TORONTO, ONTARIO–(Marketwired – Aug. 9, 2017) – Superior Plus Corp. (“Superior”) (TSX:SPB) announced today the financial and operating results for the three months ended June 30, 2017. All financial figures are expressed in Canadian dollars.
Highlights
- Achieved Adjusted Operating Cash Flow (“AOCF”) per share before transaction and other costs of $0.19, a 58% increase over the prior year quarter of $0.12 per share due to higher Adjusted EBITDA, offset in part by higher interest expense.
- Adjusted EBITDA increased $12.6 million or 45% over the prior year quarter due to lower realized losses on foreign exchange hedging contracts, higher EBITDA from operations for Specialty Chemicals, income associated with the Canwest Propane transaction and lower corporate costs, partially offset by lower EBITDA from operations for Energy Distribution.
- On August 1, 2017, Superior Plus Energy Services Inc., a subsidiary of Superior closed on the previously announced acquisition of the assets of Yankee Propane Inc. (“Yankee”) and Virginia Propane Inc. (“Virginia”) for an aggregate purchase price of approximately US $31.5 million. The acquisition of Yankee and Virginia will add approximately 13,000 residential and commercial customers and approximately 29 million litres of retail propane sales in New York, New Jersey and Virginia.
- On August 1, 2017 Superior entered into an agreement with the Canada Revenue Agency (the “CRA”) regarding its objection to the tax consequences of Superior’s corporate conversion transaction on December 31, 2008. The settlement agreement will not impact Superior’s cash income taxes for the current year or any previous financial years or the existing 2017 guidance. However, Superior expects to receive refunds from the CRA and related provincial tax agencies for taxes paid of $33.0 million in the fourth quarter of 2017 or early first quarter 2018. As a result of the agreement and based on current estimates, Superior does not anticipate paying provincial cash income taxes until 2020.
- EBITDA from operations for the Specialty Chemicals business increased $6.1 million or 27% compared to the prior year quarter primarily due to higher chlor-alkali gross profit related to increased demand, partially offset by higher operating costs.
- EBITDA from operations for the Energy Distribution business decreased $4.1 million or 24% compared to the prior year quarter primarily due to lower gross profit in the supply portfolio management segment of Canadian propane distribution related to a change in market fundamentals, partially offset by higher gross profit in the U.S. refined fuels (“USRF”) business and lower operating expenses.
- Superior’s 2017 financial outlook of AOCF per share has been confirmed at $1.50 to $1.75 before transaction and other costs. See “2017 Financial Outlook” for further details.
| Financial Overview | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||
| June 30 | June 30 | |||||||||||
| (millions of dollars, except per share amounts) | 2017 | 2016 | 2017 | 2016 | ||||||||
| Revenue (1) | 474.9 | 448.1 | 1,150.6 | 1,011.6 | ||||||||
| Gross Profit (1) | 138.0 | 127.2 | 363.7 | 343.8 | ||||||||
| Net earnings (loss) | (1.6 | ) | (15.7 | ) | 51.6 | 84.2 | ||||||
| Net earnings (loss) per share, basic | $ | (0.01 | ) | $ | (0.11 | ) | $ | 0.36 | $ | 0.60 | ||
| Net earnings (loss) per share, diluted | $ | (0.01 | ) | $ | (0.11 | ) | $ | 0.35 | $ | 0.56 | ||
| EBITDA from operations (1)(2) | 41.2 | 39.2 | 160.2 | 153.3 | ||||||||
| Adjusted EBITDA (1)(2) | 40.3 | 27.7 | 159.5 | 127.2 | ||||||||
| Net cash flows from operating activities | 51.4 | 39.1 | 148.6 | 128.8 | ||||||||
| Net cash flows from operating activities per share – basic | $ | 0.36 | $ | 0.28 | $ | 1.04 | $ | 0.91 | ||||
| Net cash flows from operating activities per share – diluted | $ | 0.35 | $ | 0.25 | $ | 1.00 | $ | 0.82 | ||||
| AOCF before transaction and other costs (2)(3)(4) | 27.5 | 16.5 | 136.8 | 104.5 | ||||||||
| AOCF before transaction and other costs per share – basic (2)(3)(4) | $ | 0.19 | $ | 0.12 | $ | 0.96 | $ | 0.74 | ||||
| AOCF before transaction and other costs per share -diluted (2)(3)(4) | $ | 0.19 | $ | 0.12 | $ | 0.94 | $ | 0.71 | ||||
| AOCF (2) | 20.1 | 5.0 | 127.9 | 84.5 | ||||||||
| AOCF per share- basic (2) | $ | 0.14 | $ | 0.04 | $ | 0.90 | $ | 0.60 | ||||
| AOCF per share – diluted (2)(4) | $ | 0.14 | $ | 0.04 | $ | 0.88 | $ | 0.58 | ||||
| Cash dividends declared | 25.7 | 25.9 | 51.4 | 51.2 | ||||||||
| Cash dividends declared per share | $ | 0.18 | $ | 0.18 | $ | 0.36 | $ | 0.36 | ||||
| (1) | Revenue, gross profit, EBITDA from operations, Adjusted EBITDA, AOCF and AOCF per share for 2016 have been restated to exclude the results of Construction Products Distribution (“CPD”). Refer to “Basis of Presentation” in the second quarter Management Discussion and Analysis (“MD&A”) for further details. | |
| (2) | EBITDA from operations, Adjusted EBITDA and AOCF are non-GAAP measures. Refer to “Non-GAAP Financial Measures” for further details and the MD&A for reconciliations. | |
| (3) | Transaction and other costs for the three and six months ended June 30, 2017 are related to the acquisition of Canwest Propane and tuck-in acquisitions. Transaction and other costs for the three and six months ended June 30, 2016 are related to the terminated acquisition of Canexus Corporation. Refer to “Transaction and Other Costs” in the MD&A for further details. | |
| (4) | The weighted average number of shares outstanding for the three and six months ended June 30, 2017 is 142.8 million (June 30, 2016 – 141.9 and 141.5 million respectively). The diluted weighted average number of shares outstanding for the three and six months ended June 30, 2017, is 148.6 million (June 30, 2016 – 157.6 and 157.2 million respectively). | |
| Segmented Information | |||||||||
| Three months ended | Six months ended | ||||||||
| June 30 | June 30 | ||||||||
| (millions of dollars) | 2017 | 2016 | 2017 | 2016 | |||||
| EBITDA from operations(1) | |||||||||
| Energy Distribution | 12.8 | 16.9 | 98.9 | 103.7 | |||||
| Specialty Chemicals | 28.4 | 22.3 | 61.3 | 49.6 | |||||
| 41.2 | 39.2 | 160.2 | 153.3 | ||||||
| (1) | See “Non-GAAP Financial Measures”. |
Operational and Financial Highlights
Energy Distribution
- Gross profit for the second quarter decreased $6.4 million to $86.9 million from the prior year quarter due to lower gross profits for the Canadian propane distribution business, partially offset by modestly higher gross profits for the U.S. refined fuels (“USRF”) business.
- Gross profit for the Canadian propane distribution business of $49.8 million was $8.7 million or 15% lower than the prior year quarter due to a decrease in average margins, partially offset by an increase in sales volumes. Sales volumes increased 28 million litres or 11% due primarily to higher wholesale and commercial volumes, partially offset by lower industrial volumes. Average margins for the second quarter were 17.6 cents per litre compared to 22.9 cents per litre in the prior year. The decrease in average margins was due primarily to the impact of weaker basis differentials and market fundamentals on the supply portfolio management business. Average retail margins were consistent with the prior year quarter. Average margins for the first six months of 2017 were 19.7 cents per litre compared to 23.0 cents per litre in the prior comparable period.
- Gross profit for the USRF business of $30.7 million was $2.1 million or 7% higher than the prior year quarter due to an increase in average margins, partially offset by a decrease in sales volumes. Sales volumes decreased 55 million litres or 16% due primarily to lower wholesale volumes related to sales initiatives focused on reducing low margin sales exposure. Unit margins were 10.3 cents per litre compared to 8.1 cents per litre in the prior year quarter. The increase in average margins was due to sales mix, sales and marketing initiatives in the retail heating oil and the wholesale business and the positive impact of the stronger U.S. dollar.
- Average weather across Canada for the quarter as measured by degree days was 4% colder than the prior year quarter and 1% warmer than the five-year average. Average weather in the U.S. northeast as measured by degree days was 21% warmer than the prior year and 8% warmer than the five-year average. Due to the seasonal nature of heating related volumes weather in the second quarter did not have a material impact on results.
- Other services gross profit of $6.4 million was modestly higher than the prior year quarter.
- Operating and administrative costs were $74.1 million, a decrease of $2.3 million or 3% compared to the prior year quarter due to restructuring initiatives in 2016 and lower incentive costs, partially offset by the impact of the stronger average U.S. dollar on U.S. denominated expenses. The average USDCAD rate in the second quarter was 1.34 compared to 1.29 in the prior year quarter.
- On April 20, 2017, Superior General Partner Inc., a subsidiary of Superior, acquired Pomerleau Gaz Propane Inc. (“Pomerleau”), a small propane distributor serving residential and commercial customers in southeastern Quebec. The acquisition complements Superior’s existing operations in Quebec and is consistent with the Evolution 2020 strategy to grow the Energy Distribution business through tuck-in acquisitions of propane companies and leverage Superior’s solid operating platform to achieve operational cost efficiencies.
Specialty Chemicals
- Chemical revenue was $157.4 million in the second quarter, $14.1 million or 10% higher than the prior year quarter primarily due to an increase in chlor-alkali sales volumes and pricing.
- Gross profit was $63.2 million in the second quarter, $7.6 million or 14% higher than the prior year quarter due primarily to the increase in chlor-alkali gross profits. Chlor-alkali gross profit increased due to higher sales volumes and netbacks. Chlor-alkali sales volumes were 14% higher than the prior year quarter due primarily to increased caustic potash volumes related to agricultural demand and hydrochloric acid volumes related to demand from the U.S. oil and gas sector. Caustic soda netbacks increased 25% compared to the prior year quarter due to strong demand in North America and for exports from the U.S. Gulf Coast. Sodium chlorate gross profits were modestly lower due to increased production costs related to electricity mill rates, partially offset by increases in prices and sales volumes.
- Operating expenses were $34.8 million in the second quarter, an increase of $1.5 million or 5% compared to the prior year due to higher distribution costs and the impact of the stronger U.S. dollar on U.S. denominated expenses.
Income from Canwest Propane
Earnings from Canwest Propane (“Canwest”) were attributable to Superior as of March 1, 2017. Canwest contributed $2.8 million in Adjusted EBITDA for the second quarter.
Corporate Related
- Corporate costs were $2.0 million, a decrease of $1.8 million compared to the prior year quarter due primarily to lower long-term incentive costs related to the decline in the share price. Corporate costs exclude one-time transaction and other costs of $7.4 million related to the acquisition of Canwest Propane and tuck-in acquisitions.
- Interest expense was $11.2 million, an increase of $1.7 million compared to the prior year quarter due to higher average debt levels and higher average effective interest rates.
- Realized losses on foreign currency hedging contracts were $1.7 million, a $6.0 million decrease compared to the prior year quarter. Realized losses were lower due to the increase in Superior’s effective average hedge rate.
Financial Outlook
Superior has confirmed its 2017 financial outlook of AOCF per share to $1.50 to $1.75. Key assumptions related to the updated financial outlook are:
- EBITDA from operations for Energy Distribution is anticipated to be consistent to modestly lower than 2016. Supply market fundamentals in the Canadian propane distribution business are anticipated to have a negative impact on average margins and gross profit during the second half of 2017. Average weather, as measured by degree days, for the remainder of the year is anticipated to be consistent with the five-year average.
- EBITDA from operations for Specialty Chemicals is anticipated to be higher than 2016 driven by the recovery in chlor-alkali markets in 2017.
- The contribution from Canwest is anticipated to increase EBITDA. As the close of the acquisition of Canwest is anticipated in the second half of 2017, the contribution from Canwest doesn’t include any of the estimated synergies.
- Interest expense is anticipated to increase due to higher average debt levels related to the Canwest transaction and the interest costs for the 5.25% senior unsecured notes issued in the first quarter.
- Realized losses on foreign currency hedging contracts are anticipated to be lower than 2016 due to the increase in the average hedge rate.
Capital expenditures
Total capital expenditures, including finance leases, in the second quarter were $25.8 million compared to $19.4 million in the prior year quarter due primarily to an increase in acquisitions and finance leases. Acquisition capital of $5.1 million in the second quarter relate to the tuck-in acquisition of Pomerleau. The $7.1 million increase in capital leases is due to the timing on delivery of vehicles for the Energy Distribution business.
Total Debt and Leverage
- Total debt as at June 30, 2017 was $967.7 million, an increase of $426.0 million compared to total debt of $541.7 million as at December 31, 2016. Total debt was higher due primarily to the Canwest transaction, partially offset by cash flows from operating activities.
- Total debt to adjusted EBITDA for the trailing twelve months as at June 30, 2017 was 3.3x, compared to 2.1x at December 31, 2016. Total debt to adjusted EBITDA is currently above the long-term target of 3.0x. Superior anticipates the total debt to EBITDA ratio will be in the range of 3.2x to 3.6x at December 31, 2017.
MD&A and Financial Statements
Superior’s MD&A, the unaudited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements for the three and six months ended June 30, 2017 provide a detailed explanation of Superior’s operating results. These documents are available online at Superior’s website at www.superiorplus.com under the Investor Relations section and on SEDAR under Superior’s profile at www.sedar.com.
2017 Second Quarter Conference Call
Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2017 Second Quarter Results at 10:30 a.m. EDT on Thursday, August 10, 2017. To participate in the call, dial: 1-844-389-8661. Internet users can listen to the call live, or as an archived call on Superior’s website at www.superiorplus.com under the Events section.
Non-GAAP Measures
Throughout the second quarter earnings release, Superior has used the following terms that are not defined by GAAP, but are used by management to evaluate the performance of Superior and its business. These measures may also be used by investors, financial institutions and credit rating agencies to assess Superior’s performance and ability to service debt. Non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies, securities regulations require that Non-GAAP financial measures be clearly defined, qualified and reconciled to their most comparable GAAP financial measures. Except as otherwise indicated, these Non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods.
The intent of Non-GAAP financial measures is to provide additional useful information to investors and analysts. The measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Non-GAAP financial measures differently.
Investors should be cautioned that AOCF, Adjusted EBITDA, and Adjusted EBITDA from operations should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior’s performance.
Non-GAAP financial measures are identified and defined as follows:
Adjusted Operating Cash Flow
AOCF is equal to cash flow from operating activities as defined by IFRS, adjusted for changes in non-cash working capital, other expenses, non-cash interest expense, current income taxes and finance costs. Superior may deduct or include additional items in its calculation of AOCF; these items would generally, but not necessarily, be infrequent in nature and could distort the analysis of trends in business performance. Excluding these items does not imply that they are non-recurring. AOCF and AOCF per share are presented before and after transaction and other costs.
AOCF per share before transaction and other costs is calculated by dividing AOCF before transaction and other costs by the weighted average number of shares outstanding. AOCF per share is calculated by dividing AOCF by the weighted average number of shares outstanding.
AOCF is the main performance measure used by management and investors to evaluate Superior’s ongoing performance of its businesses and ability to generate cash flow. AOCF represents cash flow generated by Superior that is available for, but not necessarily limited to, changes in working capital requirements, investing activities and financing activities of Superior. AOCF is also used as one component in determining short-term incentive compensation for certain management employees.
The seasonality of Superior’s individual quarterly results must be assessed in the context of annualized AOCF. Adjustments recorded by Superior as part of its calculation of AOCF include, but are not limited to, the impact of the seasonality of Superior’s businesses, principally the Energy Distribution segment, by adjusting for non-cash working capital items, thereby eliminating the impact of the timing between the recognition and collection/payment of Superior’s revenues and expenses, which can differ significantly from quarter to quarter.
Adjusted EBITDA
Adjusted EBITDA represents earnings before taxes, depreciation, amortization, losses/(gains) on disposal of assets, finance expense, restructuring, transaction and other costs and unrealized gains/(losses) on derivative financial instruments. Adjusted EBITDA is used by Superior and investors to assess its consolidated results and those of its operating segments.
EBITDA from Operations
EBITDA from operations is defined as adjusted EBITDA excluding gains/(losses) on foreign currency hedging contracts, corporate costs and transaction and other costs. For purposes of this MD&A, foreign currency hedging contract gains and losses are excluded from the results of the operating segments. EBITDA from operations is used by Superior and investors to assess the results of its operating segments. EBITDA from operations is reconciled to net earnings before income taxes in the second quarter MD&A.
Forward Looking Information
Certain information included herein is forward-looking information within the meaning of applicable Canadian securities laws. Forward-looking information may include statements regarding the objectives, business strategies to achieve those objectives, expected financial results (including those in the area of risk management), economic or market conditions, and the outlook of or involving Superior, Superior LP and its businesses. Such information is typically identified by words such as “anticipate”, “believe”, “continue”, “estimate”, “expect”, “plan”, “forecast”, “future”, “outlook, “guidance”, “may”, “project”, “should”, “strategy”, “target”, “will” or similar expressions suggesting future outcomes.
Forward-looking information in this document includes: future financial position, consolidated and business segment outlooks, expected EBITDA from operations, expected AOCF and AOCF per share, expected leverage ratios and debt repayment, expectations in terms of the cost of operations, business strategy and objectives, development plans and programs, business expansion and cost structure and other improvement projects, expected product margins and sales volumes, market conditions in Canada and the U.S., continued improvements in operational efficiencies and sales and marketing initiatives in Energy Distribution, expected synergies as a result of the acquisition of Canwest, anticipated acquisition closing and financing, expected time Superior will be required to pay provincial cash income taxes, future economic conditions, future exchange rates, exposure to such rates and incremental earnings associated with such rates, expected weather, expectations for the global economic environment, our trading strategy and the risk involved in these strategies, the impact of certain hedges on future reported earnings and cash flows, commodity prices and costs, the impact of contracts for commodities, demand for propane, heating oil and similar products, demand for chemicals including sodium chlorate and chlor-alkali, effect of operational and technological improvements, anticipated costs and benefits of business enterprise system upgrade plans, future working capital levels, expected governmental regulatory regimes and legislation and their expected impact on regulatory and legislative compliance costs, expectations for the outcome of existing or potential legal and contractual claims, our ability to obtain financing on acceptable terms, expected life of facilities and statements regarding net working capital and capital expenditure requirements of Superior or Superior LP.
Forward-looking information is provided for the purpose of providing information about management’s expectations and plans about the future and may not be appropriate for other purposes. Forward-looking information herein is based on various assumptions and expectations that Superior believes are reasonable in the circumstances. No assurance can be given that these assumptions and expectations will prove to be correct. Those assumptions and expectations are based on information currently available to Superior, including information obtained from third party industry analysts and other third party sources, and the historic performance of Superior’s businesses. Such assumptions include anticipated financial performance, current business and economic trends, the amount of future dividends paid by Superior, business prospects, utilization of tax basis, regulatory developments, currency, exchange and interest rates, future commodity prices relating to the oil and gas industry, future oil rig activity levels as well as receipt and conditions of required regulatory approvals to complete the acquisition of Canwest, trading data, cost estimates, our ability to obtain financing on acceptable terms, the assumptions set forth under the “Financial Outlook” sections of our second quarter MD&A and are subject to the risks and uncertainties set forth below.
By its very nature, forward-looking information involves numerous assumptions, risks and uncertainties, both general and specific. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, as many important factors are beyond our control, Superior’s or Superior LP’s actual performance and financial results may vary materially from those estimates and intentions contemplated, expressed or implied in the forward-looking information. These risks and uncertainties include incorrect assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel, fluctuations in foreign currency and exchange rates, inadequate insurance coverage, liability for cash taxes, counterparty risk, compliance with environmental laws and regulations, reduced customer demand, operational risks involving our facilities, force majeure, labour relations matters, our ability to access external sources of debt and equity capital, and the risks identified in (i) our MD&A under the heading “Risk Factors” and (ii) Superior’s most recent Annual Information Form. The preceding list of assumptions, risks and uncertainties is not exhaustive.
When relying on our forward-looking information to make decisions with respect to Superior, investors and others should carefully consider the preceding factors, other uncertainties and potential events. Any forward-looking information is provided as of the date of this document and, except as required by law, neither Superior nor Superior LP undertakes to update or revise such information to reflect new information, subsequent or otherwise. For the reasons set forth above, investors should not place undue reliance on forward-looking information.
For more information about Superior, visit our website at www.superiorplus.com.
Beth Summers
Senior Vice President and Chief Financial Officer
(416) 340-6015
Superior Plus Corp.
Rob Dorran
Vice President, Investor Relations and Treasurer
(416) 340-6003
Toll Free: 1-866-490-PLUS (7587)
www.superiorplus.com