Rogers Sugar Income Fund
TSX : RSI.UN

Rogers Sugar Income Fund

November 19, 2009 16:00 ET

Rogers Sugar Income Fund: Fourth Quarter 2009 Results

MONTREAL, QUEBEC--(Marketwire - Nov. 19, 2009) - Rogers Sugar Income Fund (TSX:RSI.UN)

Higher adjusted ebit and higher adjusted distributable cash for the quarter.

Record performance for fiscal 2009.

Distribution ratio of 66.9% for the year.

Message to Unitholders:

On behalf of the Board of Trustees, I am pleased to present the highlights of the financial results of Rogers Sugar Income Fund (the "Fund") for the three months and year ended September 30, 2009.

Results for the fourth quarter and year ended September 30, 2009 and 2008 as follows:



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For the three months ended For the year ended
September 30 September 30
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2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
(In metric tonnes)
Volume 187,538 190,516 700,582 693,130
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(In thousands of
dollars)
Gross margin $40,559 $19,672 $92,793 $95,050
Expenses:
Administration
and selling 5,244 5,162 20,044 20,107
Distribution 2,660 3,225 13,572 11,613
Depreciation and
amortization 221 91 521 445
Product
withdrawal/recall
reversal - (300) - (300)
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Earnings before
interest and
provision for
income taxes
("EBIT") 32,434 11,494 58,656 63,185
Interest expense 3,088 4,522 16,740 15,673
Provision for
(recovery of)
income taxes 5,342 (3,771) (621) (622)
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Net earnings $24,004 $10,743 $42,537 $48,134
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It should be noted that the 4th quarter of fiscal 2009 had 14 weeks of operations as compared to 13 weeks in fiscal 2008, and that fiscal 2009 had 53 weeks of operation as compared to 52 weeks in fiscal 2008.

Fourth quarter volume decreased by 3,000 metric tonnes from the comparable quarter in fiscal 2008 even with an additional week of operation in fiscal 2009. This additional week represents approximately 13,000 metric tonnes of volume. The volume reduction was due mainly to lower export and liquid volume of approximately 6,000 and 4,300 metric tonnes respectively, lower consumer volume of approximately 500 metric tonnes partially offset by higher industrial volume of approximately 7,800 metric tonnes. The decrease in liquid volume was due to the loss of a high fructose corn syrup ("HFCS") liquid substitutable account earlier in the year. The decrease in export volume was due to shipments of approximately 9,700 metric tonnes in the last quarter of fiscal 2008 against special quotas announced by the United States Department of Agriculture in August 2008. However, there were no special U.S. quotas in the last quarter of fiscal 2009, and export volume was limited to completing deliveries against the yearly Canada U.S. specific quota. Consumer volume was also lower by approximately 500 metric tonnes from the comparable quarter in fiscal 2008 due mainly to competitive market activity. Industrial volume was higher by approximately 7,800 metric tonnes from the comparable quarter, due to the additional week of operation in fiscal 2009.

For the year, the volume increase of approximately 7,500 metric tonnes, with the additional week, is due mainly to higher industrial volume of approximately 6,000 metric tonnes, higher liquid volume of approximately 4,700 metric tonnes, and higher export volume of 4,100 metric tonnes, partially offset by lower consumer volume of approximately 7,300 metric tonnes.

The increase of 6,000 metric tonnes in industrial volume for fiscal 2009 is due to the additional week of shipment in fiscal 2009, as compared to fiscal 2008. Liquid volume was higher by 4,700 metric tonnes during the year due mainly to shipments earlier in the year to a large HFCS substitutable account. In the Spring, this account did not renew its contract due to the higher price of world raw sugar. The increase in export volume is a result of shipments of approximately 34,000 metric tonnes against the special U.S. quota opened in 2008, as compared to 9,700 metric tonnes in fiscal 2008 against these new quotas. This was partially offset with no shipments to Mexico in fiscal 2009 as opposed to approximately 16,000 metric tonnes in fiscal 2008. There were no shipments to Mexico in fiscal 2009, due to the small crop Taber harvested and processed during the year.

Consumer volume was lower by approximately 7,300 metric tonnes following the loss of volume with a major account earlier in the year, due to competitive activity. At that time, most of the consumer volume was already committed for fiscal 2009. The Company could only re-establish its market share of that segment by contracting additional volume with one major account beginning fiscal 2010.

Due to the adoption of new accounting policies, effective October 1, 2006, for derivative financial instruments, the Fund's operating results could have large fluctuations. These fluctuations are due to the mark-to-market of all derivative financial instruments and embedded derivatives in non-financial instruments at the end of the reporting period. This accounting income does not represent a complete understanding of factors and trends affecting the business. We therefore prepared adjusted gross margin and adjusted earnings results to reflect the performance of the Fund during the reporting period, which are non-GAAP measures. This adjusted performance is comparable to the earnings reported in previous interim reports. In this press release, we will discuss adjusted gross margins, which reflect the operating income without the impact of the mark-to-market of derivative financial instruments and embedded derivatives in non-financial instruments.



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For the three months ended For the year ended
Gain / (Loss) September 30 September 30
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(In thousands 2009 2008 2009 2008
of dollars) (unaudited) (unaudited) (unaudited) (unaudited)
Mark-to-market
adjustment $9,782 $(8,717) $(9,777) $(2,041)
Timing in
recognition of
liquidation (gain)
or loss for sugar
inventory, sales
& purchase
contracts, natural
gas contracts,
swaps and options,
and foreign
exchange futures (2,431) 2,641 1,022 1,225
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Total $7,351 $(6,076) $(8,755) $(816)
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A significant part of the above mark-to-market adjustment relates to raw sugar recorded on a year-to-date basis. For the quarter, a gain of $12.1 million was recorded for raw sugar, as raw sugar prices reached record high values while Lantic had a net long position in raw sugar futures contract. Year-to-date, a mark-to-market loss of $10.9 million has been recorded on natural gas contracts held for fiscals 2010 to 2013 due to a decline in natural gas prices during the year.

In addition, the Fund recorded a mark-to-market gain of $0.2 million for the quarter, and a loss of $3.4 million year-to-date on the mark-to-market of an interest swap under short-term interest expense, as a result of movement in overall interest rates.

Therefore, the total adjustment to net earnings before income taxes and distributable cash for the quarter was a gain of $7.6 million and a loss of $12.2 million year-to-date.

Adjusted financial information is as follows:



-------------------------------------------------------------------------
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For the three months ended For the year ended
September 30 September 30
-------------------------------------------------------------------------
(In thousands 2009 2008 2009 2008
of dollars) (unaudited) (unaudited) (unaudited) (unaudited)
Gross margin
as per above $40,559 $19,672 $92,793 $95,050
Adjustment as per
above (7,351) 6,076 8,755 816
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Adjusted gross
margin 33,208 25,748 101,548 95,866
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EBIT as per above 32,434 11,494 58,656 63,185
Adjustment as per
above (7,351) 6,076 8,755 816
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Adjusted EBIT 25,083 17,570 67,411 64,001
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Net earnings as
per above 24,004 10,743 42,537 48,134
Adjustment to cost
of sales as per
above (7,351) 6,076 8,755 816
Adjustment for
mark-to-market
interest swap (237) 1,394 3,412 1,394
Future taxes on
above 2,222 (2,356) (3,405) (563)
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Adjusted net
earnings $18,638 $15,857 $51,299 $49,781
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For the quarter, adjusted gross margin rate was $177.07 per metric tonne compared to $135.15 per metric tonne in fiscal 2008. The increase of $41.92 per metric tonne was due mainly to a more favourable sales mix with lower HFCS liquid substitutable business, to higher selling margins of beet sugar as a result of raw sugar values, to a lower energy rate as compared with fiscal 2008 fourth quarter, and an increase in overall refined sugar inventory which resulted in a higher level of operating costs being inventoried.

For the year, adjusted gross margin rate was $144.95 per metric tonne in fiscal 2009 compared to $138.31 in fiscal 2008. Overall selling margins increased in large part due to improved margins on overall export sales in fiscal 2009 when compared to fiscal 2008. In fiscal 2008, export sales to Mexico were made at minimal margin, but served to reduce outside warehousing costs resulting from two consecutive large beet crops in fiscal 2008 and 2007. The higher value of raw sugar improved selling margins of beet sugar sold domestically, therefore improving overall margin rates. In addition, as a result of Taber's lower sugar beet crop, operating costs were lower as processing costs of beet sugar are higher than cane sugar, and to lower energy costs incurred, especially on the un-hedged portion of our natural gas usage.

Distribution costs were $0.6 million lower than the comparable quarter in fiscal 2008 due to export shipments done in the last quarter of fiscal 2008. For the year, costs were higher by $2.0 million, as more products had to be transferred from Vancouver to Taber due to Taber's low beet crop in fiscal 2009, and to additional export sales against the U.S. special quotas.

Administration costs were in line with the comparable quarter and on a year-to-date basis.

Following the amalgamation of Lantic Sugar Limited and Rogers Sugar Ltd. in June 2008 to form Lantic Inc., the Company entered into a new five year term revolving credit facility with a syndicate of lenders for an amount of $200.0 million. The funds from this new revolving facility plus available cash were used to repay the term debt then outstanding. In order to fix the interest rate on a substantial part of the expected drawdown on the new credit facility, the Company, on July 7, 2008, entered into a five-year interest swap agreement for an amount of $70.0 million, at a base rate of 4.0%. This swap is marked-to-market. For the quarter, a mark-to-market gain of $0.2 million was recorded as opposed to a charge of $1.4 million the comparable quarter of fiscal 2008. Without this charge, interest expense would have been $0.2 million higher for the quarter, but lower by $0.8 million for the year. The decrease for the year is due to lower interest rates and required borrowings.

The Fund measures distributable cash. Distributable cash is not intended to be representative of cash flows or results of operations determined in accordance with GAAP. It may also not be comparable to similar measures used by other companies or income trusts. Distributable cash is meant to show to the Unitholders the ability of the Fund to pay distributions based on the operating performance of the Fund and its operating subsidiary during the specified period.



-------------------------------------------------------------------------
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(In thousands For the three months ended For the year ended
of dollars) September 30 September 30
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2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
Operating activities:
Cash flow from
operating
activities $39,256 $9,371 $69,791 $23,372
Capital
expenditures (2,130) (2,219) (6,285) (7,624)
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Standardized
distributable cash 37,126 7,152 63,506 15,748
Adjustments:
Changes in non-cash
working capital (5,161) 2,841 3,360 31,756
Mark-to-market and
derivative timing
adjustments (7,588) 7,470 12,167 2,210
Financial
instruments
non-cash amount (1,856) (4,071) (18,421) 1,725
Investment capital
expenditures 182 326 221 597
Repurchase (net
of issuance) of
trust units - (1,586) (690) (806)
Deferred financing
charges - (921) - (921)
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Adjusted distributable
cash $22,703 $11,211 $60,143 $50,309
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Declared
distributions $10,035 $10,096 $40,206 $40,082
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Adjusted distributable cash for the quarter was $11.5 million higher than the comparable quarter in fiscal 2008 mainly due to the higher adjusted EBIT of $7.5 million, lower cash pension contribution against expense incurred, and payment of deferred financing charges in fiscal 2008.

In fiscal 2009, the Fund distributed $40.2 million, or $0.46 per unit, compared to $40.1 million, or $0.4567 per unit in fiscal 2008. Adjusted distributable cash for fiscal 2009 was $60.1 million compared to $50.3 million in fiscal 2008. The increase of $9.8 million was due mainly to a higher adjusted EBIT of $3.4 million, lower cash pension contributions, as compared to pension expense, of $2.5 million, lower capital expenditures of $1.0 million, lower adjusted interest costs of $0.8 million, and no cash outlay for financing costs in fiscal 2009. The distribution ratio for the year was 66.9% as compared to 79.7% in fiscal 2008.

For the year, the Fund repurchased and cancelled 225,100 units under its Normal Course Issuer Bid for a value of $0.7 million. This Normal Course Issuer Bid expires on November 27, 2009. Our intent is to continue with a new Normal Course Issuer Bid for next year. The Fund will again purchase units if the price trading range does not reflect what we consider to be the fair value of the units.

The higher raw sugar prices that currently prevail on the world raw sugar market will be positive to the adjusted gross margin for all domestic beet sugar sales, except for liquid HFCS substitutable sales. In Taber, beet crop acreage was slightly less than 30,000 acres for the crop being currently harvested. The harvest started well in late-September, but was somewhat delayed due to a prolonged October frost in Southern Alberta. The harvest is still in progress, and harvested beets are muddier and have excess remaining foliage (beet tops). Sugar beet processing is therefore being slowed and more difficult. As of this writing, we are still estimating a total beet sugar production of approximately 100,000 metric tonnes if all sugar beets are harvested prior to winter.

The recovery of the Taber crop in fiscal 2010, combined with poor crop results in Mexico will allow Lantic to resume some export sales to Mexico. To date, we have already contracted some volume for fiscal 2010, which will help mitigate the lower volume of U.S. export sales, due to the current absence of special U.S. quotas, and of lower liquid HFCS substitutable sales due to the higher price of world raw sugar values.

On October 31, 2006, Canada's Minister of Finance made an announcement concerning the imposition of a distribution tax on distributions from publicly traded income trusts. This legislation was enacted in June 2007, and if no further changes are brought forward in legislation over the next year, a distribution tax on distributions from traded income trusts will be imposed in calendar 2011.

FOR THE BOARD OF TRUSTEES,

(signed) Edward Y. Baker

Edward Y. Baker,

Montreal, Quebec

November 19, 2009

Contact Information

  • Rogers Sugar Ltd.
    Mr. Dan Lafrance
    SVP Finance, CFO and Secretary
    514-940-4350
    514-527-1610 (FAX)
    www.lantic.ca