Superior Plus Corp.
TSX : SPB

Superior Plus Corp.

November 08, 2017 18:12 ET

Superior Plus Corp. Announces 2017 Third Quarter Results, Confirms 2017 Financial Outlook and Introduces 2018 Financial Outlook

TORONTO, ONTARIO--(Marketwired - Nov. 8, 2017) - Superior Plus Corp. ("Superior") (TSX:SPB) announced today the financial and operating results for the three months ended September 30, 2017. All financial figures are expressed in Canadian dollars.

"Superior has made significant progress in 2017 towards achieving our Evolution 2020 goal of increasing 2016 EBITDA from operations in the range of $50 million to $150 million by the end of 2020. The anticipated EBITDA contribution from the acquisition of Canwest Propane, including synergies, the five tuck-in acquisitions completed in our Energy Distribution and Specialty Chemicals businesses and the improvement in the chlor-alkali markets experienced in 2017 moves us solidly towards the higher end of the range," said Luc Desjardins, Superior's President and Chief Executive Officer. "We were pleased to complete the acquisition of Canwest Propane during the third quarter with a favourable outcome from the Competition Bureau review and the ability to deliver on the estimated run-rate synergies of $20 million within 20 months of closing."

Financial Highlights

  • Achieved Adjusted Operating Cash Flow ("AOCF") per share before transaction and other costs of $0.11, an 83% increase over the prior year quarter of $0.06 per share due to higher Adjusted EBITDA, offset in part by higher interest expense.
  • Adjusted EBITDA increased $11.4 million or 65% over the prior year quarter due to realized gains on foreign exchange hedging contracts compared to realized losses in the prior year quarter, 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.
  • EBITDA from operations for the Specialty Chemicals business increased $4.3 million 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 $3.7 million compared to the prior year quarter primarily due to lower gross profit in the supply portfolio management segment of Canadian propane distribution related to weaker market fundamentals and modestly lower gross profit in the U.S. refined fuels ("USRF") business related to the impact of the stronger Canadian dollar on U.S. denominated gross profit.
  • 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. Following the quarter end, Superior received approximately $26 million in refunds from the CRA and the remaining $7 million from provincial tax agencies is anticipated to be refunded in the fourth quarter of 2017.

Strategic Growth and Evolution 2020 Initiatives

  • On August 1, 2017, Superior Plus Energy Services Inc., a subsidiary of Superior closed the 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.
  • On September 27, 2017 Superior received Competition Bureau approval for the acquisition of Canwest Propane ("Canwest") and closed on the acquisition of Canwest. As part of the consent agreement with the Competition Bureau, Superior agreed to divest 14 locations from the combined Superior Propane and Canwest footprint. The estimated impact from the required divestitures is less than 5% of the Canwest Adjusted EBITDA based on the trailing twelve months ended June 30, 2017.
  • On October 2, 2017, Superior Plus Energy Services Inc., closed the acquisition of the propane distribution assets of R.W. Earhart for an aggregate purchase price of US $38.0 million. The acquisition of R.W. Earhart is anticipated to add approximately 12,600 residential and commercial customers and 47.3 million litres of retail propane sales in Ohio, a new region for Superior's Energy Distribution business.
  • On October 31, 2017, Superior Plus U.S. Holding Inc., a subsidiary of Superior Plus LP, closed the acquisition of International Dioxcide. Inc. ("IDI") from the LANXESS Corporation. The IDI acquisition was Superior's fifth tuck-in during 2017, exceeding Superior's Evolution 2020 goal of 2 – 4 tuck-ins per year.

2017 and 2018 Financial Outlook

  • 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 and 2018 Financial Outlook" for further details.
  • Superior is introducing its 2018 Financial Outlook of AOCF per share of $1.65 to $1.95, an 11% increase compared to the 2017 Financial Outlook based on the midpoint of the respective financial outlooks. Superior is also introducing 2018 Adjusted EBITDA guidance of $295 million to $335 million. See "2017 and 2018 Financial Outlook" for further details.

Financial Overview

Three Months Ended Nine Months Ended
September 30 September 30
(millions of dollars, except per share amounts) 2017 2016 2017 2016
Revenue (1) 465.5 429.0 1,616.1 1,440.6
Gross Profit (1) 133.6 119.1 497.3 462.8
Net earnings (loss) (124.8 ) 52.8 (73.2 ) 137.0
Net earnings (loss) per share, basic $ (0.87 ) $ 0.37 $ (0.51 ) $ 0.97
Net earnings (loss) per share, diluted $ (0.87 ) $ 0.36 $ (0.51 ) $ 0.94
EBITDA from operations (1)(2) 29.8 29.2 190.0 182.5
Adjusted EBITDA (1)(2) 29.0 17.6 188.5 144.8
Net cash flows from operating activities 4.9 32.1 153.6 160.9
Net cash flows from operating activities per share – basic $ 0.03 $ 0.23 $ 1.08 $ 1.13
Net cash flows from operating activities per share – diluted $ 0.03 $ 0.22 $ 1.03 $ 1.09
AOCF before transaction and other costs (2)(3)(4) 15.0 8.0 151.8 112.5
AOCF before transaction and other costs per share – basic (2)(3)(4) $ 0.11 $ 0.06 $ 1.06 $ 0.79
AOCF before transaction and other costs per share – diluted (2)(3)(4) $ 0.11 $ 0.06 $ 1.05 $ 0.79
AOCF (2) (4.5 ) (13.3 ) 123.4 71.2
AOCF per share – basic and diluted (2)(4) $ (0.03 ) $ (0.09 ) $ 0.86 $ 0.50
Cash dividends declared 25.7 25.5 77.1 76.7
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.54 $ 0.54
(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 third 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 nine months ended September 30, 2017 are related to the acquisition of Canwest Propane and tuck-in acquisitions. Transaction and other costs for the three and nine months ended September 30, 2016 are related to the terminated acquisition of Canexus Corporation and the divestiture of CPD. 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 nine months ended September 30, 2017 is 142.8 million (September 30, 2016 – 142.6 and 141.9 million respectively). The diluted weighted average number of shares outstanding for the three and nine months ended September 30, 2017, is 148.6 million (September 30, 2016 – 148.4 and 147.7 million respectively).

Segmented Information

Three months ended Nine months ended
September 30 September 30
(millions of dollars) 2017 2016 2017 2016
EBITDA from operations(1)
Energy Distribution 0.2 3.9 99.1 107.6
Specialty Chemicals 29.6 25.3 90.9 74.9
29.8 29.2 190.0 182.5
(1) See "Non-GAAP Financial Measures".

Operational and Business Highlights

Energy Distribution

  • Gross profit for the third quarter decreased $3.8 million to $77.0 million from the prior year quarter primarily due to lower gross profits for the Canadian propane distribution business.
  • Gross profit for the Canadian propane distribution business of $51.4 million was $2.0 million or 4% lower than the prior year quarter due to a decrease in average margins, partially offset by an increase in sales volumes. Sales volumes increased 59 million litres or 25% primarily due to higher wholesale volumes. Average margins for the third quarter were 17.5 cents per litre compared to 22.8 cents per litre in the prior year. The decrease in average margins was primarily due to the impact of weaker basis differentials and market fundamentals on the supply portfolio management business and sales mix. Average retail margins were consistent with the prior year quarter. Average margins for the first nine months of 2017 were 19.1 cents per litre compared to 23.0 cents per litre in the prior comparable period.
  • Gross profit for the USRF business of $19.5 million was $0.3 million or 2% lower than the prior year quarter primarily due to the impact of the stronger Canadian dollar on U.S. denominated gross profit and a decrease in sales volumes, partially offset by an increase in average unit margins. Sales volumes decreased 48 million litres or 15% primarily due to lower wholesale volumes related to sales initiatives focused on reducing low margin sales exposure. Average margins were 7.1 cents per litre compared to 6.2 cents per litre in the prior year quarter. The increase in average margins was due to sales mix, and sales and marketing initiatives in the retail heating oil, commercial and wholesale, partially offset by the impact of the stronger Canadian dollar.
  • Due to the seasonal nature of heating related volumes weather in the third quarter did not have a material impact on Energy Distribution results.
  • Other services gross profit of $6.1 million was $1.5 million or 20% lower than the prior year quarter related to work on a large-scale project in the prior year.
  • Cash operating and administrative costs of $76.8 million were consistent with the prior year quarter.

Specialty Chemicals

  • Chemical revenue was $155.9 million in the third quarter, $4.0 million or 3% higher than the prior year quarter primarily due to an increase in chlor-alkali sales volumes and pricing.
  • Gross profit was $64.5 million in the third quarter, $6.6 million or 11% higher than the prior year quarter primarily due 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 9% higher than the prior year quarter primarily due 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 17% compared to the prior year quarter due to strong demand in North America and for exports from the U.S. Gulf Coast, and hydrochloric acid netbacks increased 19% due to strong demand from the oil and gas sector. Sodium chlorate gross profits were modestly higher than the prior year quarter primarily due to a decrease in production costs.
  • Cash operating and administrative expenses were $34.9 million in the third quarter, an increase of $2.3 million or 7% compared to the prior year primarily due to higher distribution costs.

Income from Canwest Propane

Canwest contributed $2.9 million in Adjusted EBITDA for the third quarter. Canwest Adjusted EBITDA will be reported as part of the Canadian propane distribution results in the fourth quarter of 2017.

Corporate Related

  • Corporate costs were $5.5 million, a decrease of $0.6 million compared to the prior year quarter primarily due to lower professional fees, partially offset by higher long-term incentive costs related to the increase in the share price. Corporate costs exclude one-time transaction and other costs of $19.5 million related to the acquisition of Canwest Propane and tuck-in acquisitions.
  • Interest expense was $12.4 million, an increase of $3.7 million compared to the prior year quarter due to higher average debt levels and higher average effective interest rates.
  • Superior had realized gains on foreign currency hedging contracts of $1.8 million compared to realized losses of $5.5 million in the prior year quarter due to the increase in Superior's effective average hedge rate.

2017 and 2018 Financial Outlook

Superior expects 2017 AOCF per share to $1.50 to $1.75, consistent with the financial outlook provided at the end of the second quarter of 2017.

Superior is introducing its 2018 financial outlook of AOCF per share of $1.65 to $1.95, an 11% increase compared to the 2017 financing outlook using the midpoint of the respective financial outlooks. Superior is also introducing 2018 Adjusted EBITDA guidance of $295 million to $335 million. Superior's key assumptions related to the updated financial outlook are:

  • EBITDA from operations for Energy Distribution is anticipated to be higher than 2017. The increase in anticipated EBITDA is primarily due to the results from Canwest and anticipated synergies of $5 to $10 million realized in 2018 and the results from the tuck-in acquisitions completed in 2017. Supply market fundamentals in the Canadian propane distribution business are anticipated to be consistent with 2017. Average weather, as measured by degree days, for 2018 is anticipated to be consistent with the five-year average.
  • EBITDA from operations for Specialty Chemicals is anticipated to be consistent to modestly lower than 2017. Sodium chlorate EBITDA is anticipated to be lower than 2017 as modest improvements in sodium chlorate pricing are expected to be offset by increases in electricity mill rates and the impact of a weaker U.S. dollar compared to 2017. Chlor-alkali EBITDA is anticipated to be higher than 2017 due to an increase in sales volumes and pricing.
  • Corporate costs are anticipated to be consistent with 2017.
  • Interest expense is anticipated to increase due to higher average debt levels related to the Canwest acquisition and tuck-in acquisitions.

Total Debt and Leverage

  • Total debt as at September 30, 2017 was $1,019.5 million, an increase of $477.8 million compared to total debt of $541.7 million as at December 31, 2016. Total debt was higher primarily due to the Canwest acquisition and tuck-in acquisitions completed in the first nine months, partially offset by cash flows from operating activities.
  • Total debt to adjusted EBITDA(1) for the trailing twelve months as at September 30, 2017 was 3.4x, 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.
  • Superior anticipates total debt to Adjusted EBITDA will be in the range of 3.0x to 3.4x at December 31, 2018. See "Debt Management Update" in the MD&A.
(1) Pro forma including the trailing twelve months results of Canwest.

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 nine months ended September 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 Third Quarter Conference Call

Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2017 Third Quarter Results at 10:30 a.m. EST on Thursday, November 9, 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 third 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 third 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, trading data, cost estimates, our ability to obtain financing on acceptable terms, the assumptions set forth under the "Financial Outlook" sections of our third 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.

Contact Information

  • Superior Plus Corp.
    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