Welcome to the Q1 2019 Gildan Activewear Earnings Conference Call. My name is Daryl, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Sophie Argiriou, Vice President, Investor Communications. Sophie, you may begin.

Thank you, Daryl. Good afternoon, everyone, and thank you for joining us. Earlier, we issued a press release announcing our results for the first quarter of 2019. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents will be filed with the Canadian Securities and regulatory authorities of the U.S. Securities Commission and are available on the company's corporate website. Joining me on the call today we have Glenn Chamandy, our President and Chief Executive Officer; and Rhod Harries, Gildan's Executive Vice President and Chief Financial and Administrative Officer. In a moment, Rhod will take you through the results for the quarter and our business outlook for the year and a Q&A session will follow. Before we begin, please take note that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve unknown and known risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S. Securities and Exchange Commission and the Canadian Securities regulatory authorities. And with that, I'll turn the call over to Rhod.

Thank you, Sophie. Good afternoon, everyone, and thank you for joining the call. Earlier, we reported first quarter 2019 results, which came in at the high end of our sales and earnings guidance, setting us on track to achieve our full-year targets. During the quarter, we also continued to execute on additional supply chain initiatives, as part of our plan to drive increased operational efficiency across our manufacturing base. We expect to see cost benefits to start to materialize meaningfully in the latter part of the year and continued to positively impact gross margin levels as we move into 2020. In addition, our efforts to further drive down SG&A expenses as a percentage of sales that we initiated last year continue into 2019. And we feel good about delivering further SG&A leverage for the full-year and ultimately reaching our goal of bringing SG&A as a percentage of sales down to 12% or better by 2020. In our press release today, we also announced the acquisition of land in Bangladesh, which we plan to use as part of our new major capacity expansion initiatives develop a large scale manufacturing complex in Southeast Asia, primarily to support our international business. I'll provide more details on this major initiative later in my remarks. First, let me take you through the specifics of our first quarter performance, which you may recall, we expect it would be relatively soft. Specifically, when we initiated our guidance in February, we were forecasting first quarter sales and earnings to be down year-over-year mainly because of lower levels of distributor restocking this year in the imprintable channel. Higher raw material cost pressures in the first half of 2019 versus the second half of the year, and as we announced on March 26th, the impact of a trade receivable impairment…

Thank you, Rhod. That concludes the remarks. So before moving to the Q&A, I just want to remind you to limit the number of question to two, and we will circle back for the second round of questions if time permits. I'll now turn the call over to the operator for the question-and-answer session. Daryl?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Heather Balsky from Bank of America. Go ahead with your question, Heather.

Hi, good evening. Thank you for taking my question. Can you talk about how much of your current international business is supported by your Central America manufacturing facilities? And then also can you provide some perspective on the European Printwear market. Is the supply chain similar with regards to the distributor channel and how does the competitive environment compared to the U.S.?

Okay. Well, on the capacity about 50% of our international report capacity is coming from Central America and the balance is being produced currently in Bangladesh as we speak. So that gives you an idea, so we have roughly about 150 million of capacity in Central America with the expansion in Bangladesh. As far as the sales and distribution is very similar to the North American market, it operates in the same capacity. It's a little bit more fragmented in the U.S. because the distributors, the size of the market is a little bit smaller, but in all intents and purposes, the way the market performs is exactly like it is in the North America.

And, in terms of your customers, are they primarily distributors?

Yes, the distributors – just exactly like the distributors. We ship to distributors, distributors sell to the printers and the printers sell to the re-sellers and the same concept is moving out into North America.

Great, thank you.

Thank you.

And our next question comes from Omar Saad from Evercore. Go ahead.

Hi, I was wondering, now that you’re a little bit into the new private label program in the mass retail channel. Maybe you go into some of the details what you’ve learned so far. Are there any key differences from this program versus the branded program that you’ve had in the past, new categories, different categories, more shelf space in certain areas, less shelf space in certain areas. Anything you can kind of give us insight into and how that’s going so far and how we should think about it versus prior programs would be helpful? Thanks.

What we said earlier on is that this is some of the seamless program for us because what we did is we basically just stop producing our Gildan brand and replaced it with a private label program. And what we said earlier is that the private label program will allow us to obtain more shelf space than we originally have in Gildan. So, obviously, the volume of the program will be larger and is on track and we begun to ship it in Q1 and we are going to fully roll it out and it will be in the stores in Q2.

And, from a margin perspective, should we think about those as similar?

Margin perspective.

Margin perspective.

Yes, I mean, look, I would say that in underwear, in general, the margin profile will be similar.

Understood. Thanks for the info.

Never mind.

And our next question comes from Martin Landry from GMP Securities. Go ahead, Martin.

Hi, good evening. My first question is on Bangladesh, wondering a little bit what triggered your decision to expand there. I know, in the past, there was some discussion about expanding into Costa Rica to establish a hub there. So, love to hear a little bit more details about cost profile in Bangladesh versus Central America and you mentioned duty-free access. If you can talk about which countries you have duty-free access from Bangladesh that would be helpful.

Okay. We’ll start with Bangladesh you know we’ve been there since 2010. We’ve had a very good experience. It’s a low-cost country to operate. There is very good energy availability. Well-educated and good labor for us. There’s over four million common workers in Bangladesh believe it or not. There’s ample supply of ring-spun yarn, which is mainly in the markets outside United States. The fashion basics product line is much more public in those markets. And so, overall, it gives us a lot of opportunity and the main focus, obviously, is to continue to expand in the international sales, I mean, like our story from Gildan from day one, is that our sales are function of our capacity. And we are not able to obtain access to certain markets from Central America like China is our second largest and fastest growing market today. Japan, for example, these markets we don’t – we can’t access duty-free from Central America. So, really Europe is the only opportunity we have at Central America. So, for those reasons and those markets being really the driving force of our international sales right now. This make logical sense for us and I think it was a opportune time for us, at the same time, we’re building this in time, because this incremental capacity of relatively $500 million. We have after this year in existing about $500 million still available in our Central America for all the expansions, between Rio Nance 6, Rio Nance 5. We expanded Rio Nance 1. So, this will really bridge the gap and give us the ability to as we built it to keep our momentum going on top line sales of mid single-digit growth at least, if not better, depending on what the opportunities are in all of our growth drivers. And really having this capacity in geographically located in Bangladesh will allow us have a lot of flexibility. It gives us the flexibility to drive international sales. It gives us the flexibility to move some of the production from our existing Central America that we have capacity for the opportunity to support our private label customers and our brand strategy for Printwear in North America. So, it gave us a very good balance and a good mix of basically sales growth and opportunity.

Okay, that’s helpful. And can you compare the cost profile of Bangladesh versus Central America?

Well, look, I would say that it’s in line because look our Central American capacity for the markets that we serve are very competitive. The one area where I think that there could be an vantage force in Bangladesh is when it comes to ring-spun yarn as we move forward into the future and that being such a big category. But other than that, I mean, I would say that everything else is pretty consistent. We built a global low-cost manufacturing hub in Central America. That really is great for this market and the fact is that we just can’t use that to support China, Japan these other market. So, now we really have a flexible diverse supply chain really to grow globally because we can support not just the existing markets like China but there’s other markets like India anywhere in Asia really we almost have access to do. So, it opens up a lot of the work force and we’re clearly selling everything we can make today. So, it’s going to really help us to drive some of these other not just the existing markets, but actually open up new markets to continue to support our growth initiatives.

Okay, that’s it from me. Congratulations.

And our next question comes from Paul Lejuez from Citibank. Go ahead.

Hey, guys. Paul Lejuez, Citi. Question, I’m curious if you can talk about how much did the earlier than anticipated shipments in the men’s underwear program helped sales in the current quarter and also curious, if you can quantify the gross margin decline in terms of how much raw materials cost hurt versus the other inflationary cost that you mentioned and also curious about how much higher prices and the favorable mix helped to offset that if you could quantify those pieces? Thanks.

Okay. If you look at the sales for the quarter based on our guidance, we are guiding to a mid to high single-digit decline for the quarter. So, we came in about $20 million better than we had anticipated. So, really a good delivery and ultimately we were – if you look at the $20 million, $10 million was related to probably fleece shipments in the distributor channel. So, a little bit better than we were anticipating versus what we had originally expected and then $10 million related to earlier than anticipated shipments of our new private label underwear program. So, effectively split half and half. If you look from a margin perspective, our gross margin came in line with what we had expected, right. So we knew and we had guided that we’d see headwinds from higher fiber costs and higher manufacturing costs in the quarter. And if you look at our guidance for the full year, we expect that to continue in Q2 and Q3 and then as we move into Q4, what we really see as effectively especially from manufacturing perspective, all of those supply chain benefits and initiatives that we’ve been driving really create a tailwind for us, which then drives margin expansion in 2020. So, all-in-line – all in all, our gross margin came in line with what we expected. I’m not going to get into the details, we did see positive price, and we have planned for positive price in the quarter, and we did expect positive mix and we definitely got that. So, it came at, it landed in line with what we expected.

And how all the benefits of price and mix be running through the P&L for the rest of the year relative to the first quarter. Will it start to shrink in magnitude or does actually increase at over the next several quarters?

You’ll see it basically every quarter it will be similar, right. So, we are getting positive price impacts. We’re getting positive mix impacts. Last quarter we did call out the price impact for the full year, which is a 200 basis points, which we basically expected to sort of flow through every quarter as we move through the year.

Thank you. Good luck.

And our next question comes from Kenric Tyghe from Raymond James. Go ahead.

Thank you, and good evening. Glenn, going way back in time whenever you have announced a very large capacity expansion the likes of what we’re seeing in Bangladesh. It’s typically been with pretty high visibility and high conviction, you’ve not typically built it in the hope that you can fill it, but rather in the expectation that you need to have it full. Is that a correct characterization this time around, this high visibility, high conviction build in Bangladesh. And the second part of that question would be is part of that conviction around perhaps some incremental retail opportunities in Europe outside of just filling capacity in the distributor channel as Bangladesh has typically done?

Well, I’ll say two things. One is that the most difficult thing is starting a plant is having enough growth to able to support it, right. So, in our cases, we are shipping a lot of our manufacturing, a lot of product from Central America to Bangladesh. So the fact is the ability for us to start this plant up get it running and ramp it quickly. We just have to shift the revenue that we are currently supporting through Central America into Bangladesh. So, that gives us a lot of confidence to go ahead to met on those plants and really make a big large skilled facility to support what our goals are, but really I think at the end of the day during the script, Rhodri alluded to the five growth drivers. And I think the one thing is we’re very comfortable with our positioning and the five levers that we have is our Printwear business is still continuing to develop. We’ve got you know fashion basis are growing. We positioned ourselves between, we have five brands in that category today. We have the Gildan brand, the new Hammer launch. Comfort Colors and Anvil product line and most recently we are doing fantastic with our American Apparel line. There’s still other areas that we think we can penetrate a new product within the Printwear channel today and obviously we’re going to continue to look at levering not just those in North America about levering all this in the international markets. International has been really Achilles’ heel has been capacity – and capacity has been always the issue from day one anyways but, I mean, particularly international because it’s a harder market logistically to support. So when we get tighter capacity, the first one that really suffered historically has…

Thanks, Glenn. It’s super helpful. Rhod, just a quick one for you. Rhod, with respect to your cotton and cotton outlook for the year and reaffirming guidance. Can you just confirm, am I correct in saying that your cotton requirements are fully hedged through at least the end of 2019 at this point?

Yes, I mean, if you look at the pipeline and how long it takes us to effectively turn cotton into product and flow through our system, you can say, we’ve got good visibility on our cotton for the full year.

Thank you. It is totally six to nine months forward covered, correct?

Correct.

Correct.

Great. Thanks very much and congrats.

And our next question comes from Sabahat Khan from RBC. Go ahead.

Thanks. Just one on the private label, I guess, the earlier shipment that you had during the quarter. Would you think of that as a timing shift or does that mean incremental sales for the year and are there any other updates you can provide on any new programs that you’re pursuing?

It’s timing shift, Sabahat, so it’s effectively we just shift a little bit earlier than we had planned timing.

And then as far as the new programs are concerned, look, we are always looking to develop new programs. We have things in the hopper. We’ve obtain new programs that we’ll start shipping in Q4. So, look, I think we feel very comfortable with our opportunity in private label the problems we have. The reference some of these programs, new programs coming on. The growth in our North American Printwear, International, GLB, I mean, I think we’re pretty well teed up for our mid-single digit growth for 2020 basically as we move forward into next year.

Okay. And then just on the CapEx increase this year. Is there any directional commentary you can provide on, how we should think about the CapEx over the next several years, as you do build out the Bangladesh new platform, should we think similar numbers for this year or could it be potentially higher than 2019?

Sabahat, I think, if you look at our CapEx for the full year, we’ve given the guidance that is 175. It’s gone up from 125, right. So if you look at this year, it’s probably close to 6%, but on a go-forward basis, you’re really looking at 4% to 5% CapEx for us, right. So we can build out all of our plans and run our system at that level.

All right. Thank you.

And our next question comes from Derek Dley from Canaccord.

Yes. Hi, there. Can you just talk a little bit about the international market and just in terms of the different trends that you’re seeing there? Which categories are growing faster than others? Is it similar to North America where you’ve got a very strong fashion basics business, for example, just some more color on how that international market looks to you guys?

Overall, the markets are different market. Europe is really more like the U.S. market because it’s more mature. We’ve been there since 2000s, we have a big history there. So, the same drivers in Europe are what’s happening really in the U.S., I mean, fashion basics. Fashion business is a standard in these markets. That’s primarily the number one selling product that we have in alignment. And that’s how we developed our fashion basics businesses through developing of our international sales. And also the other big phenomenon is the fleece. I mean our fleece businesses is flying. It was up double-digits, last year, high double-digits. It’s up again this year same type of level and that’s not just in the North American market, but that’s in the international markets. We’re seeing the same phenomenon where people are wearing sweat shirts, casual wear replacing it’s almost becoming a workwear uniform, right. So, that moment is really the same. In China, there are some differences in the type of products that are being offered. T-shirts are really big there but you know like, for example, Polo shirts are very large as well. Scaling there, they sell a much greater rate and they would in North America, for example, but they still sell generally the same types of products as T-shirts and sweat shirts and half shirts. And even in China, for example, still operates in the same type of a manner in terms of how we go to market. We use distributors, distributors resell the product. I mean it’s just a little bit more fragmented. So the U.S. is a much bigger consolidated business with bigger box type distributors, and then in Europe they are a little bit more fragmented and smaller, and then they become a little bit more fragmented and smaller in China because the market is just being developed, but it’s growing at a much faster rate and our sales are growing as a percentage very quickly in these markets. And, overall, I would say that most of the markets in Asia really were function in the same manner as we would in North America.

Okay, thank you. And then switching gears, just on to Bangladesh, I know there's been a lot of discussion on the call on it already, but does this given your commentary that it can support $500 million in revenue on a base of call it $4 billion at that time. Would this have any impact on your tax rate given the new jurisdiction? And then also, what does this mean with your land package in Costa Rica, do you still own it and what is the plan there?

Okay look at this the tax impact now we don't see any major impact if you model out our tax rate on a go-forward basis. Obviously, as we moved to the U.S. we'll give you update, but I think at this juncture the rates that we've been given the effective tax rates are a good estimate of where we're going to run.

And as far as Costa Rica, we're not going to go forward with Costa Rica, we actually are going to sell that piece of land. It's not a very big investment we have there. We own $5 million, so we put the land up for sale.

Okay, great. Thank you very much.

And our next question comes from Stephen MacLeod from BMO.

Thank you. Good evening guys.

Good evening.

I just wanted to follow-up on two things. Just with respect to the private label opportunity, is it correct that you don't actually have product in the store at this point?

No, the product will be in the store at the end of May, beginning of June.

Okay. And can you give any commentary just ahead of that as to what the pricing strategy is with that particular product with your largest mass customer?

I rather wait until as you can see it in the store yourself. Also I don't want to really comment about our customer's strategy on pricing.

Okay, that's fair. And then just secondly with respect to the gross margin initiatives, can you just talk a little bit about, I know, Rhod, you gave a little bit of color around how you expect that to flow through. But can you just talk a little bit about some of the initiatives that are behind the Q4 expectation for gross margin expansion, I mean, how much of that is the cost environment becoming more moderate versus actual initiatives driving gross margin growth?

This is Glenn. Maybe I'll start with answer the question because I think it's one of the things, I think, what we're driving internally is really building a roadmap to build our gross margins to the 30% range, okay. And last year we really focused on our SG&A and we put a plan together during the year to continue to driving and realigning our business units to basically drive down SG&A to 12%, and our objective is to get SG&A down to 12% and get margins close to the 30%. And the drivers of that is continue looking at inefficiencies in our manufacturing and our supply chain. Like, for example, we closed recently the AKH facility. We bought that plant from an acquisition. We've always told investors what's our competitive advantage, we bought the plant. The cost of conversion was a third higher than our cost conversion. So, we ran the plant because we needed capacity and with the ramp up of what we did in Rio Nance 6. We ramped Rio Nance 5. In fact we bought also in Mexico, which had a big state-of-the-art facility. We were able to shut that plant down look at moving those that volume into our other facilities and that's going to allow us to obviously increase our margins as we go forward. We also just announced the consolidation of our Canadian hosiery operations into our global supply chain, which is obviously are going to be more beneficial than producing goods to Canada. We realigned all of our soft manufacturing and our capacity towards the end of Q4 in Honduras and that again will reap benefits as we go towards later on in the year. And then we're looking at optimizing under-performing sewing operations that we have. And we have a couple of…

That's great. Thank you.

And our next question comes from Brian Morrison from TD Securities. Go ahead, Brian.

Yes, thank you. Glenn, you just really answered my question. But just for a clarity, this 30% range that supply chain initiatives are inclusive of revenue synergies, cost synergies, but it also includes commodity benefits as well, agreed, and over what timeframe are you targeting this 30% range?

Well, I think, just starting on the commodity thing look, we also still have inflation too, right. So our objective is that inflation in the areas where we're operating is quite rapid. So, we have to still deal with inflation. So we anticipate a lot of these moving pieces. So, you got to take raw material, and then you got to take in inflation, and then so that probably even as we go forward make sure it will be plus positive and negative, I mean, because of some of the things. So, I think, that our real initiative right here is to increase margins through operational efficiency is what we're trying to do. And look it, this is something that's going to happen over the next 12 months to 24 months, I think, that's a good target for us to try and achieve. We are existing this year, we’re already seeing margin expansions. That was the expansion of margins into 2020. But in Q4 we'll have over 200 bps of margin expansion basically this year and hopefully question is how much of that will be materialized for the full year, next year, but we're building a roadmap over the next 24 months to get to the 30%.

Okay, thank you. And then one follow-up question. Rhod, just ballpark, I'm talking about Bangladesh now. Maybe just ballpark a total cost of the project to completion. I assume that all costs are going to capitalize into commercial production. And then I know you say there's ample capacity on the ring-spun side, but would there be any plans in the future to source your own ring spun yarn for this facility at some point?

We'll evaluate that, but we feel that there's ample supply in the region. It's quite easier to obtain because in Bangladesh there's quite a larger capacity within country, but also this is supported by other countries as well that are in the vicinity and so forth. So, there's lots of capacity of yarn available and we will evaluate that. Our first step is going to be obviously to build this large scale facility one, build this large scale facility two, and then we'd have to look for additional land to support any type of incremental yarn spinning in the future.

And on the cost, Brian, I mean, this year obviously we spent the money on the land, right. So that pushed our CapEx up, but again on a go-forward basis, if you use that 4% to 5% of sales that factors in the build out of Bangladesh. So, I think, you got a good estimate of that what the total impact will be.

Okay. And all the costs will be capitalized until you actually start production, correct?

Correct.

Thank you.

And our next question comes from Jim Duffy from Stifel. Go ahead, Jim.

Thank you. Good afternoon. It seems things tracking well through the first quarter. Focusing on the hosiery and underwear category down two is a notable improvement. It sounds like the Global Lifestyle brands revenue was solid. Are you guys seeing indications of stabilization in those channels?

I would say, yes, I mean, we feel very comfortable with our positioning. We've divested ourselves this year in socks you know one particular under-performing product or program that we have, but we are seeing good business in our license business. It's coming back. Our GLB business is growing in that category. So, overall, I think, we're in a good place. All of our businesses are growing. I mean, like, if you look at really our online sales were up significantly this year. We're planning for a 40% plus increase in online sales; international's double-digits; fashion basics is growing double-digits; American Apparel double-digits; GLB double-digits; private labels up huge. And the one area where we are actually seeing some negative downturn is in our basic business really, which is the only offset we have, but outside of that every single one of our growth objectives is really tracking and then obviously, they are growing much faster than the negative tailwind – headwinds of the basic category.

Great. And then Glenn that was super helpful overview of the factors you guys are focused on to drive the business with respect to the 30% margin objective. You spoke about inflation. What role will pricing play in achieving that 30% margin objective, is that a component of how you're thinking about getting there?

We don't want to use price, if we don't have. Our objective is to drive manufacturing efficiencies and supply chain improvements. I mean that's historically was driven our low-cost manufacturing, I mean, price is always a vehicle to really make more inflation than it is, but I think that's we are able to look at the prices to cover inflation, the margin improvement should come from manufacturing efficiencies.

Thank you.

And mix.

And our next question comes from Keith Howlett from Desjardins Securities. Go ahead.

Yes, I just had a question on the capacity expansion. You got about, as I understand, $500 million capacity in Central America and opening up Bangladesh phase one, I guess, would add another $150 million freed up in Central America. So, you'd be at $650 million. I guess I'm just wondering what your level of confidence is that you need all that. And then there's Mexico which you don't think you've fully may be executed what you could do in terms of getting capacity out of that. So I guess I'm wondering do you need all that capacity in Central America?

The answer is Mexico is part of our $500 million. So, that's included in the regions capacity when we stated our available capacity in the regions including Mexico. And the thing you have to understand is that we're going to grow mid-single digits in 2020, mid single-digits in 2021 at least. And if you take that factored in because Bangladesh will come online in 2021, but towards the end of the year and that will really only support 2022 sales. So, we'll only be left with about $150 million or $200 million left in Central America capacity if you look at that way overall in the system. And the business is better we’ll some more, I mean, that's where we look at it, and we'll manage accordingly, and we also have to still ramp up, Bangladesh to get it going. So, that's not going to happen right away either. So, I think, we're in a good place as we manage all this capacity to continue and that's where we sort of program just to make sure that at least the mid single-digit growth rate, we'll be able to sustain because we see that each one of these growth drivers will allow us to continue growing year-after-year basically because it's not a – and we still very comfortable with it because there's no one particular thing that's going to let us grow. We don't have any big wins. We just need a little bit here and little bit there and some of these five growth drivers. We feel we'll continue the 5% or the mid single-digit growth. So, overall, I would say that the capacity is in line with our theory of growth. If we grow a little bit faster, I think, we can absorb some of that, and if we don't grow as fast as we think, well, I think, it won't affect us anyways, because we’re just going to have more optimization of our supply chain and low cost basically by having the facility in Bangladesh.

And then just on your private label initiative, you've had a T-shirt program going with a major U.S. mass merchant retailer for quite a while now, I'm just wondering if you can say how that program is doing relative to your expectations?

Look, all of our programs are doing really well, and everything is performing to our expectations. And we're just continuing to focus to drive additional revenue. And we're excited about the opportunity and not just in the private label, but as well as in all the other categories. So, it's a full package basically the five growth drivers that we'll continue to drive the topline sales. And I think that's really the story behind Gildan.

Thanks.

And our last question comes from Mark Petrie from CIBC. Go ahead with your question. Mark

Yes, thanks. I just have a few sort of small follow-ups. I think mostly everything has been covered. But just to clarify, the impact of the earlier shipments on the private label program that would have had an immaterial impact on gross margin in the quarter?

Correct.

And we expect a neutral impact through the course of the year?

Neutral from what perspective, Mark, can you clarify?

Just neutral relative to the rest of the business. So, gross margins for that program in line with the gross margins of the rest of the business?

Correct.

And then related to the tax impact that you were talking about earlier. Any tax impact is private label growth or impact of the tax rate, I should say?

It's factored into our effective tax rate. So, I think, we're going to be able to basically stay at this level on a go-forward basis given the way that we're operating.

Okay. And just last on IFRS 16, I know, it's not substantially material to you guys, but looks like removed about $4 million of SG&A expense and $1 million benefit to operating income. Just wanted to ask if that's a good run rate for us to use for the balance of the year?

Yes, so if you look at the impact effectively that occurred with IFRS 16 is that we effectively lost, that we took out the rent expense right, and we added back the depreciation. So, that was effectively the net impact that was occurring as we put the right to use asset on the balance sheet, right. So that's the impact that you're seeing now, it will be steady state on a go-forward basis.

Okay. And how does that factor into your target of 12% for SG&A rate?

It’s factored in.

Yes, okay. Okay, thanks very much.

And we have no more questions at this time to the speakers. Do you have any final comments?

Yes, before ending the conference call I would like to remind you that we are holding our Annual Shareholder's Meeting tomorrow at 10:00 AM Eastern Time here in Montreal at Centre Mont-Royal. And with that, I'd like to thank you again for joining us today and we look forward to speaking to you very soon. Have a good evening.

And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.