a low- to mid-single digit growth on our shelf-stable juice in quarter 4, against a 3-ish percent juice and juice drinks market decline. We have said that we'll pass back commodities as and when and if they arise on certain juice commodities in order to try and rebuild that market.
And therefore, our outlook for shelf-stable juice is probably more one of stability than modest decline.
Amit Sharma - BMO Capital Markets U.S.
Great. And then in the U.K., I don't know, I might have missed it if you provided, what was the contribution from Calypso in terms of either case volumes or dollar sales?
Jerry S. G. Fowden
And I think overall for the quarter did we say and someone will correct me our volume was up 3% in the U.K. in the fourth quarter and revenue was at 8%?
Jay is just checking that for me, Amit.
Amit Sharma - BMO Capital Markets U.S.
Right. And how much was that from Calypso?
Jay Wells
About 6%.
Jerry S. G. Fowden
And my belief would be that most or all of the volume growth would be Calypso, but not all of the revenue growth would have been Calypso. There would be some 2 to 3 points of base business revenue growth.
Amit Sharma - BMO Capital Markets U.S.
Got it. Okay.
The question here is, Jerry, as you look at your U.K. business and some investors think that this is the right template to bring to U.S.
as well. Is that still a declining volume environment even with that mix over there or is it something that's temporary and likely will get better in 2014 or going forward?
Jerry S. G. Fowden
I think the biggest driver of change within the U.K. over the past, let's say, 12 to 18 months has been the significant narrowing of the price gap that occurred between the national brand energy drinks and our value brands and private label energy drinks.
That pressure was less in quarter 4 than it had been across quarters 1 to 3. And obviously as we move into 2014, we start to lack some of that.
Therefore, we see that pressure becoming less as we look forward. So as I mentioned on the call, we do look at the U.K.
and expect to see modest growth, both on the topline and the bottom line of our U.K. business as we go through 2014, with the one area staying under some pressure, but less so in the past being the energy drink.
Jay Wells
And on a follow-up on Jerry's answer to the revenue. If you would exclude Calypso, U.K.
revenue was down 2%.
Amit Sharma - BMO Capital Markets U.S.
Down 2%. Got it.
And then one more final question for me. Jay, I mean, your comments about compensation expense coming back in 2014 are well taken, when we model SG&A, should we at least assume a modest increase on a dollar basis year-over-year or are you going to be able to offset that with your cost savings?
Jay Wells
Well, I mean, I called out that because I'm hoping you would put that back in your model as cost saves that will not move forward into 2014. And as we always say, our cost savings on the SG&A side is really much more to focus to offset inflation, so we try to keep SG&A in the $43 million to $45 million a quarter type range and really can't see our cost savings do more than really focus on offsetting inflation.
Operator
Our next question is coming from John Faucher from JPMorgan.
John A. Faucher - JP Morgan Chase & Co, Research Division
Two questions here. First off, you talked about the U.K.
business. It might be too early to say, but are you seeing any impact from the bad flooding that we've seen over in England right now?
And then the second question would be, normally, it looks like you guys fund the working capital for Q1 out of cash, but your cash number is low because of the debt redemption. How should we expect you guys to fund working capital in Q1?
Is that going to be short-term debt? And then should we expect that to get paid off relatively quickly?
Jerry S. G. Fowden
I'll pick up on the first bit and then have Jay pick up on the second half. Our U.K.
business for the start of this year seems to have got off to an okay start, so we are not seeing anything specific that relates to the flooding. Predominantly in the south of the U.K., our business mainly in the big box stores that I would say probably surviving this kind of poor weather better, but it's not something that we're seeing an impact from at the moment.
And I think worth bearing in mind the weather January through to June last year in the U.K. was particularly poor, so we've got some tough weather now that's also compared to some tough weather comps.
It is probably only July that's not likely to have that same incredible weather uplift that we saw during 2013 when we get to 2014. So hopefully over the first half of the year, there will be slight weather favorability in the U.K.
and then it will get quite bumpy as it comes to comps with July and August.
Jay Wells
And on the liquidity question, I mean, we run a very conservative approach to liquidity. We make sure we keep a very sufficient liquidity cushion in our forecast when we go into our working capital use time of the year like we're going into now.
And that's why last year, we only redeemed $200 million of our 2017 senior notes initially. We've closed the year, have a much better view on where our cash entered the year and that's why we're redeeming the remaining $15 million this year.
But based on spending our excess cash to redeem the senior notes, we definitely view our ABL as our main source of just when we need to flex up on working capital and spend cash against that, so we will be drawing down our ABL. But at the same time, keeping more than a sufficient liquidity cushion available.
John A. Faucher - JP Morgan Chase & Co, Research Division
Okay. Great.
And then any sort of updated thoughts given the additional redemption and in terms where interest expense is going to be year-over-year?
Jay Wells
And I stated in my prepared remarks, interest for the fourth quarter was down a little bit over $1 million, mainly because of redeeming the notes in mid quarter, and then with the redemption of the additional $15 million in 2014. It should be approximately about $14 million reduction in interest year-over-year.
Operator
Our next question today is coming from Judy Hong from Goldman Sachs.
Judy E. Hong - Goldman Sachs Group Inc., Research Division
So a few questions from my end. First, I just wanted to clarify the comment about the strategic review.
It sounds like it's really sort of an annual review that you've been undertaking for sometime. How does the fact that the industry has gotten a lot more challenging impact maybe some of the options that you're looking at and perhaps a sense of urgency to take on some of those options?
Jerry S. G. Fowden
Certainly as we look forward, we are now building in this 3% to 5% view of the decline in the volume of the carbonated soft drink market. And in our historic strategic reviews, we had normally used 1% to 3% within that forward-look.
Therefore, as we roll our numbers out over the multiple years, the consequences of that all flows through some of the modeling and analysis that we do. So things had changed in the way we're looking at the outlook and it's precisely for that reason that we do these strategic reviews to fully assess everything from one extreme to the other.
What it means at the moment is our view towards the importance of diversifying our business through this combination of organic and acquisition-based activity is probably even more critical now as we look forward then perhaps it would have been 2 to 3 years ago. But the exercise itself is pretty much the same as that we've performed each year over the last 5 years.
And as I mentioned, we have used advisors to assist us on that, on 3 of those occasions.
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Okay. And then I think you commented on the private label bidding process being pretty competitive.
You've got the excess capacity in the industry. So I just wanted to get a little bit more color on that situation, if you're seeing any new competitors come in?
Are you seeing the pricing bids getting even more competitive? Just a little bit more color on that.
Jerry S. G. Fowden
Yes, I think by and large within Europe, frequent tendering of private label supply has been just the way of doing business certainly for most of the last 5 to 10 years. It's something that if you look back 5 to 10 years ago, it was not as common in the U.S.
and like all things, they do tend to level out like water over time. And we're finding that, that cycle of bidding is becoming much more common practice within the U.S., which was something we identified in one of our strategic plans several years ago.
Within that more frequency of bidding, I think it's fair to say when an industry has excess capacity, most people try to work very hard to retain what they've got and that does tend to lead to some pressure on pricing and some people are sharpening their pencils. What tends to be the normal outcome is unless there has been service failure or service fault, most retailers very much like to keep the same supplier in place that they've been happy with.
They just want to double check that they're getting those products at the very best terms. So I think frequency in North America of bidding and tendering is increasing, which is something that we had expected.
And in times of excess capacity, everyone works very hard to retain what they've got, which does lead to pressure whether it be on promotional dollars on EDLP bidding price.
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Okay. And then lastly just on your comment about commodity not being a headwind in 2014, I just wanted to see if you can quantify whether it will still be a tailwind this year and how much we should be thinking about commodity decline for 2014?
And I'm still wondering why you wouldn't be more optimistic about the gross margin outlook given more of a favorable commodity outlook. Are you assuming that, that's pricing gets even worse from here?
Or are you just taking a somewhat of a conservative view that if pricing does remain more challenging that this competitive dynamics just doesn't give you enough in terms of helping your margins?
Jerry S. G. Fowden
That's a good question. And as we mentioned on the call and let's kind of focusing on fruit cost first.
Our apple cost for 2014 as a year as a whole, we do expect to be down, bid up on where they were in the middle of '13. But as a full year versus a full year, we expect them to be down.
Cranberry costs are down. We've got kind of a bit of cranberry carryover from 2013, so you don't get the full impact of the 2014 harvest.
And then in the case of other fruit costs, prune in particular some significant increases. But in the case of all juice commodity cost, I think we've tried to be clear that our aim is to pass back any commodity reductions, where and if they exist, in order to try and get some growth back into that category.
We saw low- to mid-single-digit growth in that category in quarter 4 versus an overall market that was down some 3, 3-and-a-bit percent. And we believe that our view of passing juice commodity cost back in order to resuscitate the market is in the best long-term interest of our business and all our stakeholders.
So on that side of that equation, you can really put that to one side. With regards to the other areas, the 3 main categories are sweeteners, including high-fructose corn syrup, aluminium including the Midwest premium and PET.
For PET and aluminium, at the moment, we see the outlook for both of those as staying both high in their price but stable. So while you can see on the LME some reductions in the actual cost of aluminium, the cost of the Midwest premium has shot up dramatically.
So that when you put those 2 together, you're seeing no overall benefit on aluminium. So really what you're left with is the 50% of high-fructose corn syrup that is the corn cost versus the conversion cost that's the one area where there would be some commodity favorability out of that landscape given our desire to resuscitate the shelf-stable juice market and pass back any juice commodity benefits where they exist.
So it's against that backdrop but we don't really see much in the way of an overall tailwind.
Operator
In the interest of time, our final question today is coming from Jonathan Feeney from Janney Capital Markets.
Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division
Just a couple of questions. First, I wanted to inquire as -- you talk about these potential alcoholic beverages and other kind of co-packaging opportunities?
How much capital expenditure, if any? What's the cost of sort to retrofit facilities or make your infrastructure ready to handle that sort of thing?
And second question would be, I mean, it seems to me what we're really talking about here when you look at leading brand's pricing beneath private label, is it a long run? What is your customer's commitment to their private label businesses, which we've seen decline in carbonated soft drinks over the past 3 or 4 years.
I mean, do you feel confident that if current trends continue that there's just a certain level of commitment, based commitment, to having that private label brand out there no matter what that you consist that we sort of see a floor under private label share here?
Jerry S. G. Fowden
And 2 kind of distinct questions there. So let me pick up on the contract manufacturing one first.
We see that as a significant scale opportunity and I think we've mentioned our comfort that there's probably some 30 million to 50 million cases of business that over the next 3 years we could win in that area, with more than 10 million of those cases coming in 2014 from contract wins we've already signed up or we're in the process of signing up. We see that business as equally attractive as our private label business.
It's different. There are pros and cons.
It's a conversion cost. Therefore, the brand owners are supplying their own ingredients and packaging costs so there tends to be a conversion cost of anywhere to $1 to $3, depending on the type of product, the line it's on, how complex it is, whether it is a regular soda up to a new age product or an alcohol product.
But, of course, we don't have to have the working capital of a commodity volatility associated with that. So we've got similar margins on a lower conversion cost, but we avoid the working capital.
So overall, we do see it as incremental business that's really a good offset to that pressure on carbonated soft drinks that was linked into your second question. Now specifically on the CapEx part of it, we've signaled CapEx in 2014 of $50 million to $55 million that includes all and any CapEx that we see associated with contract manufacturing that normally is quite a small adaptation or conversion cost to an existing line, maybe anywhere in the $2 million to $5 million range.
And that CapEx is sometimes funded by the brand owner himself or sometimes funded by us, but uniquely built back in as an up-charge over the life of the contract to the brand owner. So hopefully, Jonathan, that gives you a decent steer on the CapEx side and the scale.
Moving onto overall carbonated soft drinks and I think it's fair to say that the consumer food market over the past 3 years has been tough. Retailers themselves have been finding getting like-for-like store traffic difficult.
And my view is that, that has led to an increased desire to use famous brands and there's none more famous than in our category to help drive promotional activity and pick up incremental footfall with a good old theory that when you're in there buying one thing, you end up leaving with cakes, sprinkles and all sorts of other high-margin products at the same time. And I think that has had an adverse overall impact on private label.
But I don't see it as a reflection of retailers losing any interest on private label as a broad category or private label beverages as a more specific category within private label. I just think it's within beverages there's a high preponderance of these, what I would call KVIs, known value items, that retailers tend to promote when they're looking for footfall.
Operator
We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.
Robert Meyer
Thank you very much for joining our call today. This will conclude Cott Corporation's fourth quarter and fiscal year 2013 call.
Thank you for attending.
Operator
Thank you. That does conclude today's teleconference.
You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.