HIGHER ADJUSTED GROSS MARGIN AND ADJUSTED GROSS MARGIN RATE FOR SUGARADJUSTED EBITDA COMPARABLE TO PRIOR YEARMONTREAL, Feb. 11, 2020 (GLOBE NEWSWIRE) — Rogers Sugar Inc. (the “Company” or “Rogers”) (TSX: RSI) today reported its first quarter fiscal 2020 results. The Company recorded adjusted EBITDA ⁽¹⁾ of $30.2 million for the first quarter of fiscal 2020, in line with the comparable period last year.“During the first quarter the business completed a detailed supply chain plan, which will deliver our domestic customers all of their sugar needs, despite having harvested half of our expected volume in Taber.” said John Holliday, President and Chief Executive Officer of Rogers and Lantic Inc. “Having gone through the exercise, we are confident in our ability to produce the expected sales volume, while minimizing the financial impact from a smaller crop and having some contingency plans for unexpected events.  For the Maple products segment, we have achieved meaningful gains in plant efficiencies, and, with the addition of some planned overtime, we were able to increase production levels.  The footprint optimization project, when completed in the second quarter, will provide further improvement and support our long-term vision to be a low cost, high quality, customer focused business.”First Quarter HighlightsHighlights of the consolidated results are as follows:⁽¹⁾ See “Non-GAAP Measures” section of the MD&A for definition and reconciliation to GAAP measures
⁽²⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Total sugar volume was in line with the prior yearOverall Adjusted EBITDA ⁽¹⁾ was comparable to the prior year whereby the increase in the Sugar segment was offset by the Maple products segmentProgress continued on the maple segment footprint optimization project during the quarter with the installation and commissioning of the new bottling line at the new Granby location.   The project is expected to be completed by the end of the second quarter and to generate significant long-term benefits through improved efficiency and lower operating costs.  In addition, production backlog was reduced through improved productivity and temporarily increasing headcount and overtime at the Degelis and Granby locations which increased operating costs in the current periodFree cash flow ⁽¹⁾ for the trailing twelve months ending December 28, 2019 was $11.4 million lower than the previous year mainly explained by a decrease in adjusted EBITDA ⁽¹⁾, an increase in capital and intangible spending, net of operational excellence capital, higher payments for capital leases and income taxes, somewhat offset by a reduction in interest paid, in repurchase and cancellation of shares and pension plan contributionRogers remains committed to adding value for shareholders and returned $10.5 million to shareholders during the quarter, of which $9.4 million was through dividends and $1.1 million was through share repurchases.  Subsequent to quarter end, an additional $4.2 million was used towards share purchasesOn February 11, 2020, the Board of Directors declared a quarterly dividend of $0.09.Please refer to the MD&A for additional details on the consolidated results of the Company. Segmented InformationThe following is a table showing the key results by segments:⁽¹⁾ See “Non-GAAP Measures” section of the MD&A for definition and reconciliation to GAAP measures
⁽²⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.SugarOur sugar segment generated solid results due to an increase in adjusted gross margin driven by lower energy costs, and stable total sugar volume when compared to the first quarter of the previous fiscal year.Industrial market segment volume decreased mostly due to non-recurring sales to a competitor that occurred in the first quarter last year and due to timing in certain large industrial accounts.Total consumer volume increased for the current fiscal year due mainly to the additional volume negotiated with a National retail account for which additional shipments started in April of fiscal 2019.     First quarter liquid market volume increased over the comparable quarter last year due mainly to additional volume from new and existing customers that were gained during fiscal 2019.    Finally, as expected, first quarter export volume decreased for the current quarter when compared to last year due to negotiated delays in shipments to Mexico as we initiated our plans to manage the impact of the reduced factory output in Taber, resulting from the weather-related loss in sugar beet production.  The reduction of Mexico deliveries was slightly offset by an increase in deliveries of the Canada specific quota to the United States, due to timing.Revenues increased in the first quarter of fiscal 2020 versus the comparable period last year due to higher weighted average raw sugar values in Canadian dollars, which is passed on to all domestic customers. ⁽¹⁾ See “Non-GAAP Measures” section of the MD&A for definition and reconciliation to GAAP measures
⁽²⁾ See “Adjusted results” section of the MD&A
⁽³⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Adjusted gross margin for the current quarter was $1.5 million higher or $8.21 per metric tonne higher than the comparable quarter in fiscal 2019, mainly explained by lower energy costs as no carbon tax was incurred in Taber during the current quarter compared to $1.51 per GJ paid last year.  The benefit from the additional consumer volume was offset by additional maintenance costs in Montreal, associated with timing of work and higher operating costs in Taber. An early frost damaged the sugar beet crop, which resulted in lower quality beets having to be processed.Administration and selling expenses were $0.2 million higher for the current quarter versus last year, mainly due to additional employee benefits expenses.     Distribution costs for the current fiscal year were $0.3 million higher than last year due to additional transfer costs.⁽¹⁾ See “Non-GAAP Measures” section of this MD&A for definition and reconciliation to GAAP measures
⁽²⁾ See “Adjusted results” section of this MD&A
⁽³⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Adjusted EBITDA for the first quarter increased by $1.7 million when compared to the same quarter of fiscal 2019, which is explained by higher adjusted gross margins of $1.9 million, adjusted to remove depreciation, somewhat offset by higher administration and selling expenses of $0.2 million, excluding depreciation and amortization expense, as explained above. The adoption of the new IFRS 16 Leases standard resulted in a $0.6 million increase in adjusted EBITDA for the current quarter.Maple productsRevenues for the current quarter were $0.4 million lower than the same period last year.  The increase in volume was more than offset by a reduction in overall net selling price.⁽¹⁾ See “Non-GAAP Measures” section of the MD&A for definition and reconciliation to GAAP measures
⁽²⁾ See “Adjusted results” section of the MD&A
⁽³⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Adjusted gross margin for the current quarter was $2.0 million lower than the comparable period, representing a decrease of 3.6% in adjusted gross margin percentage.  This was not unexpected as it, in large part, stems from a reduction in gross margin percentage for certain customers since the second half of fiscal 2019 as a result of competitive pressures.  In addition, the Maple products segment incurred additional labour costs of $0.3 million in the current quarter due to additional personnel and overtime in order to temporarily increase production capacity until the completion of the operational footprint optimization, which is expected by the end of the second quarter of the current year.  Finally, depreciation expense increased by $0.3 million, mainly due to additional property, plant and equipment acquired as well as the start of the long-term lease of the new Granby location, which started on October 15, 2019. Administration and selling expenses were $0.2 million higher than the first quarter last year due mainly to an increase in employee benefits associated with additional personnel. ⁽¹⁾ See “Non-GAAP Measures” section of the MD&A for definition and reconciliation to GAAP measures
⁽²⁾ See “Adjusted results” section of the MD&A
⁽³⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Adjusted EBITDA for the first quarter of fiscal 2020 decreased by $1.7 million due to lower adjusted gross margins and an increase in administration and selling expenses, as explained above.The adoption of the new IFRS 16 Leases standard did not have a material effect on the current quarter.OutlookSugarMarket conditions remain positive for our sugar business and despite challenges in our manufacturing and supply chain plans as a result of the smaller crop in Taber, we continue to expect that the Sugar segment will exceed last fiscal year’s adjusted EBITDA.As a result of severe adverse weather in late 2019, the beet harvest at Taber was terminated early, leading to lower than expected refined sugar volumes of approximately 65,000 metric tonnes, compared to previous expectations of 125,000 metric tonnes. As a result of the lower production volumes from Taber, the Company has optimized its supply chain to continue to service its customers. These changes mainly include the supply of cane sugar from the Vancouver and Montréal refineries, as both refineries have excess capacity to supply to the Company’s domestic market.  The Company will continue to mitigate the financial implication of a smaller sugar beet crop in Taber.Given the smaller crop in Taber, export volume is expected to be approximately 15,000 metric tonnes lower than fiscal 2019.  The Company has a long-term relationship with its customer in Mexico and, as a result, we were able to reduce its shipments in fiscal 2020 and roll commitments into fiscal 2022 at no additional costs to the Company.  Shipments to the USA under the Canada-specific U.S. quota of 10,300 metric tonnes have been fully considered in our reconfigured supply chain and will be fully delivered in fiscal 2020.  At this point in time, the Company does not anticipate any additional volume under the Canada-United States-Mexico Agreement (“CUSMA”) for the current fiscal year despite the fact that it is anticipated to be ratified within the new few weeks.The Company anticipates that the consumer segment should be approximately 10,000 metric tonnes higher than fiscal 2019.  Last fiscal year, the Company gained additional business with an existing consumer account which started in April 2019 and as such, will improve consumer volume in fiscal 2020. The Taber factory delivers a significant portion of its volume to liquid customers, which is still expected to occur in fiscal 2020.  Therefore, the Company’s liquid segment is expected to be comparable to fiscal 2019.Finally, the industrial volume is expected to also be comparable to fiscal 2019.Despite the challenges expected as a result of a small crop in Taber, the Company anticipates that the overall sales volume in fiscal 2020 should be approximately 735,000 metric tonnes, thus approximately 6,000 metric tonnes lower than fiscal 2019.  Energy costs and carbon tax savings of approximately $2.5 million are expected in the first half of fiscal 2020 as a result of the temporary removal of the carbon tax in Alberta as well as the shorter slicing campaign. In light of the smaller crop in Taber, it is expected that total distribution costs will increase in fiscal 2020 as we reconfigure our supply chains. With the completion of the air emission project, capital spend for the Sugar segment is expected to return to a level of approximately $20.0 million, including a high proportion of return on investment capital expenditures. Maple productsThe current quarter margins reflect the more competitive market conditions we are in today and as such, we don’t anticipate any short-term change in gross margins. In addition to defending our current market share, the Company will continue to invest in the business to lower operating cost and build new sales volume through the pursuit of new markets and value-added products.Manufacturing throughput increased during the quarter with a combination of improved line efficiency in Degelis and planned overtime. The transition to the new manufacturing network is expected by the end of the second quarter, which is expected to reduce operating costs and increase the overall network capacity, as well as allow for growth.The Company expects to spend approximately $8.0 million for its footprint optimization, slightly higher than anticipated, of which, approximately $4.7 million will be spent in fiscal 2020 to complete the Granby relocation.See “Forward Looking Statements” and “Risks and Uncertainties” sections of the MD&A.Mark-to-Market MeasuresWith the mark-to-market of all derivative financial instruments at the end of each reporting period, our accounting income does not represent a complete understanding of factors and trends affecting the business.  Consistent with previous reporting, we prepared adjusted gross margin and adjusted earnings results to reflect the performance of the Company during the period without the impact of the mark-to-market of derivative financial instruments.  Earnings before interest and income taxes (“EBIT”) included a mark-to-market gain of $2.5 million for the first quarter of fiscal 2020, which was deducted to calculate the adjusted EBIT and adjusted gross margin results.   Adjusted EBITDA represents EBIT, adjusted for the total adjustment to cost of sales for mark-to-market of derivative financial instruments, depreciation and amortization expenses, non-cash goodwill impairment and the Maple products segment non-recurring costs.  See “Non-GAAP measures” section in the MD&A.Access to Quarterly Results InformationRogers Sugar Inc. (RSI) will be holding a conference call to discuss their 2020 first quarter results on Tuesday, February 11^th, 2020 at 17:30 (Eastern Time).The conference call will be chaired by Mr. John Holliday, Chief Executive Officer and Ms. Manon Lacroix, Chief Financial Officer.Conference CallIf you wish to participate, please dial 1-877-223-4471. A recording of the conference call will be accessible shortly after the conference, by dialing 1-800-585-8367, access code 1585343#. This recording will be available until February 18, 2020.FOR THE BOARD OF DIRECTORS,M. Dallas H. Ross, Chairman
Vancouver, British Columbia – February 11^th, 2020
MANAGEMENT’S DISCUSSION & ANALYSISThis Management’s Discussion and Analysis (“MD&A”) of Rogers Sugar Inc.’s (“Rogers”, “RSI” or the “Company”) dated February 11, 2020 should be read in conjunction with the unaudited condensed consolidated interim financial statements and related notes for the three month period ended December 28, 2019, as well as the audited consolidated financial statements and MD&A for the year ended September 28, 2019.  The quarterly unaudited condensed consolidated interim financial statements and any amounts shown in this MD&A were not reviewed nor audited by our external independent auditors.  This MD&A refers to Rogers, Lantic Inc. (“Lantic”) (Rogers and Lantic together referred as the “Sugar segment”, The Maple Treat Corporation (“TMTC”) and Highland Sugarworks Inc. (“Highland”) (the latter two companies together referred to as “TMTC” or the “Maple products segment”).  It should be noted that 9020-2292 Québec Inc. (“Decacer”) was amalgamated with TMTC as of September 29, 2019.Management is responsible for preparing the MD&A. This MD&A has been reviewed and approved by the Audit Committee of Rogers and its Board of Directors.FORWARD-LOOKING STATEMENTSThis report contains Statements or information that are or may be “forward-looking statements” or “forward-looking information” within the meaning of applicable Canadian securities laws.  Forward-looking statements may include, without limitation, statements and information which reflect the current expectations of the Company with respect to future events and performance. Wherever used, the words “may,” “will,” “should,” “anticipate,” “intend,” “assume,” “expect,” “plan,” “believe,” “estimate,” and similar expressions and the negative of such expressions, identify forward-looking statements. Although this is not an exhaustive list, the Company cautions investors that statements concerning the following subjects are, or are likely to be, forward-looking statements:  future prices of raw sugar, natural gas costs, the opening of special refined sugar quotas in the United States (“U.S.”), beet production forecasts, growth of the maple syrup industry, the status of labour contracts and negotiations, the level of future dividends and the status of government regulations and investigations.  Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.  Actual performance or results could differ materially from those reflected in the forward-looking statements, historical results or current expectations.  Readers should also refer to the section “Risks and Uncertainties” at the end of this MD&A for additional information on risk factors and other events that are not within the Company’s control.  These risks are also referred to in the Company’s Annual Information Form in the “Risk Factors” section.Although the Company believes that the expectations and assumptions on which forward-looking information is based are reasonable under the current circumstances, readers are cautioned not to rely unduly on this forward-looking information as no assurance can be given that it will prove to be correct. Forward-looking information contained herein is made as at the date of this MD&A and the Company does not undertake any obligation to update or revise any forward-looking information, whether as a result of events or circumstances occurring after the date hereof, unless so required by law.SELECTED FINANCIAL DATA AND HIGHLIGHTSThe following is a summary of selected financial information of Rogers’ consolidated results for the first quarter of fiscal 2020 and 2019. ⁽¹⁾ See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
⁽²⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Adjusted resultsIn the normal course of business, the Company uses derivative financial instruments consisting of sugar futures, foreign exchange forward contracts, natural gas futures and interest rate swaps.  The Company has designated as effective cash flow hedging instruments its natural gas futures and its interest rate swap agreements entered into in order to protect itself against natural gas prices and interest rate fluctuations as cash flow hedges.  Derivative financial instruments pertaining to sugar futures and foreign exchange forward contracts are marked-to-market at each reporting date and are charged to the consolidated statement of earnings.  The unrealized gains/losses related to natural gas futures and interest rate swaps are accounted for in other comprehensive income. The amount recognized in other comprehensive income is removed and included in net earnings under the same line item in the consolidated statement of earnings and comprehensive income as the hedged item, in the same period that the hedged cash flows affect net earnings, reducing earnings volatility related to the movements of the valuation of these derivatives hedging instruments.Management believes that the Company’s financial results are more meaningful to management, investors, analysts and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments.  These adjusted financial results provide a more complete understanding of factors and trends affecting our business.  This measurement is a non-GAAP measurement. See “Non-GAAP measures” section.Management uses the non-GAAP adjusted results of the operating company to measure and to evaluate the performance of the business through its adjusted gross margin, adjusted results from operating activities (“adjusted EBIT”), adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and trailing twelve months free cash flow.  In addition, management believes that these measures are important to our investors and parties evaluating our performance and comparing such performance to past results.  Management also uses adjusted gross margin, adjusted EBITDA, adjusted EBIT and adjusted net earnings when discussing results with the Board of Directors, analysts, investors, banks and other interested parties. See “Non-GAAP measures” section.
The results of operations would therefore need to be adjusted by the following:
The fluctuations in mark-to-marketadjustment on derivatives are due to the price movements in #11 world raw sugar and foreign exchange variations. See “Non-GAAP measures” section.Cumulative timing differences, as a result of mark-to-market gains or losses, are recognized by the Company only when sugar is sold to a customer.  The gains or losses on sugar and related foreign exchange paper transactions are largely offset by corresponding gains or losses from the physical transactions, namely sale and purchase contracts with customers and suppliers.  See “Non-GAAP measures” section.On October 2, 2016, the Company adopted IFRS 9 (2014) Financial Instruments and designated natural gas futures as an effective cash flow hedging instrument.  The transitional balances, representing the mark-to-market value recorded as of October 1, 2016, are subsequently removed from other comprehensive income when the natural gas futures will be liquidated, in other words, when the natural gas is used.  As a result, in fiscal 2020, the Company removed a nominal gain from other comprehensive income and recorded a gain of the same amount in cost of sales for the first quarter.  The transitional balance relating to natural gas futures will be fully depleted in the current fiscal year. See “Non-GAAP measures” section.The above described adjustments are added or deducted to the mark-to-market results to arrive at the total adjustment to cost of sales.  For the first quarter of the current year, the total cost of sales adjustment is a gain of $2.5 million to be deducted from the consolidated results versus a loss of $2.5 million to be added to the consolidated results for the comparable quarter last year.  See “Non-GAAP measures” section.SEGMENTED INFORMATIONThe Company has two distinct segments, namely, refined sugar and by-products, together referred to as the “Sugar” segment and maple syrup and maple derived products, together referred to as the “Maple products” segment.  The following is a table showing the key results by segments:⁽¹⁾ See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
⁽²⁾ The current period results include the impacts from the adoption of the new IFRS 16 Leases as discussed in note 3 (b) of the unaudited condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.Results from operation by segmentSugarThe decrease in the industrial market segment is mostly due to non-recurring sales to a competitor that occurred in the first quarter last year and due to timing in certain large industrial accounts.Total consumer volume increased for the current fiscal year due mainly to the additional volume negotiated with a National retail account for which additional shipments started in April of fiscal 2019.     The volume for the liquid market for the current quarter was higher than the comparable quarter last year due mainly to additional volume from new and existing customers that were gained during fiscal 2019.     Finally, as expected, export volume decreased for the current quarter when compared to last year due to negotiated delays in shipments to Mexico as we initiated our plans to manage the impact of the reduced factory output in Taber, resulting from the weather related loss in sugar beet production.  The reduction of Mexico deliveries was slightly offset by an increase in deliveries of the Canada specific quota to the United States, due to timing.The increase in revenues for the first quarter of fiscal 2020 versus the comparable period last year is mainly explained by an increase in the weighted average raw sugar values in Canadian dollars, which is passed on to all domestic customers. Gross Margin
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