TORONTO, ONTARIO–(Marketwired – May 2, 2017) – Superior Plus Corp. (“Superior”) (TSX:SPB) announced today the financial and operating results for the three months ended March 31, 2017. All financial figures are expressed in Canadian dollars.
Highlights
- Achieved Adjusted Operating Cash Flow (“AOCF”) per share before transaction and other costs of $0.77, a 24% increase over the prior year quarter of $0.62 per share due to higher Adjusted EBITDA and lower interest expense.
- Adjusted EBITDA increased $19.7 million or 20% over the prior year quarter due to lower realized losses on foreign exchange hedging contracts, higher EBITDA from operations for Specialty Chemicals and income associated with the Canwest Propane transaction, partially offset by higher corporate costs and modestly lower EBITDA from operations for Energy Distribution.
- On March 1, 2017, Superior paid $412.0 million plus $22.8 million for a working capital adjustment (total of $434.8 million) to Gibson Energy ULC for the right to acquire Canwest Propane (“Canwest”) upon satisfaction of certain conditions, including receipt of regulatory approvals (the “Canwest Transaction”). Superior anticipates the acquisition will be completed in the second half of 2017.
- Raised $250 million in 5.25% Senior Unsecured Notes (the “Notes”) through a private placement issuance. The Notes are due February 27, 2024 and proceeds were used to partially finance the Canwest Transaction.
- EBITDA from operations for the Energy Distribution business was modestly lower than the prior year quarter due to a decrease in gross profit at U.S. refined fuels (“USRF”), partially offset by a decrease in operating expenses at USRF. USRF gross profit and operating expenses were lower in the first quarter of 2017 due to the impact of the stronger CAD on the translation of U.S denominated results.
- EBITDA from operations for the Specialty Chemicals business increased $5.6 million or 21% compared to the prior year quarter due primarily to higher chlor-alkali gross profit and lower operating costs.
- Superior’s 2017 financial outlook of AOCF per share has been updated to $1.50 to $1.75 and now reflects the anticipated impact of the Canwest Transaction. See “2017 Financial Outlook” for further details.
“Superior has had an excellent start to 2017,” said Luc Desjardins, Superior’s President and Chief Executive Officer. “The acquisition of Canwest is anticipated to significantly enhance Superior’s current Energy Distribution business, while positioning the business for oilfield activity recovery and increasing demand in Western Canada. I’m pleased with the results from the Energy Distribution business as we faced warmer than average weather in Central Canada and the Northeast U.S. in the early part of the quarter.”
Financial Overview
| Three Months Ended | ||||
| March 31, | ||||
| (millions of dollars, except per share amounts) | 2017 | 2016 | ||
| Revenue (1) | 675.7 | 563.5 | ||
| Gross Profit (1) | 225.7 | 216.6 | ||
| Net earnings | 53.2 | 99.9 | ||
| Net earnings per share, basic | $ | 0.37 | $ | 0.71 |
| Net earnings per share, diluted | $ | 0.34 | $ | 0.66 |
| EBITDA from operations (1)(2) | 119.0 | 114.1 | ||
| Net cash flows from operating activities | 91.7 | 89.7 | ||
| Net cash flows from operating activities per share – basic and diluted | $ | 0.64 | $ | 0.64 |
| Adjusted operating cash flow before transaction and other costs (1)(2)(3) | 109.3 | 88.0 | ||
| Adjusted operating cash flow before transaction and other costs per share – basic and diluted (1)(2)(4) | $ | 0.77 | $ | 0.62 |
| Adjusted operating cash flow (1)(2) | 107.8 | 79.5 | ||
| Adjusted operating cash flow per share – basic and diluted (1)(2)(4) | $ | 0.75 | $ | 0.56 |
| Cash dividends declared | $ | 25.7 | $ | 25.3 |
| Cash dividends declared per share | $ | 0.18 | $ | 0.18 |
| (1) | Revenue, gross profit, EBITDA, AOCF and AOCF per share for 2016 exclude the results of Construction Products Distribution (“CPD”) as that business was divested on August 9, 2016. Prior year results reflect the continuing operations of Superior. |
| (2) | EBITDA from operations and AOCF are non-GAAP measures. Refer to “Non-GAAP Financial Measures” for further details and the first quarter Management Discussion and Analysis (MD&A) for reconciliations. |
| (3) | Transaction and other costs for the three months ended March 31, 2017 are related to the Canwest Transaction. Transaction and other costs for the three months ended March 31, 2016 are related to the terminated acquisition of Canexus Corporation. Refer to “Transaction and Other Costs” in the first quarter MD&A for further details. |
| (4) | The weighted average number of shares outstanding for the three months ended March 31, 2017 is 142.8 million (March 31, 2016 – 141.1 million) There were no dilutive instruments with respect to AOCF per share for the three months ended March 31, 2017 and March 31, 2016. |
| Segmented Information | |||
| Three months ended | |||
| March 31, | |||
| (millions of dollars) | 2017 | 2016 | |
| EBITDA from operations(1) | |||
| Energy Distribution | 86.1 | 86.8 | |
| Specialty Chemicals | 32.9 | 27.3 | |
| 119.0 | 114.1 | ||
| (1) | See “Non-GAAP Financial Measures”. |
Operational and Financial Highlights
Energy Distribution
- Average weather across Canada for the quarter as measured by degree days was 6% colder than the prior year quarter and 2% warmer than the five-year average. Average weather in the U.S. northeast as measured by degree days was 1% warmer than the prior year and 11% warmer than the five-year average.
- Gross profit for the first quarter decreased $2.6 million to $171.8 million from the prior year quarter due to lower gross profits for the USRF business and other services, partially offset by modestly higher gross profits for the Canadian propane distribution business.
- Gross profit for the Canadian propane distribution business of $100.1 million was modestly higher than the prior year quarter due to an increase in sales volumes, partially offset by a decrease in average margins. Sales volumes increased 49 million litres or 11% due primarily to higher wholesale and commercial volumes, partially offset by lower industrial volumes. Average margins for the first quarter were 20.9 cents per litre compared to 23.1 cents per litre in the prior year. The decrease in average margins was due to sales mix and the impact of market fundamentals on the supply portfolio management business.
- Gross profit for the USRF business of $65.8 million was $2.3 million or 3% lower than the prior year quarter due to the impact of foreign exchange noted above. USRF sales volumes decreased 25 million litres, which was offset by an increase in average unit margins in USD. Sales volumes decreased 25 million litres or 6% due primarily to a decrease in wholesale volumes related to competitive pressures in the U.S. Northeast distillate market. Unit margins were 16.6 cents per litre compared to 16.1 cents per litre. The increase in average margins was due to sales mix and sales and marketing initiatives in the retail heating oil and the wholesale businesses.
- Other services gross profit of $5.9 million was $1.3 million lower than the prior year quarter due to reduced demand in Western Canada related to weaker economic conditions and the impact of the stronger CAD on USRF results.
- Operating and administrative costs were $85.7 million, a decrease of $1.9 million compared to the prior year quarter due to the impact of foreign exchange and restructuring activities implemented in 2016.
- On April 20, 2017, Superior General Partner Inc., a subsidiary of Superior, acquired Pomerleau Gaz Propane Inc., 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 $158.3 million in the first quarter, modestly higher than the prior year quarter due to a decrease in the realized loss on the translation of U.S. denominated working capital and an increase in chlor-alkali sales volumes.
- Gross profit was $67.3 million in the first quarter, $4.0 million higher than the prior year quarter due primarily to the decrease in realized losses on the translation of U.S. denominated working capital noted above as well as an increase in chlor-alkali gross profits. Chlor-alkali gross profit increased due to higher sales volumes in all products and higher netbacks for chlorine and caustic soda, partially offset by lower netbacks for hydrochloric acid and caustic potash. Sodium chlorate gross profits were modestly lower due to a decrease in sales prices.
- Operating expenses were $34.4 million in the first quarter, a decrease of $1.6 million or 4% compared to the prior year due to lower distribution costs.
Income from the Canwest Transaction
Earnings from Canwest were attributable to Superior as of March 1, 2017. Canwest contributed $6.2 million in income for the first quarter.
Corporate Related
- On May 1, 2017, Superior extended its syndicated credit facility with ten lenders, increasing the size of the facility to $620 million from $570 million, with no changes to the financial covenants. The facility matures on April 28, 2022 and can be expanded up to $800 million.
Financial Outlook
Superior has updated its 2017 financial outlook of AOCF per share to $1.50 to $1.75 to reflect the impact of the Canwest acquisition and year-to-date results. Key assumptions related to the updated financial outlook are:
- EBITDA from operations for Energy Distribution is anticipated to be consistent to modestly higher than 2016. 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 consistent with 2016.
- The contribution from the Canwest Transaction is anticipated to increase EBITDA. As the close of the Canwest Transaction 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 Notes.
- 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 first quarter were $17.1 million compared to $31.7 million in the prior year quarter due primarily to a decrease in maintenance capital. Maintenance capital was $15.3 million lower as Specialty Chemicals purchased chlorine rail cars in the first quarter of 2016.
Total Debt and Leverage
- Total debt as at March 31, 2017 was $935.9 million, an increase of $394.2 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 March 31, 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 adjusted 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 months ended March 31, 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 First Quarter Conference Call
Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2017 First Quarter Results at 10:30 a.m. EDT on Wednesday, May 3, 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.
Superior Plus Corp Website
Superior launched an updated investor relations website in the first quarter of 2017. The updated website is anticipated to provide improved access to information for investors, analysts and other stakeholders regarding Superior and its divisions, including financial information, investor relations presentations and press releases. The website has also been updated to improve viewing on mobile devices.
Non-GAAP Measures
Throughout the first 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 first 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, 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, availability and 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 first 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
[email protected]
Superior Plus Corp.
Rob Dorran
Vice President, Investor Relations and Treasurer
(416) 340-6003 or Toll Free: 1-866-490-PLUS (7587)
[email protected]
www.superiorplus.com
