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[Foreign Language] Welcome to the TC Transcontinental Second Quarter 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, June 6, 2019.I would like to turn the conference over to Katherine Chartrand, Senior Director, Corporate Communications. [Foreign Language] Ms. Chartrand, please go ahead.
All right. Thank you, Gabriel, and good afternoon. Welcome to TC Transcontinental's 2019 Second Quarter Results Conference Call. The press release and MD&A with complete financial statements and related notes were issued earlier today. For those of you who are not on our distribution list, the documents are posted on our website at tc.tc.With us today are TC Transcontinental's President and Chief Executive Officer, François Olivier; and Chief Financial Officer, Donald LeCavalier.Before I turn the call over to management, I would like to specify that this conference call is intended for the financial community. Media are in a listen-only mode and should contact Nathalie St-Jean, Senior Advisor, Corporate Communications, for more information or interview request.Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please refer to the MD&A for a complete definition and reconciliation of such measures to IFRS financial measures.In addition, this conference call might contain forward-looking statements. Such statements based on the current expectations of management and information available as of today inherently involve numerous risks and uncertainties, known and unknown.The risks, uncertainties and other factors that could influence actual results are described in the 2018 annual MD&A and in the latest Annual Information Form.I would now like to turn the call over to François Olivier.
Thank you, Katherine, and good afternoon, everyone. In May, we marked the first year anniversary of the Coveris Americas acquisition, a strategic transaction that we are very satisfied with.It has been transformational for us in terms of revenue growth, scale, manufacturing capabilities, synergies, talent and innovation. There is much more potential to be leveraged as we are aggressively pursuing it.We are pleased with the improvement in our Packaging margins in the quarter as we delivered on our plan to stabilize profitability of Coveris Americas.Overall, our results reflect many of the same dynamics we saw in the first quarter of the year. Let me highlight some of the key factors that contributed to our results. The Packaging sector accounted for 54% of our consolidated revenues in the quarter. Our acquisition of Coveris Americas was a significant contributor to our overall results. We continued to renew many contracts with major customers, giving our business long-term stability.The dairy market, in particular, demonstrated solid growth this quarter. In terms of organic sales growth, our packaging activities acquired prior to Coveris grew revenues by close to 4% for the quarter due to higher volumes in some of our plants.Multifilm Packaging, which we acquired in March last year was also a good contributor to our performance. In terms of profitability, we are very pleased that our Coveris Americas acquisition continued to demonstrate the sequential increase in its adjusted EBITDA margin, moving from 12.2% in Q1 to 12.8% in this quarter.We expect further improvement as our cost synergies continue to ramp up throughout the year. For the pre-Coveris plants, the adjusted EBITDA margin was 11.5%, although below our objective, an improvement from the 10.1% in Q1.To move closer to our margin target, we are in the process of addressing limited operational issues at 2 of our facilities. This should optimize our cost structure and we, therefore, expect margins to continue to increase in the coming quarters.In addition, later this year, we will start to benefit from in-sourcing some of our films production as we will be starting up 2 new extrusion lines this fall. Overall, we feel confident about our investment thesis for the Packaging sector, which is a significant engine of future growth.On a combined basis, our guidance is for slight decrease in revenues for the second half of the year due to an anticipated reduction in volume for one of our verticals. We remain committed to gradually improving adjusted EBITDA margin and reaching our 13% objective.Turning to our Printing sector. The softer results we saw at the beginning of the year continued into Q2, essentially due to the same drivers: the negative impact from the sales of our newspaper printing activities in California, a decrease in printed flyers revenue from 2 major retail customers and the direct negative impact from the end of the transitional service payment received from Hearst last year as part of the disposal of the California operations.However, recent data confirms that our retailer-related services offering remains a highly relevant and effective marketing tool for Canadian retailers. We have good visibility and insight that continues to demonstrate a positive direct correlation between the use of flyers and retailers' performance.In the quarter, revenues reflected a positive impact from higher paper price, which do not impact profitability as they are passed on to customers. We also saw good growth in our book printing business and our in-store marketing verticals, a space in which we continue to pursue additional sources of revenue.Regarding our newspaper, magazine and commercial printing verticals, the decline in revenues followed the same trends as in previous quarters. To optimize our platform, we are reallocating 2 state-of-the-art presses from our former plant in Fremont, California to our Canadian retail platform. In order to maximize utilization of these newer equipment and to adjust to reduced volumes, we announced the gradual reduction of our printing activity at our Brampton facility starting in July, leading to the complete closure of the plant at the end of this year.Volumes will be transferred to other plants in our Canadian retail platform, including those receiving the state-of-the-art presses from California.These measures will have a positive impact on our profitability in the sector, starting in the second half of this year with the full impact flowing into 2020.A note on our Newspaper business. We are pleased that Torstar had outsourced to us the printing of the Hamilton Spectator and other newspapers effective in the third quarter of this year. They also extended their long-term agreement for us to print the Toronto Star. This win is a testament of our solid position as Canada's largest printer and our ability to continue to add new volume to our platform.Let me now say a few words about our sustainability initiatives. The flexible packaging we produce plays a key function. It contains, protects and facilitates the transport of products, it holds and helps extend product shelf life. The carbon footprint of food production is much higher than that of packaging itself. In most cases, packaging accounts for only about 10% of the total carbon footprint of a food product, while 90% is related to growing, farming, processing, transporting, storing and disposing of the food.Therefore, the optimal packaging design protects high-value product, making it one of the key solutions to reducing food waste, which is estimated at 30% worldwide every year.We are working with partners throughout the packaging value chain to highlight these and other relative benefits of flexible packaging among customers and consumers.Although flexible plastics offer many advantages compared to other packaging materials, more work is needed to ensure that plastic packaging is effectively managed at its end of life. This is why we are putting innovation at the heart of our approach to sustainability. We constantly invest in R&D for flexible packaging and our eco-responsible solutions are being recognized by the industry.This week, we won yet another sustainability recognition at the PAC Awards for our 100% recyclable pouch with barrier. In March, we became the first Canadian-based manufacturer to sign the Ellen MacArthur Foundation New Plastics Economy Global Commitment. We have pledged that 100% of our plastic packaging will be reusable, recyclable or compostable by 2025 and that we will achieve a 10% use of post-consumer recycled content across all plastic in our product basket.Much like we have done over the years in the creation of a circular economy for paper in Canada, we now intend to lead the way in the creation of a circular economy for plastic. Therefore, our goal is to ensure the transition into a model where plastic is better managed from sourcing to end of life.To that effect, we recently presented a brief to the Montréal Metropolitan Community as part of a public consultation on residual materials management. We pledged to work in a concerted manner with players from the plastic value chain to channel investments that will enable better capture of plastic at sorting facilities and better uses of recycled material.Furthermore, we intend to become a significant buyer of residual plastic to be reused in our flexible packaging production. As part of this consultation, we also presented how Publisac is a useful, responsible and legitimate service, which already aligns with the 3R-RD residual management principles.For reduction at the source, we have committed to decreasing the use of plastic by 30%, mainly by reducing the size of the Publisac bag. Our Packaging sector will produce this new bag to be launched in this fall. It will now be made of 100% recycled plastic as opposed to the current bag made of virgin resin. For recycling, the bag and its content are already 100% recyclable and our new bag will remain so.And now, a note on our Media activities. We're pleased with our results for the quarter, a combined business and education portfolio where we have leadership positions once again performed very well in Q2.In conclusion, in our Packaging sector, we will continue to execute on our 2019 operational plan. We will maintain a strong focus on manufacturing efficiency, improve the results at our 2 facilities facing operational issue and achieve our next synergies target and continue to gradually improve our margins.On the Printing side, for the rest of the year, we should see a continuation of current trends, but to a lesser extent. As we did in the past, we will continue to proactively adjust our cost structure to the volume trends and increased automation.Furthermore, we will pursue new growth opportunities in certain regions and vertical, whether organically or through acquisitions. We expect our Printing sector to continue to generate significant cash flow.For our Media sector, we expect continued good performance in the second half of 2019. Finally, in terms of capital allocation, our top priority is to use our strong free cash flow generation to continue to deleverage the company.With that, I'll turn it over to Donald.
Thank you, François, and good afternoon.As you saw, our second quarter results reflect many of the same dynamics we experienced in Q1. In the quarter, our adjusted operating earnings increased by 19%, mainly due to the Coveris acquisition. For our Packaging business, the combined adjusted EBITDA margin for the sector was 12.5% for the quarter, up from 11.7% in Q1.This is a solid improvement and on track with our plans. We benefited from synergy and from lower raw material price in the quarter. As François pointed out, margin were somewhat pressured by operational issues at 2 isolated plants in our pre-Coveris operation, which we are addressing. In terms of synergies, from the Coveris acquisition, we have completed the first phase and exceeded the expected USD 10 million on a run-rate basis at the end of Q2.These are mainly related to procurement, and we now move to the next phase, which consists of raw material in-sourcing and are on track to realize more than USD 20 million of cost saving by May of next year.Let me now go over some of the elements that affected our profitability in the Printing sector. First, the negative noncash impact related to the deferred revenues from the end of the printing of the San Francisco Chronicle, La Presse and The Globe and Mail in the Maritimes accounted for $4.5 million of the decrease in the quarter. You can find more information on this in Table 4 of our MD&A.Second, the organic decline in our revenues had a direct impact of $13.8 million on our adjusted operating earnings. Since our platform structural costs were flat compared to last year, this came mainly from the lower revenue from 2 retail customers, and the negative impact of $3 million from the transitional service to Hearst which ended in Q4 of 2018.In addition, please note that we had a negative impact on our margin from higher paper costs in the quarter. This includes the impact from the paper that we now supply for certain customers. In terms of cash, we generated about $40 million of the free cash flow in the quarter, net of dividend, which we almost entirely allocated to pay down debt.That being said, our net debt declined by only $23 million because of the effect of the U.S. exchange rate.Cash flow from earning activities was about $100 million, net of $21 million of tax payment. We also allocated $24 million to CapEx. We distributed $19 million in dividends and paid $14 million of interest expense.Please note that our effective tax rate in the quarter was 22%, which is lower than the 27% rate last year. This is mainly due to the Coveris acquisition as we generated more pretax profit in the U.S. and other jurisdictions that had a lower tax rate than our Canadian operations. At the end of the quarter, our net debt ratio stood at 2.8x, down from 3x at the end of Q1.Now to our outlook for fiscal 2019. In our Packaging sector, as the Coveris acquisition has now reached the first year mark, it will be reflected as a part of organic growth for the rest of the year. We expect revenues will be slightly lower for the second half of the year due to a decrease in volume in one of our segments.We expect manufacturing efficiency and synergies to drive a gradual improvement in our profit margins over the coming quarters as planned.In our Printing sector, we should see a continuation of current trends in most of our verticals, including retailer-related service, but to a lesser extent, for the rest of the year. That said, we anticipate continued growth in our in-store marketing product and book printing vertical.We will continue to carefully monitor print volume, and we will adjust our cost base accordingly to protect our profitability. The operational efficiency initiative already in place should have a positive effect on our profit margin during the second half of this year, including $2 million contribution to EBIT from the Brampton closure.Cost savings from this measure should total $12 million on an annual basis. In Q3 and Q4 of 2019, we also expect a negative impact on our revenues and profitability of about $3 million per quarter related to the transitional service provided last year as part of the Hearst transaction.In the Media sectors, we expect continued good performance in terms of revenues and profitability in 2019. For the 2019 P&L, assuming the stock price at the end of the quarter, you should model for full year corporate costs at EBITDA level of about $25 million. As a reminder, a change of $1 in our stock price impacts our result by close to $1 million.Our financial expense are expected to be between $65 million and $70 million by the year-end. Our effective tax rate is expected to be in the low to mid-20s range.In terms of use of cash for the year, you can assume CapEx slightly above $100 million. This includes operational CapEx of about $80 million and an additional $20 million in strategic CapEx projects for this year. As for cash tax for the year, you can assume $75 million. To conclude, our priority is to deliver profitable long-term growth and create value for stakeholders. We expect to continue to generate significant cash flows, which should enable us to allocate capital towards reducing our debt.On that note, we will now proceed with the question period.
[Foreign Language] [Operator Instructions] [Foreign Language] Your first question comes from Adam Shine of National Bank Financial.
Just going to the 2 plants in Packaging. I think, François, on the Q1 call, I thought the impression was that one of the plants was dealing with maybe a timing issue that would resolve itself in Q2 and the other plant was still an ongoing issue that obviously you guys were focusing on addressing. Can you just to speak to what might have transpired in Q2 in regards to how these issues are continuing?
About the timing, about some volume that was slower in Q1 and that we were hopeful that, that volume was going to be kicking in Q2. It was unrelated to these 2 plants, it was in another vertical in the TC legacy plants. And that happened. This vertical kicked in big in Q2 and fueled our 3% organic growth. So that was the main reason. That came in actually better than we thought. As far as the operational issue in 2 of our locations, one of them is actually on track and improving every month and the plan is in place and in execution. As far as the other one, we're still putting the action in place to improve the factory, but this is actually going to be taken care of, and it's going to improve towards the back end of the year for these factories.
Okay. We're still seeing obviously the 2 retailers as you mentioned since January continuing to reduce volumes and obviously derivative of that, you're adjusting the cost base to improve margins in the back half. Has there been any follow-up discussions with these 2 clients because the impression, sort of, I had was that this might sort of evolve during the summer as a prelude to the back part of the year where things get a bit more important in terms of use of capacity in a seasonally stronger period, but you seem to have moved a little bit earlier with regards to the Brampton facility partial closure or staggered closure. So maybe you can talk to that dynamic and whether or not the moves by these 2 particular retailers are causing any other key retailer customers to make any adjustments?
Yes. Well, we made a comment that we think that the trend for one customer is going to be similar. But to a lesser extent, in the sense that our cost base is going to be adjusted much lower. And that trend had started to appear in Q4 last year. So in Q4, we're going to be against easier comparable or similar strategy for that particular customers. The other customer that did the strategy of doing flyers for 2 weeks and skipping some week, which was very negative for us, has announced that he will reverse the strategy for the rest of the year. So it's clear to us that anybody who cut on their spend on flyer see a direct correlation to their same-store sales growth. And we think that to the contrary, some of our other customers are actually taking advantage and printing more. And when they disclose -- most of them are public -- their results, they are growing a lot more than those who are printing less or trying to save money. So I don't think that anybody is trying to follow their leads, I think it's probably -- for some customer anyway, it's the other way round. So that's why we feel that for the rest of the year, some trends are going to reverse and some trends are going to stay the same, but we will be impacted to a lesser extent for the reason I just mentioned.
Okay. That's great. Very helpful. Maybe one for you, Donald, just very quickly. When I look at the share price dynamic as it related to reduction in stock-based compensation, I would have assumed that we would have seen maybe a further reduction in the corporate cost line, the other line, ex Media obviously. And you've given the guidance for the year and maybe there is a bit of downside to the guidance, but I guess, my question relates to were there any timing of costs such that seeing what you saw with the step down in stock-based comp, you might have driven some Q3 or other H2 costs into the Q2 somehow?
Well, first, maybe regarding the guidance for the end of the year, remember that last year, in Q4, the stock had a big impact actually on our cost of corporate. So that you should model that, that last year was a very solid fourth quarter, if I can say so, because the stock went down very rapidly in Q4. So that's to be considered for your model. Your question regarding Q2 is good. Yes, exactly. We had, again, an impact on the stock side, but we had some onetime. Obviously, we're active in the market on the Publisac side, so that's caused that one. That's mostly onetime. So corporate costs are higher than usual. Some of them are onetime. We have also some professional fees regarding Coveris that we still have to pay. So there is -- that's largely coming from those 2 points. And obviously, we have a little bit more staff over here to manage the entire business, but there is some onetimer at the corporate cost. But the $25 million at the end of the year is right now solid, if you consider the stock at the current level.
[Foreign Language] Your next question will come from the line of Mark Neville of Scotiabank.
Maybe just on the Packaging, the guide -- the revenue guidance for the back half. Just maybe a little more sort of color. Can you tell us just maybe on the vertical where you're seeing the weakness, I can assume that's Coveris, but sort of the reason behind it? If you think it's market share or just market weakness, maybe just color on that?
Yes, there is a couple of factors. The first big factor is last year with the Coveris platform, we had a very strong Q4 and a kind of a weaker Q1. And we don't believe that this year is going to play like that. So we think that we're going to have -- the volume is going to be more even between Q4 of this year and Q1 of next year. So that's creating a little bit of a year-over-year difference. But it's just like timing. Last year, we built a lot of stuff in Q4 and then less in Q1. And we think this year is going to be more even. We have the two factories that I mentioned that we have some operational issue, but also some volume issue where we are maybe pruning some business that is less profitable as part of our fixing of that business. So this is another area. And I would say, to give you more color, the third point is that the sector where we see a little bit of a slowdown for Q3 and Q4 is our group around consumer and pet food. We think that some of our customer in our portfolio are going to slow down, we think, in Q3 and Q4. We see very strong Q3 and Q4 in some other verticals like cheese for example, but all in all, we think it's going to be a little bit shy of last year because of the 3 reasons I mentioned.
And the pet food weakness or the declines, sort of any insight into why that may be -- then why that particular vertical may be down? Again, is it sort of market share, is it sort of inventory reduction at the customer, I'm just curious as to why you think that might be happening?
Well, this is the group like that we call consumer and pet food where there is many, many verticals in there. There is coffee, there is confectionary, there is a lot of stuff. So there is a lot of plus and minus. And our guys between a customer we gain, customer we lost, some customers that are gaining market share, some that are losing. That's what kind of the forecast our people gave us, that's what we're telling you. We'll see how it is going to all played out, but it's not one specific. It is a stack group. All the other groups are, for the most part, in pretty good shape in terms of organic growth. But they are our largest group, and that's kind of the color I can give you.
Sorry, I think I might have misheard, what was the vertical, packaged food or is it...
Consumer product and pet food, yes.
Okay. And in those -- the 2 facilities, can you just maybe just help us understand what exactly the issues are and what you're doing to remedy that?
Yes. One of the factories, we invested about $20 million and installed a lot of equipment around all the various aspects of the flexible packaging, around printing, around finishing, around extrusion. And I guess, you could call it growing pain. And we added a lot of capacity, and now we're building the volume, so it's growing. We added more costs than the volume that we're actually doing right now. And we have to move from one building to another building. We're still paying rent in the other building, and we have a new rent. So all of this is going to take care of itself, but one plant, I call it, fast-growing and then this plant is actually growing revenue, but not exactly growing profitability as it should according to our plan. So we are making sure that we are improving their profitability. And the other plant is a smaller plant, and it's just like operational and sales issue that we need to fix around that plant.
All right. Maybe just on -- I understand the comments around the print, you have one customer, the volumes are still down, but you've lowered the cost base. The second customer, you're actually seeing the volumes back -- pick back up on the retail -- on the flyer business. Was that -- Am I understanding that correctly?
Yes. Out of the 2 customers that are hurting us the most in the first 6 months, one is going to stay the course, we think. But what I mentioned is that, that strategy of reducing their spend to save some money had started in Q4 last year. So we're going to have a easier comparable towards the back end of the year with that customer, but there is no -- we don't anticipate any change in their behavior. They're going to continue to give us reduced volume for Q3 and Q4. And then the other customer has changed strategy. They were printing flyers every 2 weeks for a number of weeks and now they've canceled all that as of now for the balance of the year. So we will see if they hold to the new strategy, but obviously we're quite happy about their new strategy.
Okay. And so maybe just to circle back on the packaging volumes for the second half, I was just curious, order of magnitude of the year-over-year decline is, are we talking 1%, 2% or something more significant?
Yes. We had hoped for the whole platform to generate 1% of organic growth in the back end of the TC legacy plant generating more organic growth. And then Coveris not too much. And depending on how the volume is going to play between Q4 and Q1, and how much of the consumer and pet food vertical is going to play out, we might be at 0 instead of 1%, but that was our plan. Our plan this year was to stabilize the business, derive the synergy, start to improve the margin and put ourselves in a position to grow organically in 2020. So we're going to end up around flat to 1% depending really how Q4 is going to play out, but as we can see right now, we might be closer to flat than 1%. But we are still pretty confident that we will continue to improve the margin and that was really our focus this year.
[Foreign Language] Your next question comes from the line of David McFadgen of Cormark Securities.
A couple of questions. First of all, just a clarification. So when you were talking about packaging being maybe slightly down in the back half of the year so you would finish, let's say, flat, are you talking pro forma the entire packaging business with Coveris? Or were you just talking about the legacy packaging?
The whole thing.
Okay. The whole thing. Okay. So also I was just wondering, when you look at the stock price, obviously it's down a fair bit here. You have an NCIB, I don't think you've bought any stock under it yet. I'm just wondering why wouldn't you be active buying back stock. I mean, 2.8x leverage is not that high. Just wondering what are your plans for that?
Well, first, 2.8x for -- this is a zone that we don't want to be for long-term. As you know, as we told everyone when we did that deal, our objective is to deleverage, to get to a more comfortable zone. We're thinking long-term. If we're thinking long-term, we need to do more acquisitions. Therefore, the use of cash for the moment should be at reducing the debt. Also, we announced a dividend increase back in February. So we have those -- that capital to the shareholders. As far as the NCIB, obviously, if we think short-term, this is -- this will be a great return, but as we said, since many years ago, we have a long-term vision. We were active in the fall, then graded back on the stock because it seems that the movement was coming very strongly on the other side. So for the moment, we are not active.
Okay. So is there, say, a leverage target that once you reach, you might get active on the NCIB?
Well, actually, the leverage target that we're aiming to get to is to allow us to do more acquisition. We're not putting ourselves a target to say at that target, we will do NCIB. We think that the packaging sector is to be consolidated. There is M&A going on right now. We want to be active in this market. We want to grow this company. So the first use of cash will be invest in packaging. And as I said, if we -- NCIB is always there, we can always use it, but we saw that there was not real movement when we were active. So for us, the strategy remains to pay down debt and to get to the leverage that we told the market and the rating agencies and our bankers when we did the deal.
Can you remind us what that leverage target was?
Well, we said that we are aiming to be around 2 at the end of 2020.
Okay. So just a question on the Printing side then. Most of that organic decline we saw in Q2 was related to the flyer revenues. So it looks like the flyer revenues were down quite a large -- at least quite a bit on a percentage basis. Could you tell us what the percentage decline was for the flyers revenue?
Well, it was not that large. It was large with these 2 customers. And basically, the retail and newspaper printing network is a network that is fixed in nature because the plants are there and these factories work 7 days, 24 hours, so even the labor is fixed. So there is a lot of fixed costs. And when the volume comes down rapidly or the things that we have not anticipated, that hit to the bottom line is big. You have to account that last year we received a payment of $3 million for transitional service agreement in San Francisco when we sold the plant. That's flowing right to the bottom line this year. So that's creating a $3 million negative year-over-year that have nothing to do with the business or with the printing business. That was a payment, and there will be 2 more of that. We received in Q2, Q3 and Q4 last year, $9 million transitional service agreement. That has nothing to do with the printing business per se, and this is going to play out again in Q3 and Q4. So some customer are actually upping their flyer printing volume compared to last year, and quite a few of them, but all in all, because these 2 guys are down in Q2, we were around, I think, minus 5% or minus 6%. In our plant, we were planning for minus 2%, minus 3%. So now obviously, we are sitting on too much costs, and that's why the impact to the bottom line is more direct and more important. We will have decreased our cost base, but we anticipate this probably less severe decrease going forward at a better cost base. So the impact will be obviously on the bottom line, not as severe as we planned.
[Foreign Language] [Operator Instructions] [Foreign Language] Your next question will come from Drew McReynolds of RBC.
First on the in-store marketing revenues, François, maybe just provide an update on where you stand there and maybe what to expect in the back half of the year and into fiscal 2020? And also on the $12 million in Brampton-related cost savings, Donald, I'm not sure, you walked through this in your remarks, but can you just comment on how those should flow through as we model those cost savings going forward?
Yes. The POP, we're quite pleased, it's growing quite steady. We won a big, big customer about 6 months ago, and now it's ramping up. So the year-over-year growth in that business is around 15%. And that's not our plan, our plan we -- was calling for 12%. So we're beating the plan. And as we are running this customer and learning about their business more and more, we're obviously improving margin, so the contribution to the bottom line is increasing. We have other growth target. I think we have developed a unique model in that industry in Canada, and we intend to continue. We think we could continue to grow double digit in that space for the years to come. And what we think we could do too is, I think now we can start to look at M&A and maybe accelerating that vertical. I think we could probably acquire people that are doing similar stuff to us, but not as exactly what our recipe. So I think our recipe could generate some synergies. And then there is some services that are adjacent to the service that we are offering and a lot of our customer are asking us to go into these areas and to put our -- some of our tool and some of our concept into products that we are not producing right now. And we're also looking at maybe doing that by M&A to go faster as customers are willing to support us if we enlarge our product offering. So we think that over the years, it maybe not impossible for us to double that business over a long period of time through organic growth and M&A.
And regarding my opening remarks for Brampton, the total savings should be around $12 million. As I said, about $2 million this fiscal year because we're, as you may remember, it is going to be 2 phase. And the rest will come mostly in 2020. We still have some saving in 2021 because we're going to close the shop fully in December, so there will be some lag into 2021. And that will come over the positive impact of the 2 equipment that we bring from -- back from the West Coast, San Francisco. So that's adding over to saving. Obviously, there's payment to be made regarding that. There's around $12 million cost to close Brampton, but that's excludes the value of the building, we own the building.
Okay. That's both very helpful. One last one for me. From a bigger picture standpoint -- I guess when you look at both your Printing and Packaging businesses, I think each quarter for the last several quarters, we are seeing some puts and takes to either customers or specific plants. And when you look at all the moving parts, it's kind of dawning, I think, on me and maybe others that this kind of volatility is just kind of more normal course for those 2 businesses going forward versus things that you necessarily need to flag quarter by quarter. Just wanted to get your sense on whether this kind of volatility is frankly kind of what to expect going forward. And certainly from my perspective, I'm not saying that's a bad thing, I'm just saying with 28 packaging plants and 16 printing plants and lots of customers, inevitably should we not expect just quarter-to-quarter kind of puts and takes just as part of the business going forward?
Yes. On the Printing sector, I think we are at the end of the noise about the deferred revenue in the San Francisco contract, in the San Francisco sales. And the only piece of noise that you're going to have is to factor that in Q3 and Q4, like I just mentioned, we have received each quarter $3 million for the deal we've made in San Francisco for transitional service agreement. In the print, there'll be no more noise going forward about this. So that's going to clear up a thing. In terms of cost, controlling our cost and trying to forecast what the volume will hold, I think we did a pretty good job over the last 5 or 6 years to predict about the market. It's probably the first time that the market surprised us a little bit in the last 6 months, and we reacted by shutting a huge plant in Toronto. And yes, we didn't expect these 2 customers to slow down the way they've slowed down. But one of them is coming back in a way. And Packaging, you're right, we have 28 plants. We're operating in 7 countries. We are in about 15 verticals, things are happening. Some of our customers are winning on the shelves, some of them are losing, we're gaining customer every year, we are losing customer every year. We are preparing this platform for long-term growth. So we're installing equipment. So yes, there will be some level of volatility from quarter-to-quarter. And like I mention all the times, there will be more volatility in Packaging than in Printing because in Printing, everything we print is a finished product that has not -- is out in the market right away, a newspaper or flyer, we cannot put that in inventory. And Packaging, the inventory is a big -- it is a big part of the business as inventory. So when you move inventory, you look good. When you build inventory, you don't look good. So there will be more volatility. So that's what I think.
Yes, I agree with François, but also I think the important picture to get today from Packaging is, we're moving from 11.7% to 12.5%. The only reason why we need to spend a lot of time on those 2 plants is, we still have to talk about the legacy business. Legacy business, we have 7 plants. When 2 is going to wrong, you need to talk about it. Now with 28 plants, it's going to be different. Obviously, on 28 plants, if one plant is going down, we ain't going to talk about it. So today, I think what's important is, we move from 11.7% to 12.5%. Yes, there's 2 plants going wrong, but this is because we need to talk about the legacy business. The good news is, this is the last quarter we are going to talk about the legacy business because in the future anyway, we're going to move jobs from the legacy business to the Coveris business. So yes, there's going to be volatility, but it needs to be bigger to talk about it than just 2 plants on 28 plants. That's what I see also.
[Foreign Language] Ms. Chartrand, there are no further questions at this time. Please go ahead.
All right. Thank you, everyone, and looking forward to our next call in September.
[Foreign Language] Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.