Rogers Sugar Inc
TSX:RSI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
5.15
5.94
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Rogers Sugar Inc
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and welcome to Rogers Sugar's First Quarter 2019 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, January 31, 2019, at 5:30 p.m. Eastern Time.I would now like to turn the meeting over to John Holliday, Chief Executive Officer. Please go ahead, Mr. Holliday.
Thank you, operator, and good afternoon, ladies and gentlemen. Joining me for today's conference call is our CFO, Manon Lacroix. We'll start today's call by commenting on some of the highlights for the quarter for both our Sugar and Maple segments and then provide some brief updates on our key strategies. At the conclusion of my comments, I will turn the conference call over to Manon, who will review the financials in more detail and talk briefly about the outlook for the balance of the fiscal year. We will then open up the phone lines to answer questions that you might have.Commenting on the -- our sugar volume. We benefited from very strong overall volumes in the first quarter. Our results exceeded prior year shipments by approximately 14,200 metric tonnes or an increase of roughly 8%.Looking at each segment, we saw our industrial business expand by approximately 5,900 metric tonnes. Our consumer shipments for the quarter were higher by approximately 1,500 tonnes. Strong promotional activity by our retail partners in the quarter underpinned the strong performance. Also noteworthy in this segment was the signing of a new national retail account to a 3-year supply agreement. We will see the benefit of this volume beginning in our third quarter. We expect the incremental annualized volume from this contract to be approximately 10,000 metric tonnes.Liquid volumes continue to be very strong. New customer demand and the recovery of some temporary customer losses helped us deliver approximately 3,800 metric tonnes more for the quarter. We believe that the low No. 11 sugar prices and strong demand from our existing customers and, just as importantly, customer and consumer interest in natural sweeteners is combining to create good tailwinds for our business in this segment.Export sales continue a strong -- continued to enjoy a strong quarter with shipments up approximately 3,000 metric tonnes. The strong quarter resulted from additional sales to Mexico and additional high-tier opportunities. High-tier sales continue to benefit from the weak Canadian dollar and relatively low No. 11 values.Overall, we are very pleased with the total business volume performance in the quarter and have the expectation that we should continue to see strong year-on-year results for the balance of the fiscal year.Turning to the Maple segment. I will provide an update on our integration progress and comment on some observations on our outlook for this newly acquired business.During the quarter, we continued to make significant progress on a number of initiatives. One of the more complicated and difficult decisions we made and announced in January was the second phase of our optimization work.The first phase of the project was announced last fiscal year with the relocation from the current leased bottling facility in Granby, Quebec to a new 100,000-square-foot built-for-purpose state-of-the-art leased property. This move will allow us to better align production flows, improve our distribution capability and install new high-capacity -- a new high-capacity bottling line. The completion of the first phase is expected to occur at the end of fiscal year 2019, early fiscal 2020. This fiscal year, approximately $4.5 million will be spent on return on investment capital expenditures towards new equipment and leasehold improvements.The second phase of our manufacturing optimization initiative required a thorough analysis of our Canadian footprint. The company concluded that plant specialization offered the most efficient approach to reduce costs and respond to industry growth. This analysis determined that the St-Honoré-de-Shenley facility -- bottling facility should be repurposed to focus on the production of industrial products and the reception and storage of maple syrup barrels.The bottling production activities at this facility are being redistributed to our Granby or Degelis operations, reducing our overall maple workforce by approximately 15%. Granby will focus on plastic bottle -- bottling production while Degelis will primarily produce on glass bottles and cans. The transfer production is expected to be completed by the end of the second quarter.To support this plan, approximately $1.8 million will be invested in Degelis to increase the capacity of the bottling lines, increase automation and enhance site storage and logistics capabilities. The Degelis investment will provide an attractive return and the investment should be completed by the end of March 2019.Once the 2 phases are fully executed, the new manufacturing footprint will double our capacity, lower our costs and improve our overall manufacturing capabilities, allowing us to participate fully in the maple syrup market growth. Each of the 3 Quebec facilities will continue to receive and store maple syrup barrels. No changes are expected in our Vermont facility.Management remains positive on the future outlook for this segment as the maple syrup market growth remains strong. With a sales team that is now fully organized, a clear operational path forward and procurement initiatives beginning to benefit the bottom line, we are confident that we are well-positioned to capture and participate in the market growth and further strengthen our earnings.Commenting briefly on our key overarching business strategies. We continue to push a big operational excellence agenda with a solid portfolio of ROI projects that will improve our operational capabilities and lower our costs and unlock manufacturing capacity by identifying and eliminating operational bottlenecks.In the quarter, a significant amount of effort was focused on commissioning a new sugar decolorization system at our Vancouver facility that will lead -- which will lead to energy savings. This project, once fully commissioned, will lower our operating costs, improve our throughput and give us access to sugar customers who manufacture our products that meet vegan labeling standards.In the quarter, we continued to add to our ROI pipeline with the approval of new investments that will further lower energy costs -- energy consumption in Vancouver and unlock additional processing capability or capacity in Montreal.In the Sugar segment, we continue to project in fiscal 2019, we will spend $20 million on CapEx and an additional one-off spend of $6.5 million to $8.5 million to reduce air emissions in Taber to meet the new regulatory standards.Our market access strategy continues to benefit from the relatively low No. 11 market and weak Canadian dollar. The renegotiation of NAFTA remains unchanged from the last quarter. We continue to hold the view that the new agreement, USMCA, which provides -- will provide us with an additional 9,600 metric tonnes of Canadian beet sugar to the U.S.A. and 9,600 metric tonnes of incremental sugar-containing product quota will be ratified by the respective governments. We estimate that the implementation of the agreement will take approximately a year post-ratification.On the acquisition front, our efforts remain largely on integration and delivering new growth in the Maple segment. As time permits, we will continue to investigate other opportunities in the adjacent natural sweetener space and/or traditional sugar market that deliver on consumer and manufacturers' interest in alternative healthier natural sweetener solutions.Finally, I'm pleased to confirm the corporation declared a dividend of $0.09 per share to shareholders of record on March 31, which will be paid on or about April 19. The total payout is estimated at $9.5 million.In conclusion, we had a good first quarter. We are pleased with our progress on the Maple segment and encouraged by the strength in our core Sugar business.With that, I would like to thank all our employees for their efforts and contributions to our first quarter results. I will now hand the phone call over to Manon Lacroix, who will provide more detail on our financials.
Thank you, John.I will now go over the first quarter results in more detail. I will start with the results of our Sugar segment. Adjusted gross margin for the first quarter amounted to $29.2 million compared to $31.2 million for the same quarter last year. During the current quarter, the company's sales volume increased by approximately 14,200 metric tonnes, which was clearly beneficial to our adjusted gross margins.However, there are 3 elements that contributed to more than offset the benefit from additional volume. First off, a noncash pension plan income of $1.5 million was recorded in the first quarter of last fiscal year for a pension plan amendment.Secondly, similar to last half of fiscal 2018, the impact of a lower No. 11 raw sugar value continued to have a negative impact on the adjusted gross margin. The price exposure affects approximately 10% of Lantic's sales volume and is entirely dependent on the timing of pricing by our customers.Finally, during the quarter, the company completed the installation of a $5 million capital investment project in Vancouver focused on energy savings and the commissioning efforts resulted in additional operating expenses during the quarter. We expect that the commissioning issue should be behind us by the end of the second quarter.On a per metric tonne basis, adjusted gross margin stood at approximately $155 per metric tonne versus approximately $179 per metric tonne during the same period last year. The pension plan income had a negative impact of $8.49 per metric tonne. The remainder of the decrease is mostly driven by the reduction in No. 11 world of raw sugar price and, to a lesser extent, by the unfavorable sales mix. Even though all sugar categories were higher than the comparable quarter last year, the strongest increases were in lower-margin industrial, liquid and export segment. Finally, the additional operating costs in Vancouver also contributed to the reduction in adjusted gross margin rate.For the quarter, administration and selling costs were $0.4 million higher than the comparable quarter last year, mainly explained by timing. Distribution costs were $0.5 million higher than the first quarter of fiscal 2018 due to an increase in transfer costs, mainly attributable to an increase in sales volume.Overall, adjusted EBITDA for the Sugar segment was $24.5 million versus $27.1 million for the first quarter of last year.Now we'll turn to the Maple products segment. The company acquired Decacer on November 18, 2017, and therefore, the first quarter of last year is missing 7 weeks of operation. The effect of the full quarter mainly explain the increases quarter-over-quarter of the revenues, adjusted gross margin, adjusted EBIT and adjusted EBITDA.Revenues for the quarter amounted to $54.9 million, an increase of 5.8%. Adjusted gross margin amounted to $7.8 million, which was $1.7 million higher than last year's results and represents 14.2% of revenues compared to 12.4% last year. In addition to the Decacer impact, the increase versus the prior year in dollars and in -- as a percentage of sale is explained by an improvement in net selling prices by the benefit of -- and by the benefit of procurement initiative savings. I should also mention that fiscal 2018 included a finished goods inventory adjustment that did not occur in the current quarter.Administration and selling expenses for fiscal 2018 included $1 million in nonrecurring costs incurred mostly for the Decacer acquisition. Therefore, excluding these nonrecurring charges, administration and selling expenses were $0.2 million higher than last year due to the impact of Decacer once again and additional amortization expense. However, offsetting some of the negative variance are savings from operational excellence initiatives that took place in the second quarter of last year.Adjusted EBITDA amounted to $5.8 million, an increase of $1.6 million versus fiscal 2018. On a consolidated basis, adjusted EBITDA was $30.2 million or $1 million lower than last year.For the quarter, we have modified our free cash flow table to present a trailing 12-month free cash flow as opposed to a quarterly free cash flow. We believe that a trailing 12-month is more indicative of the company's performance and reduces the timing effect within the free cash flow.Therefore, for the current trailing 12 months, free cash flow amounted to $46.4 million or $3 million higher than the comparable -- than compared to the previous trailing 12 months. The increase is mostly explained by an improvement in adjusted EBITDA, which was somewhat offset by higher interest and income taxes paid and the payment of $4 million to purchase and cancel shares under the normal course issuer bid.I will now turn to the outlook for the remainder of fiscal 2019. Once again, I will start with the Sugar segment. We have revised our volume expectations for the year and we now anticipate that we should end the year approximately 25,000 metric tonnes higher than fiscal 2018. The liquid volumes should take the bulk of the increase by approximately 15,000 metric tonnes as a result of a new account contracted this past quarter as well as some additional conversion from high fructose corn syrup to liquid sucrose.During the quarter, the company was also able to gain incremental volume for the consumer segment as Lantic secured additional regions with an existing customer, which should be beneficial in the last half of the fiscal year. This should result in an increase of approximately 5,000 metric tonnes.The industrial segment should be slightly higher than last year, mainly due to the impact from the strong first quarter results, while the export market should be comparable to fiscal 2018.We expect that distribution expenses should increase compared to fiscal 2018 as a result of the first quarter incremental spend and the additional volume expected for the year. This slice in campaign should be completed by the end of February and should derive approximately 125,000 metric tonnes of refined sugar.As for the Maple products segment, our fiscal 2019 expectation remain unchanged with an adjusted EBITDA of approximately $21 million when excluding nonrecurring costs. As John mentioned, we now have a clear path forward for our Canadian footprint, which should derive savings in the second half of fiscal 2019.Capital spending for the Sugar segment will increase this year due to the execution of the air emission project in Taber, whereby a range of $6.5 million to $8.5 million should be spent in the current year. The remaining spend on capital expenditures should be comparable to the prior year. In addition, the Maple products segment is expected to spend approximately $6 million in fiscal 2019 in Granby and Degelis for the footprint optimization project.With that, I would like to turn the call back to the operator for the question session.
[Operator Instructions] Your first question comes from the line of George Doumet from Scotiabank.
Manon, you did call out some of the culprits for the gross margins being weaker in the legacy business, so Taber impact, the high operating costs, but you also called out, I guess, mix, given the strong liquid volumes outlook we have for the rest of the year. How should we think of the overall -- I guess, how should we think of the overall margin compared to this year? Like, should it be a smudge below or are there kind of some offsetting factors so you can maybe kind of place in there as we go through the rest of the year?
Yes. It should be in about the same ballpark than last year. The impact of Taber will continue to hurt us in the second quarter, but in the last half, we should be more comparable to the prior year.
Okay. That's helpful. And maybe for John, I guess, looking at the Maple syrup business longer term, I was just maybe hoping to get some color on what you guys see as new revenue growth trajectory there. How should we think of the base level there? And how much of that is going to be from existing versus potentially new customers? And how much are we expecting from pricing versus volume? Anything you can give us there, I guess, as you go beyond this year and next?
Okay. So maybe just try and quickly scorecard it. We are growing the business at basically the growth rate of the business. If you -- what we haven't done in this quarter or we didn't do at the end of last year is recapture volume of -- any volume we lost to some strategic account losses at the very, very first quarter of our acquisition. So we are maintaining all the current accounts. We're growing at market pace and we are looking for opportunities to find ways to get that growth rate that is incremental through winning some new opportunities. And we are well organized now to be able to do that and that's our plan for the future. On bottling, kind of the traditional side. And on the ingredients side, we continue to prospect, prospect hard and we think that we will -- that activity will bear fruit in time.
Okay. And when you say market base, is that more -- should we think more high single digits or should we think low double digits?
I'd say mid-single, just over mid-single-digit growth is how the market is performing.
Your next question comes from the line of Michael Van Aelst from TD Securities.
So I didn't catch everything. So on the industrial customer -- industrial business where you said you had a competitor that added production this year and you're able to capitalize on that, can you talk about the timing of that? Did that flow through into the next quarter at all?
Into what next quarter, like, flow into?
Did that flow into the current quarter? So like, is that customer still having a -- or I'm sorry, competitor still having a problem?
No. It was just the first quarter.
Okay. All right. And then I didn't quite catch what you said on new retail account. Was this strictly for sugar, I guess? And then did you -- you said it was a customer that you had in some parts of the country but not everywhere?
Yes.
That's correct, yes. It's a customer that we had -- we added regions and it's on the Sugar side.
Okay. And you should get the full benefit starting in Q3?
Yes.
And the annualized incremental benefit is around 10,000 tonnes.
Your next question comes from the line of Endri Leno from National Bank Financial.
Just a couple of questions. I was wondering when do you plan -- or I mean, has it started already that the emission project in Taber? When do you plan to start and when do you plan to finish that or is it throughout the year and the same thing, especially with the new facility that's being built in Granby?
The emission -- the Taber emission project will start in full at the end of our campaign and our campaign will end in month by mid-February. So end Feb, beginning of March, we'll start. And the question about...
The Granby, the Granby facility, we -- the construction will start in the spring, so second half of the fiscal year.
Okay. And just one more. I'll be following up on Taber. I mean, if you're starting in mid-February there or beginning of March, do you think you can finish it by the time that the variance ends in May? Or do you think you can get an extension to that one?
We don't need it until September because there's no activity at the facility, so our window to install complete is from March to mid-September.
Okay. Great. And then the other portion that you mentioned, you put up 15% decrease in workforce when all the projects are said and done for the Maple segment. What timing do you have on that one? When do you expect that to complete? What kind of costs would you have upfront and the overall savings that you expect then over time?
Well, it's the -- ultimately, it's from the repurposing of the Great Northern location. So there's approximately 30 employees that will be terminated by the end of March.
March.
Okay. And there any upfront costs that come with them? Are they unionized at all or anything like that?
No. They're not unionized. And there are some severance costs and restructuring costs that are included in our nonrecurring costs.
Okay. And are you able to quantify how much are you going to save over time there or...
Well, it's all part of our EBITDA number. It's all...
Yes. And it's a combination as well. It's not just [ right now ]. It's also work that we're doing additionally, work that we're doing at Granby. So in total -- we look at it as a total as opposed to its individual parts.
Okay. Great. And the last question for me, I will return back in the queue. You mentioned, so the total CapEx now for Maple is going to be $6 million, right?
Yes.
Yes.
For purpose -- maybe I'm answering question you didn't ask, but that's an unusual, that's this year. We're doing reorganization of the assets to set ourselves up for the future. It's not a planned rhythm like we have on the Sugar platform where we're most recently spending at around $20 million. Maple has a lot less capital intensity. Okay?
Okay.
Your next question comes from Stephen MacLeod of BMO Capital Markets.
I just -- just regarding the new consumer business that you've acquired and that kicks in Q3, are you able to say what -- like, margin-wise, is it pretty consistent with the consumer business you've had in the past? Or was it more of a competitive win on price?
It's comparable.
Okay. Okay. That's great. And then just on the Maple syrup side, I know previously you talked about some -- this is certainly going back a couple of quarters now, but there have been competitive issues in the market. I'm just curious, have you seen anything change in terms of the competitive landscape on the Maple products side?
No. We haven't. I think we've said all along that the [ doddling ] traditional-sized competitor. That remains a competitive segment for sure.
Next question comes from Frederic Tremblay from Desjardins Capital Markets.
You mentioned the increase in net selling prices in the Maple segment. Are you able to put maybe the growth in Maple in the pricing environment?
Sorry, you're breaking. Can you come closer to the phone?
Is it better?
Not a lot.
Not really.
Yes. I was just wondering in terms of the Maple segment. You mentioned a net selling price increase. Can you just put the mid-single-digits growth that you're seeing between pricing and volume?
Well, the -- when you're comparing the quarter-over-quarter, the increase in gross margin percentage, there's the impact of Decacer from the full quarter, so that definitely had an impact. Also, we've got some packaging savings and then there's the net selling prices that includes, like, foreign exchange gain as well as some modest price increases.If you look at the buckets, also I should mention that last year, we had an expense on the finished goods inventory that hit the gross margin. So that gross margin impact from the inventory, that's about, like, 0.5% of the increase, let's say.And then, there's -- when I said there's 3 buckets, the packaging, there's the selling margins and the -- and also Decacer has more sugar -- Decacer has the sale of sugar, maple sugar and maple flakes, which has a better margin. And you could put basically those buckets into 1/3, 1/3, 1/3.
Okay. And then I was just curious. You may have seen the revision to the Canadian Food Guide which basically suggests that people should use water as their beverage of choice instead of sugary drinks. Wondering your thoughts on the potential impact in your liquid business.
Yes. We don't -- I don't have a -- we don't have a view on that. I mean, there's a lot of, I guess, public news on the issues on the health issues associated with consumption of sugar and I don't know how those will impact that category.
Okay. And the last question...
Yes. The only thing we shared is we're seeing -- we pointed that out is we see more sugar -- liquid sugar being sold and we are seeing that our product -- liquid sugar is being substituted more often than it had been in the past for high fructose corn syrup. So that might offset that trend or potential threat that you brought -- that you mentioned.
Okay. That's great. And then last question would be now that you made the decision on the second phase of the optimization in the Maple segment, are you still confident with the $25 million EBITDA number that you provided or that -- does that change now?
Well, with the -- for 2019, we're confident on the $21 million.
We're confident in our guidance. And then for the business, if you're looking into the future, we think we'll get where we need -- where we said we'd get to. We got the -- we're doing the right things. We need to be patient. They don't all happen at exactly when you want them to, but we are very confident in what we're doing and that what we do will deliver what we promised.
We have no further questions at this time. I will now turn the conference over back to the presenters.
Okay. With that, thank you, everybody, for your questions, and we will catch up to you in the end of Q2.
Thank you very much.
All right. Take care.
This concludes today's conference. You may now disconnect.