Rogers Sugar Inc
TSX:RSI
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Rogers Sugar Inc
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Good morning, ladies and gentlemen, and welcome to the Rogers Sugar Fourth Quarter 2021 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, November 25, 2021 at 8:00 Eastern time. I would now like to turn the meeting over to John Holliday. Please go ahead, Mr. Holliday.
Thank you, operator, and good morning, everyone. Joining me for today's call is Mike Walton, President and CEO of Rogers Sugar; as well as Jean-Sebastien Couillard, VP Finance and CFO. During today's call, I will provide a review of the fourth quarter results and trends in our industry, and Mike will provide an update on the outlook for fiscal 2022. Please be reminded that today's call includes forward-looking statements regarding our future operations and expectations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. Please also note that we may refer to some non-GAAP measures in our call. Please refer to the forward-looking disclaimers and non-GAAP measure definitions included in our public filings with the securities commission for more information on these items. I will start with an update on the implications of COVID-19 on our operations and our ongoing efforts to manage through these challenges. It is the end of another year of COVID-19. Vaccination rates have continued to increase across the country, and we have seen a move towards a more open economy. Lower community cases and increased immunity that provided a relief for day-to-day operating challenges. However, as people begin to move back to a more normal life, the supply chain's goods continue to face disruptions and increased costs, which we will comment on later. On the people front, I am very proud of our business has continued -- that our business has continued to show strong leadership by caring for our employees. Putting the health of our people first has allowed us to operate our facilities without disruption and to quickly respond to volatility in customer demand and deliver essential ingredients to clients who depend on us. Along with our regular calls with nursing professionals that monitor and manage the individual quarantine decisions, we have added rapid testing tool kits to improve our decision-making and to help ensure that we continue our record of uninterrupted operations. In the fourth quarter of 2021, our overall investment in health and safety measures related to the pandemic was approximately $0.5 million. While costs are coming down, we are committed to continue to provide what is necessary to keep our employees safe and the plants running. However, the direct and indirect impact of COVID-19 continue to be felt. We're seeing the impact of inflation in supply chain through inflationary increases on international freight, local freight, packaging and warehousing. I'm proud to share that we are staying largely ahead of these costs through quick pricing adjustments. We will closely monitor them, and we expect to continue to recover them in subsequent quarters through contract renewals. Let's turn now to the fourth quarter results. Adjusted EBITDA in the fourth quarter decreased from the record quarter last year and was slightly below our internal expectations. This was due primarily to approximately $6 million of onetime events in the Sugar segment related to known prior period settlements of carbon credit claims as well as extra costs associated with the future pension liabilities as part of the recently negotiated Montreal collective bargaining agreement. Additionally, the impact of 1 less shipping week in the fourth quarter reduced our shipping volumes and profit when compared to the same quarter last year. In both our Sugar and Maple segments, we saw total demand rebalancing to pre-COVID levels. This rebalancing has caused some shifts within segments, particularly consumer retail volumes of sugar, which continue to be impacted by purchase timing related to retailers with higher inventory due to pantry loading taking place in 2020. I would like to start off our sugar review by giving an update on our 2021 Taber crop. Thanks to early harvest programs that we implemented last year, we began processing our beets in early September and have now completed harvest with favorable weather and much improved initial storage conditions.The early harvest not only reduces the potential of yield losses, but also lessens risk of processing and storage condition losses in both yield and processability that we saw last year. Our actions and favorable weather have together put us in a much better position with this year's crop. However, as we do not complete the processing until mid-February, we will reserve our final expectations until the second quarter results and we'll provide a more fulsome update then. Our Sugar volumes reached 215,000 metric tonnes in sales, 10,000 metric tonnes lower than last year due to 1 less week of operations in the quarter. If we accounted for the approximately 15,000 metric tonnes difference, that this 1 less week provides, our volumes would have surpassed last year. Overall, Sugar volumes reached 779,000 metric tonnes for the year which exceeded fiscal 2020 by approximately 4.3% on an adjusted basis. This makes it the seventh year in a row we have delivered year-over-year volume growth. All our businesses continue to react quickly to the volatility in both customer demand and supply chain challenges. Our sales and operating planning combined with enhanced forecasting tools, helped us to better anticipate and respond to these changes in demand. Despite 1 less week of shipping, our export business experienced growth of 1,500 metric tonnes or 8% while our liquid business also surpassed expectations with a smaller increase of 1,200 metric tonnes or 2%, a quick pivot last quarter to capture opportunistic export sales continued in this quarter, driven largely by the resumption of shipments to Mexico in the new export quotas under CUSMA, which took place at the beginning of this quarter. These positive volumes were offset by declines in the industrial and our consumer business. Industrial experienced a lot of 8,000 metric tonnes or 7% of our consumer business experienced a loss of 5,000 metric tonnes or 15% compared to the same period last year. Accounting for the 7% adjustment of 1 less shipping week apart from retail shipments volumes were comparable to the prior year. In our Maple segment, we had a solid fourth quarter with improved profitability. Sales volumes decreased by 11.4% in the fourth quarter even after factoring in a 7% adjustment for the 1 less shipping week. When compared against the same quarter last year. Volumes were lower due to weaker demand associated with COVID-19. Despite the lower volumes, we were seeing financial results across the business, following price increases that we implemented in fiscal 2020 and 2021. Further efforts -- Further, the efforts we have made to improve operations and standardized processes are also contributing to good results. This past year was a great confidence build as we saw the positive impacts of the efforts made by a hard working and dedicated team. Notwithstanding the impact of COVID, we anticipate continued positive underlying growth in the Maple segment. However, along with the inflationary impacts to the supply chain, we're also seeing an impact through our Maple business through labor shortages and associated wage inflation. We anticipate increased employee compensation and benefit costs in quarters to come as we work to stay competitive and ensure our business delivers continuous and uninterrupted service. These costs are being fully captured in all contract renewals. Knowing that you are following the news that might impact our business, I wanted to highlight that we have received a decision from the Canadian International Trade Tribunal review on the issue of maintaining antidumping tariffs against the EU, U.K. and U.S. sugar imports into Canada. And the results is that the 5-year cycle was upheld for the sixth time. The reconfirmation decision is critical to the maintenance of fair trade and is important for our business. I'd also like to thank our team for their huge effort to build the case, file the materials and remain ready and responsive to all CITT panel questions. And finally, I wanted to say a few words about my retirement. First, I wanted to say thank you to the Board of Directors and the management team and every one of my colleagues for their dedication and their many contributions to our success. I'm very proud of our team members from managing an essential food business throughout the pandemic and for all the steps taken together to better prepare our business and the company for the future. While I have officially retired as CEO, I will be with the company until the end of April 2022, in the capacity of strategic adviser to our new CEO, Mike Walton. You all know Mike Walton as our previous Chief Operating Officer, a highly capable industry veteran with over 40 years of experience. I've had a tremendous amount of confidence in Mike and as a fellow shareholder, I look forward to watching him lead the business and advance our strategy of steady and sustainable results with meaningful and reliable dividends and moderate growth. Over to you, Mike.
Thanks, John. On behalf of the executive team and all employees, I would like to extend a heartfelt congratulations to John on his retirement and express our gratitude for his thoughtful and tireless leadership over the course of his tenure. His leadership has been instrumental in our success, particularly over the course of the pandemic. I will now provide some color on our fiscal 2022 outlook. As John mentioned, our beet operations in Taber are currently on schedule with production expecting to be completed in February. And thanks to the steps we have taken, we expect a return to what I would characterize as a normal performance in fiscal 2022. As well, we anticipate sustained strong demand in both segments as we benchmark the pre-COVID 2019 demand levels. We expect that these 2 factors, coupled with improved margins in both sectors, should result in improved financial performance for Rogers Sugar Inc. in 2022. In Sugar, demand is solid across all of our customer segments, and we expect sales volumes to reach approximately 770,000 metric tonnes, representing a reduction of approximately 9,500 metric tonnes compared to 2021. While we expect a modest volume increase of 2% across our domestic market segments, we expect exports to decrease since we do not foresee the United States issuing a TRQ and market dynamics for high-tier sales are not as favorable. We anticipate the sales mix of higher consumer and liquid volumes will create a favorable price mix, which will contribute to improved profitability as compared to 2021. In Maple, we expect improved sales margins to contribute to improved results for fiscal 2022 compared to fiscal 2021. In addition, we will manage operating costs through ongoing optimization at our manufacturing facilities and efficiency improvements resulting from the investments made in our facilities at Granby and Degelis. I would now like to comment briefly on the business strategy. We remained on the right trajectory with our business strategy to deliver positive EBITDA growth for our shareholders and offer a best-in-class portfolio of natural sweetener solutions. As we have stated over the last several years, we will continue to work in the best interest of shareholders and all stakeholders by taking advantage of opportunities for improvement for today and for the future in regards to our assets, facilities and development potential. This includes the possibility of increasing or modifying the capacity utilization of our operations, largely in the East, where we see continued market growth. In tandem, we're focusing on the smooth operation of our day-to-day business, we will continue to assess our capabilities to ensure they continue to deliver for all of our stakeholders. Finally, I want to say that I'm proud of the everyday commitment of our employees across all sites in both business platforms to deliver essential ingredients to meet our customer needs. I will now turn the call over to JS, who will provide additional information on the results.
Thank you, Mike, and good morning, everyone. In the fourth quarter of 2021, our adjusted EBITDA amounted to $24.8 million, led by improved profitability in our Maple segment and solid results in our Sugar segment. As John pointed out earlier, the reduction in adjusted EBITDA for our Sugar segment in the fourth quarter was mainly attributable to 2 onetime items totaling over $6 million. The first item related to prior period carbon credit benefit recorded in 2020 and the second item to a prior period pension cost adjustment negotiated as part of the collective bargaining agreement we recently signed with our Montreal Main Union and recognized in the last quarter of 2021. Removing those extraordinary items, adjusted EBITDA for the fourth quarter was lower than last year. Consolidated adjusted EBITDA for 2021 amounts to $91 million compared to $92.3 million in 2020. Although the adjusted EBITDA for 2021 was lower, we should keep in mind that 2020 had 53 weeks, including 14 weeks in the fourth quarter, while 2021 was a regular year with 52 weeks, including 13 weeks in the fourth quarter. From a volume point of view, I would like to point out that 1 week equals approximately 15,000 metric tonnes for the Sugar segment; and 1 million pounds of maple syrup for the Maple segment. Overall, if we exclude the nonrecurring impact of the prior period pension adjustments related to our new Montreal CBA recorded in the last quarter of 2021, adjusted EBITDA for the fourth quarter and the year would have been $3 million higher, respectively, as compared to the balance we are currently reporting. The Maple segment adjusted EBITDA at $16.4 million improved by $3 million as compared to 2020. For the Sugar segment, if we consider the 2 items discussed above, adjusted EBITDA of $74.6 million improved as compared to last year. Now let's first review the financial performance of our Sugar segment. Sugar sales volume in the fourth quarter was strong at 215,000 metric tonnes. Although this is lower than 2020 fourth quarter balance of 225,000 metric tonnes when considering the extra week of 2020, this shows a normalized increase of about 2%. For the fourth quarter, we saw a reduction in sales to our industrial and retail customers, while we noted increase in our liquid and export sales. Our adjusted gross margin was $9.5 million lower in the fourth quarter compared to last year, due mainly to the 2 items discussed previously, totaling $6 million of variance and the unfavorable impact of a variance in sales mix driven by lower volume from retail consumer sales and higher volume from liquid and export customers. On that note, I would like to point out that a portion of the incremental export sales, although profitable, were not tariff-exempt and accordingly did not provide the same level of profitability as we have seen in the past. The unfavorable variance noted in the fourth quarter for gross margin was partially offset by lower administration costs from a reduction in direct COVID-19 preventive measures costs, along with lower distribution expenditures from higher throughput coming from our Taber facility. For the past 2 years, the financial performance of the Sugar segment was negatively impacted by unfavorable weather conditions in Taber, Alberta. Although the operational consequences were different for both years. These unfortunate events negatively impacted our financial results. That being said, we are glad to report that with the support of our employees and business partners, we were able to meet the needs of our customers and avoid shortage in the Canadian food supply chain. Looking to our Maple segment, where I will make some financial comments. As discussed earlier, our Maple segment is showing significant improvement in the financial results over 2020 with adjusted EBITDA going from $13.4 million to $16.4 million, with the exception of the third quarter where we noted a reduction in retail demand due to high inventory and EBITDA account, the adjusted EBITDA of the Maple segment was above $4 million in each quarter. For the fourth quarter, adjusted EBITDA was $4.2 million compared to $3.2 million last year. This improvement was attributable to better margins from higher pricing and more production costs. This is particularly noticeable as we generated $400,000 of additional gross margin while selling 1.5 million less pounds of maple syrup. For 2021, the overall increase in adjusted EBITDA was also directly related to improving in gross margin. From 2020 to 2021, gross margin improved by 40 basis points from 8.7% to 9.1%, including a performance of 9.7% for the fourth quarter of 2021. The strong increase in adjusted EBITDA was delivered by selling about $900,000 less pounds of maple syrup in 2021. The improvement of our 2021 financial results in our Maple segment were also attributable to lower administration and selling expenses from the full integration of our operations and related administrative cost. Now I would like to highlight other related financial items. For net earnings for 2021 amounted to $47.5 million or $0.40 per share compared to $35.4 million and $0.34 per share in 2020. Excluding the adjustments made for the mark-to-market of our financial instruments, adjusted net earnings were $33.9 million or $0.33 per share in 2021 compared to $35.2 million or $0.34 per share in 2020. Free cash flow for the last 12 months decreased by $1 million compared to the same period last year. The decrease was mainly attributable to higher capital and lease-related cash expenditure partially offset by higher cash items included in adjusted EBITDA and lower interest rates. Once again, this year, we paid $0.09 per quarter in dividend for a total payment of over $37 million to our shareholders representing an average dividend yield of approximately 7% for 2021. Lastly, on November 23, 2021, we've extended the maturity of our revolving credit facility to 05 years and reduce the available credit from $265 million to $200 million to reflect the impact of the proceeds received in connection with the private placement we executed earlier in the year. We also maintained the accordion feature of our revolving credit facility at $400 million to maintain flexibility. Finally in closing, I'll make some comments on our financial outlook for 2022. In 2021, our business continued to experience volatility from the COVID-19 pandemic. This situation affected both of our business segments throughout the year at various levels. In the fourth quarter, we know the greater stability in demand, and we are hopeful that this trend will continue in the future. The business delivered adjusted EBITDA of $91 million for 2021. This amount reflects some unexpected challenges and non-recurring items encountered mainly in the Sugar segment, we anticipate these items will not occur in 2022. Overall, we believe our adjusted EBITDA in 2021 was negatively impacted by more than $10 million in relation to such items. This includes weather-related unfavorable impact with the sugar beet crop in Alberta, the costs associated with the recognition of a prior period pass-through is charge related to the new Montreal refinery CBA and the lingering effect of COVID-19-related expenditures for preventive measures and logistics. Recognizing these unusual conditions for the Sugar segment in 2021 and the positive trend of our Maple segment results, we expect for 2022, the improved financial performance across both of our business segments. We project strong sales to continue in our Sugar segment where we anticipate total sales of 770,000 metric tonnes with a return to a more traditional sales mix favorable to the improvement of margin. We also anticipate that our Maple segment will deliver 52 million of maple syrup to our customers in 2022, while continuing to improve profitability. In closing, I would also like to thank John Holliday for his continued support and dedication and wish him a happy and well-deserved retirement. With that, I would like to turn the call back over to the operator for questions.
[Operator Instructions] Your first question comes from Stephen MacLeod from BMO Capital Markets.
And John, congratulations on your retirement, and congratulations on a great tenure at Roger Sugar. I just wanted to ask a couple of questions about the outlook. Specifically, you mentioned a couple of times about the $10 million impact that negatively impacted fiscal 2021. And it sounds like you don't expect a lot of those things to recur in 2022. So I guess I'm just curious, are there opportunities for EBITDA to improve year-over-year above and beyond that $10 million level? Or is kind of $10 million the starting point and then this year where you end up as the year progresses?
Stephen, it's JS here. Well, I mean, I think -- sorry, there are potential opportunities. I think we're very cautious. We are still in the early stage of our beet crop. Like the beets are in, they're not processed yet. So we're in the middle of our beet -- of our campaign. And so when we prepared our disclosures, we talked about what are the things that we believe will not occur in a normal year, and there's always things that can go in a different direction, but I think we're fairly confident that these things will not reoccur this year unless condition changes. But could there be upside? Well, it depends. I mean, some stuff that we don't control as far as markets and things like that could have an impact, but we're fairly confident with the number that we've put forward.
Okay. That's great. And then turning to the Maple segment. Nice margin improvement year-over-year and you're sort of getting back to that 8% EBITDA margin range that you've talked about in the past, you're there in Q4. And I'm just curious, as you think about next year, you obviously have some nice tailwinds that you highlighted in terms of the year-over-year growth. And I'm just curious, do you still expect to sort of eventually get back to the 8% to 9% range? Is that something that you could potentially do this year?
Yes, Stephen, it's Mike. I'll take that question. Our strategy is to continue to grow the bottom line in Maple, and we're doing that through pricing action as often as new renewals come up and as competitive market allows us to. And our objective would be to get back to double-digit margin rates.
Okay. That's great. And then maybe just finally, and at you mentioned looking at capacity opportunities in Eastern Canada. And I'm just curious if you could just elaborate a little bit on what you mean by that comment?
Yes. Sure, Stephen. As we reported several times the market continues to grow, especially in Eastern Canada. So we're undertaking an assessment from the sales customer side to look at what we project growth to look like in the business in the East over the next 5 years. And at the same time, our operations group are looking at how we might serve that capacity as it comes on board.
Okay. So that would be capacity expansion, I guess, is what you're suggesting?
That could be modifying or capacity expansion, correct.
Your next question comes from Michael Van Aeist from TD Securities.
I was wondering what was -- how your operations in B.C. are impacted by the floods, the refinery, the logistics and how you're overcoming the challenges out there?
Michael, that's a great question and everybody is suffering in the West as we watch on the news every day. Fortunately, we have plants on both sides of the problem. We have the Taber facility and we have the Vancouver facility. So for now, other than some minor inconveniences with some products we were moving between plants. We continue to be able to supply the market from this slide.
Okay. So just -- just movement between the plants, not so much facility issues at all, there's no flooding in your facilities?
No facility issues at all.
And are you able to get product to your customers?
Yes.
All right. And then other than that, how -- like there's clearly supply chain challenges throughout the country. And I'm wondering how you're handling that with respect to driver availability, the cost of transportation. Is that all paid -- is all your business -- domestic business paid freight on board, like paid by the customer?
Yes, that's correct, Michael. Most of our business sold, that will be in our plants.
Okay. Perfect. And then the -- you talked about being able to raise prices or pass along the higher labor costs on the Sugar side. On the Maple side, you mentioned that you're looking to raise price on competition and contracts allowed, but are you finding that it's any more difficult on the Maple side to pass along higher costs?
Well, it's never easy, as you can appreciate with customers, but we're seeing inflationary costs in everybody's business and the costs are real, they're substantive. And when we demonstrate them to the customers, we put it through in new pricing and we're achieving those cost recoveries and new negotiations.
Okay. You talked about, I think it was $0.8 million of higher Taber operation production costs. Is that just left over from last year's weather-related issues? Or is there something else -- those are something else?
A lot of it is related to the -- some of the weather issues. Other than that, there's nothing significant in particular. I mean, if you also look, we had less operation in Taber from year-to-year. So that creates a bit of a variance. But there's nothing, I would say, that is long-lasting or symptomatic of ongoing issues.
Your next question comes from George Doumet from Scotiabank.
Happy retirement, John, and congrats, Mike, on your appointment.
Thank you.
Thank you.
I just want to get started on the volume guidance for the Sugar business in fiscal '22. Just wondering how much confidence you have in kind of a 2% to 3% volume growth for the consumer? I guess, especially given the weakness we've been seeing there lately.
Yes. The volume -- George, the volume growth we're seeing in the business is across the business and some segments will be weaker and some segments will be stronger, but we expect to see the business at -- on an average 2%. Consumer is still above what the -- consumer volumes are still tracking well above what they were at pre-COVID 2019.
Okay. And can you maybe quantify the level of price increases that you need in either one of the segments to kind of offset the higher inflation that you guys called out?
I can't really -- maybe it's tough to quantify. So what we're -- from an inflation standpoint, I don't think the pressure on inflation that we have are different than others. So we haven't had -- to me, it's not a significant impact on our business, George. But it's tough to quantify correctly with the -- what kind of price increase we need in order to beat inflation because there's too many factors that are involved.
Okay. In your Maple outlook, you call for volumes to remain flat year-over-year, then you mentioned that you expect steady growth in demand. So not really sure I understand that, can you maybe clarify that? Or just give us a sense on how we should think about top line for that business next year?
Yes. I think the Maple top line has -- it continues to grow. I mean the Maple business pre-COVID was -- as an industry, a 5.5% CAGR. We're still seeing growth in around 3% to 4% in Maple, setting aside COVID. Its contract renewals and the accounts that we're taking that changed our outlook on the volume. We're focusing more on the positive margin, the accretive margin accounts. So we'll keep a top line but really focus on the bottom line.
Okay. Understood. And just one last one for me. On the CapEx, the $25 million that you guys are calling out for the Sugar business in fiscal '22. Is there -- within that, is there capacity expansion sort of to Eastern operations? If so, how much? And maybe just a longer-term question, like how much would it cost essentially to get the capacity expansion that we want in our Eastern operations?
Well, the first part of the question is, no, there's not significant. I mean we always strive to improve throughput no matter what. I mean there's a bit of money in there, but there's no significant increase in capacity. As far as the cost of increasing capacity, we are -- as Michael pointed out earlier, we are in the early stage of scoping that. And so we are very reluctant to put a number on this right now because we haven't done all the analysis and it. Once again, it depends on how much capacity you're going to go for. So first step for us is to see what demand is out there. So as Michael was saying, we're reaching out to our customers, where the growth is going to come from and then it will trigger like where we go on the capacity. So I think it will take us a few more months to actually come back and having a formal plan on how we're going to attack this portion of our business.
Okay. And just to confirm, you're not looking to build a new plant, but you're just looking maybe to add capacity to the existing footprint. Is that correct?
We haven't made any of those decisions at this time. We're going to see what the opportunity is. And then that data will guide our next decisions.
[Operator Instructions] Your next question comes from Endri Leno from National Bank.
Good morning, everybody, and I'll extend my congratulations to Mike on the new position and John on the retirement. My first question is actually for Mike. I was wondering from a big picture view. I was wondering if you can talk a little bit about your goals and vision, let's say, for the first 100 days as CEO and then for fiscal 2022.
Well, the goal -- I've been here for a while, as John said in the introduction, for 40 years. So it's not really new for me, but my goal is just to keep the tiller straight and continue delivering on our long-term strategy on the business and keep our employees safe in delivering products to our customers.
Great. A question I want to ask you is that, there was a comment that the -- I mean, the export volume condition was our favorable market dynamics in the U.S., but they are not necessarily expected to continue in 2022. Can you talk a little bit about what these conditions are now and why would they not repeat next year?
Yes, certainly. From time to time, the USDA, United States Department of Agriculture, will open up a refined quota for the importation of refined sugar because they have a shortage in that market. And when they open those quotas, the duty has dropped to near 0. The duty on refined sugar shipments in the United States is USD 361 a tonne. And we don't foresee, we had 1 of those TRQs last year, which we participated in, and we do not see the opportunity for a TRQ this year. So any shipments into the United States this year will pay the duty. So therefore, margins will be lower. And won't be as attractive for a business opportunity.
Great. And the last one for me, just on the reports in September, October, that the beet target was pretty good in Taber, but there was lower sugar content in the beets. I was wondering if you can talk a little bit about that. I mean, any thoughts around there? And how does this square with the new agreement with the growers that you signed earlier this year?
Yes, it's a good question. So the harvest we pointed out was good. Weather conditions were good, in good storage. The overall content -- sugar content it was lower than last year, but it's well within the norms that we experienced, and it's processing, as we pointed out very well.
And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Thank you, operator. And thank you, everybody, for participating today. And like everyone, we wish John a great retirement, and we'll speak to you in the next quarter. Thank you.
This concludes today's conference call. You may now disconnect.