Mr. Wayne Bingham reports
SUPERIOR PLUS CORP. ANNOUNCES 2013 SECOND QUARTER RESULTS AND UPDATES 2013
FINANCIAL OUTLOOK
Superior Plus Corp. has released its second-quarter 2013 financial results.
Highlights:
-
Execution of Superior's Destination 2015 initiatives continue to be on
track.
-
For the quarter ended June 30, 2013, Superior generated adjusted
operating cash flow (AOCF) per share of 24 cents, which was consistent with
the prior-year quarter of 25 cents per share. Superior's results for the
second quarter were also consistent with management's expectations.
Superior's second-quarter results reflect the seasonality of the energy
services business. AOCF per share was impacted by reduced interest
expense which was offset by a higher number of weighted average common
shares outstanding. Earnings before interest, taxes, depreciation and amortization from operations were consistent with the prior-year quarter.
-
Superior's 2013 financial outlook of AOCF per share has been updated to
$1.60 to $1.85. Superior has increased the bottom end of its 2013
financial outlook by five cents per share from the 2013 financial outlook
provided at the first quarter of 2013 which was previously $1.55 to
$1.85 per share due to actual results achieved to date combined with
management's confidence in the second half of 2013. See 2013 financial
outlook for additional details.
-
As previously communicated, Superior anticipates an improvement of 7 per cent to
10 per cent per year in 2013 through 2015 in adjusted operating cash flow (AOCF)
per share.
-
Energy services results for the second quarter were consistent with the
prior-year quarter as improved gross profits in all lines of business
except for fixed-price energy services were offset by higher operating
costs. Improvements in gross profits, in particular within the Canadian
propane and U.S. refined fuels businesses, were due in part to higher
sales volumes as a result of colder weather experienced at the end of
the first quarter and the beginning of the second quarter, as well as the
impact of the continuing business improvement initiatives.
-
Specialty chemicals results for the second quarter were modestly lower
than the prior year as a result of reduced sodium chlorate gross profits
due to slightly lower sales volumes and higher cost of sales resulting
from higher average electricity costs. Chloralkali gross profits were
consistent with the prior-year quarter as higher caustic gross profits
were offset by reduced chlorine gross profits.
-
The expansion of the hydrochloric acid production capacity at the Port
Edwards, Wis., and Saskatoon, Sask., chloralkali facilities
are on time and on budget.
-
The construction products distribution business results for the quarter
benefited from higher average selling prices, improved average sales
margins and higher sales volumes.
-
Superior's forecasted Dec. 31, 2013, total-debt-to-EBITDA ratio of
3.3 times to 3.7 times is consistent with the update provided at the first quarter
of 2013. See debt management update for additional details.
-
Subsequent to June 30, 2013, Superior completed an offering of $97-million, 6-per-cent convertible unsecured subordinated debentures which
mature on June 30, 2019.
-
On July 22, 2013, Superior announced that on Sept. 3, 2013, it will
early redeem the entire $68.9-million principal amount of its 7.50-per-cent
convertible unsecured subordinated debentures which mature on Dec.
31, 2014. The early redemption allows for Superior to benefit from lower
average interest rates in addition to actively managing its balance
sheet maturities.
-
On July 2, 2013, DBRS confirmed Superior Plus's corporate credit
rating as BB high (stable), Superior Plus LP's secured debt rating as BB
high (stable) and Superior Plus LP's unsecured debt rating as BB low
(stable).
SECOND QUARTER FINANCIAL SUMMARY
(in millions of dollars except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
Revenue $ 854.4 $ 834.3 $ 1,904.3 $ 1,900.2
Gross profit 190.0 184.1 443.1 422.2
EBITDA from operations (1) 48.1 49.0 153.6 139.5
Interest (13.8) (17.1) (30.8) (36.8)
Cash income tax expense (0.4) (0.3) (0.8) (0.5)
Corporate costs (3.7) (3.4) (9.8) (7.4)
Adjusted operating cash flow (1) 30.2 28.2 112.2 94.8
Adjusted operating cash flow per
share, basic (1)(2)(3) $0.24 $0.25 $0.94 $0.85
Adjusted operating cash flow per
share, diluted (1)(2)(3)(4) $0.24 $0.25 $0.91 $0.83
Dividends paid per share $0.15 $0.15 $0.30 $0.30
(1) EBITDA from operations and adjusted operating cash flow are key
performance measures used by management to evaluate the performance of
Superior. These measures are defined under "Non-IFRS financial measures"
in Superior's 2013 second-quarter management's discussion and analysis
(MD&A).
(2) The prior-year results have been restated for the impact of adopting
international accounting standard 19 -- Employee Benefits, effective
Jan. 1, 2013. The impact to EBITDA from operations was a decrease to
energy services of $300,000 and $600,000 for the three and six months
ended period June 30, 2012, and a decrease to specialty chemicals
of $500,000 and $500,000 for the three and six months ended June
30, 2012. See Superior's 2013 second-quarter MD&A for additional
details.
(3) The weighted average number of shares outstanding for the three months
ended June 30, 2013, is 126.2 million (2012 -- 111.6 million) and for the
six months ended June 30, 2013, is 119.9 million (2012 -- 111.4 million).
(4) For the three months ended June 30, 2013, and 2012, there were no dilutive
instruments. For the six months ended June 30, 2013, the dilutive impact
of the 7.50-per-cent, Oct. 31, 2016, convertible debentures was 6.6 million
shares (126.5 million total shares on a dilutive basis) with a resulting
impact on AOCF of $2.8-million ($115.0-million total on a dilutive
basis). For the six months ended June 30, 2012, the dilutive impact of
the 7.50-per-cent, Oct. 31, 2016, convertible debentures was 6.6 million
shares (118.0 million total shares on a dilutive basis) with a resulting
impact on AOCF of $2.8-million ($97.6-million total on a dilutive
basis).
SEGMENTED INFORMATION
(in millions of dollars)
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
EBITDA from operations
Energy services $ 15.2 $ 16.1 $ 82.8 $ 74.2
Specialty chemicals 25.1 26.8 58.0 55.9
Construction products distribution 7.8 6.1 12.8 9.4
48.1 49.0 153.6 139.5
Energy services:
-
Energy services EBITDA from operations for the second quarter was $15.2-million, compared with $16.1-million in the prior-year quarter. Results
were impacted by higher gross profits from all the businesses except for
the fixed-price energy services business.
-
The Canadian propane business generated gross profit of $50.2-million in
the second quarter, compared with $47.5-million in the prior-year quarter
due to improved sales volumes and higher average sales margins.
-
Canadian propane average sales margins were 18.9 cents per litre in the
second quarter, compared with 18.6 cents per litre in the prior-year
quarter. The increase in the average sales margin was due to improved
pricing on industrial and commercial contracts and improvements to
overall pricing management.
-
Canadian propane distribution sales volumes were 10 million litres or 4 per cent
higher than the prior-year quarter due to improved sales volumes in all
lines of business except for industrial. Industrial volumes were
consistent with the prior-year quarter. Sales volumes, specifically
residential and commercial sale volumes, benefited from colder average
temperatures across Canada at the end of the first quarter and the
beginning of the second quarter. The impact of weather for both the
Canadian propane and the U.S. refined fuels businesses is not as
significant in the second and third quarters due to the seasonal nature
of heating-related sales volumes.
-
Average weather across Canada, as measured by degree days, for the
second quarter was 5 per cent colder than the prior year and 4 per cent colder than the
five-year average.
-
The U.S. refined fuels business generated gross profits of $24.5-million
in the second quarter, compared with $23.6-million in the prior-year
quarter. The increase in gross profit was due to higher sales volumes.
-
U.S. refined fuels average sales margins of 6.4 cents per litre in the
quarter were consistent with the prior-year quarter of 6.5 cents per
litre.
-
Sales volumes within the U.S. refined fuels business were 20.8 million
litres or 6 per cent higher than the prior year. Sales volumes in all segments
were higher than the prior-year quarter due to colder weather
experienced at the end of the first quarter and the beginning of the
second quarter. Additionally, sales volumes benefited from the timing
of agricultural sales, and an increase in demand for gasoline and diesel.
-
Average weather for the U.S. refined fuel business, as measured by
degree days, for the second quarter was 15 per cent colder than the prior year
and 7 per cent colder than the five-year average. The impact of colder weather
benefited sales in the second quarter, but to a lesser degree than the
impact that would be expected in the first and fourth quarters due to
the seasonal nature of heating-related volumes.
-
The fixed-price energy services business generated gross profits of $4.4-million, compared with $8.9-million in the prior-year quarter due to
reduced natural gas profits. Lower natural gas gross profits were due to
a reduction in sales volumes as a result of a reduced contribution from
the residential segment, which has been in decline due to a change in
strategy in prior years to exit that market and focus on small
commercial and industrial accounts. Gross profit related to the
electricity segment was lower than the prior year as reduced
contributions from the Ontario market more than offset improvements in
the U.S. market.
-
The supply portfolio management business generated gross profits of $5.7-million in the second quarter, compared with $3.3-million in the
comparative period as market-based trading conditions were more
favourable compared with the prior-year quarter.
-
Operating expenses were $78.8-million in the second quarter compared with $74.3-million in the prior-year quarter. Operating expenses were
impacted by higher sales volumes in the Canadian propane and U.S.
refined fuels businesses, offset in part by cost-reduction initiatives
implemented throughout 2012.
-
Superior expects business conditions in 2013 for its energy services
business will be similar to 2012. EBITDA from operations is anticipated
to be higher in 2013 than in 2012 due in part to the assumption that
weather will be consistent with the five-year average in 2013. Superior's
2012 results were negatively impacted by warm weather, as average
weather in the first quarter of 2012, as measured by degree days, across
Canada and the northeastern United States was at record or near-record levels.
Additionally, Superior expects to realize continuing improvements in its
financial results as a result of its business initiative activities,
which will more than offset a reduction in the contribution from the
fixed-price energy services business due to exiting the Canadian
residential market in prior years.
Specialty chemicals:
- EBITDA from operations for the second quarter was $25.1-million compared
with $26.8-million in the prior-year quarter.
-
Sodium chlorate gross profits were modestly lower than the prior-year
quarter due to reduced sales volumes and higher cost of sales as a
result of higher average electricity costs.
-
Sodium chlorate sales volumes were 1 per cent lower than the prior-year quarter
due primarily to reduced customer demand as a result of pulp mill
maintenance. The market for sodium chlorate continues to be balanced due
to a stable market for pulp.
-
Chloralkali gross profits were consistent with the prior-year quarter as
improved sales volumes were fully offset by reduced average selling
prices. Sales volumes in the second quarter benefited from improved
plant operating performance and higher customer demand. The reduction in
average selling prices for chloralkali was due to a weak pricing
environment for chlorine, the impact of which was offset in part by
improved average pricing on caustic sales volumes.
-
Operating expenses of $33.6-million were $1.0-million lower than the
prior year due to reduced employee compensation costs.
-
As previously announced, Superior has approved an expansion of its
hydrochloric acid production capacity at its Port Edwards, Wis., and
Saskatoon, Sask., facilities. Upon completion of both projects,
Superior will have doubled its total hydrochloric acid production
capacity to 360,000 wet metric tonnes. The expansion of the production
capacity will allow Superior to optimize overall returns at both
facilities by converting a larger portion of its chlorine into higher-value hydrochloric acid. The Port Edwards project is anticipated to cost
$18-million with commercial production expected in the first quarter of
2014; the Saskatoon project is anticipated to cost $25-million with
commercial production expected in the second half of 2014. To date,
cumulative costs of $6.4-million have been incurred with respect to both
projects.
-
During the second quarter, ERCO reached an agreement with its unionized
employees at its North Vancouver, B.C., facility which had
expired on Nov. 30, 2012. The new agreement is for a period of six
years.
-
Superior expects business conditions in 2013 for its specialty chemicals
business will be similar to 2012. EBITDA from operations, excluding the
impact of the $12.5-million one-time payment from TransCanada received
in the third quarter of 2012, is anticipated to be modestly higher in
2013 due to improved performance of the chloralkali product segment as a
result of higher gross profits from hydrochloric acid and modestly
higher selling prices for caustic soda, which will more than offset
reduced pricing for chlorine. Superior does anticipate that electricity
prices will be modestly higher than the prior year. Superior continues
to see a stable market for sodium chlorate as a result of the current
market for pulp. Superior also expects a stable market for chloralkali
sales volumes and pricing as North American supply demand fundamentals
continue to be balanced. The market for chloralkali continues to be
supported by historically low natural gas prices.
Construction products distribution:
-
EBITDA from operations for the second quarter was $7.8-million, compared
with $6.1-million in the prior-year quarter. Results in the second quarter
of 2013 benefited from higher average selling prices, improved average
sales margins and higher overall sales volumes.
-
Gross profit was higher than the prior-year quarter as improved average
selling prices and modestly higher average sales margins combined with
improved sales volumes. Gypsum sales volumes were higher than the prior-year quarter as a result of improved U.S. sales volumes due to continuing improvements in residential construction activity. The improvement in
U.S. sales volumes was partially offset by reduced sales in Canada due
in part to the closing of a number of branch locations as part of 2012
restructuring activities, combined with a slowdown in new housing starts
and general construction-related activity. Gypsum sales margins
benefited from improved board pricing and the withdrawal from certain
Canadian markets that were less profitable, partially offset, by the
introduction of lower-margin products and a slowdown in the Ontario
market.
-
Commercial and industrial insulation (C&I) sales volumes were modestly
higher than the prior-year quarter, although end-use markets continue to
be challenging. C&I gross margins were consistent with the prior year.
-
Operating expenses for the second quarter were $40.7-million compared with $39.5-million in the prior-year quarter. Operating costs were impacted
by costs associated with higher sales volumes, and inflationary increases
of wages and other operating costs. Operating expenses as a percentage
of sales were consistent with the prior-year quarter.
-
Superior expects business conditions in 2013 for its construction
products distribution business to be similar to 2012 with slightly
improving conditions in the United States and lower residential construction in
Canada. EBITDA from operations is anticipated to be higher in 2013 than
2012 due in part to the absence of restructuring costs incurred in 2012.
In addition, results will benefit from the continuing business initiative
activities. Superior continues to see difficult market conditions in
both the residential and commercial segments in Canada and the United States, although the U.S. residential market continues to show signs of
improvement. Superior does not anticipate significant improvements in
the end-use markets in the near term.
Corporate related:
-
Total interest expense for the second quarter was $13.8-million compared
with $17.1-million in the prior-year quarter. Interest expense was lower
than the prior-year quarter as a result of lower average debt levels due
to Superior's continuing focus to reduce its total debt levels.
-
Corporate costs were $3.7-million in the second quarter which was
consistent with the prior-year quarter.
-
Superior's total debt (including convertible debentures) to compliance
EBITDA was 3.5 times as at June 30, 2013, compared with 4.4 times as at Dec. 31,
2012, and 4.4 times as at June 30, 2012. The reduction in total leverage
compared with Dec. 31, 2012, is due primarily to reduced debt levels as
a result of the $137.8-million in net proceeds from the common share
equity issue in the first quarter of 2013, cash flow from operations in
excess of dividends and capital expenditures, and the normal course
reduction in working capital requirements due to the seasonal nature of
Superior's energy businesses. Superior continues to focus on reducing
its total leverage through continuing debt reduction, including reducing
working capital requirements and improving business operations. See
debt management update for details on Superior's anticipated Dec.
31, 2013, total-debt-to-EBITDA ratio.
-
On July 2, 2013, DBRS confirmed Superior Plus's corporate credit
rating as BB high (stable), Superior Plus LP's secured debt rating as BB
high (stable) and Superior Plus LP's unsecured debt rating as BB low
(stable).
-
On July 22, 2013, Superior announced that on Sept. 3, 2013, it will
early redeem the entire $68.9-million principal amount of its 7.50-per-cent
convertible unsecured subordinated debentures which mature on Dec. 31, 2014. The early redemption allows for Superior to benefit from lower
average interest rates in addition to actively managing its balance
sheet maturities.
Canada Revenue Agency income tax update
As anticipated in Superior's previous disclosure, Superior received on April 2, 2013, from the CRA notices of reassessment for Superior's 2009 and 2010 taxation years reflecting the CRA's intent to challenge the tax consequences of Superior's corporate conversion transaction, which occurred on Dec. 31, 2008. The CRA's position is based on the acquisition of control rules, in addition to the general anti-avoidance rules in the Income Tax Act (Canada). The associated table summarizes Superior's estimated tax liabilities and payment requirements associated with the received and anticipated notices of reassessment.
Taxes payable 50 per cent of the
Taxation year (1)(2) taxes payable (1)(2) Payment dates
2009/2010 $13.0 $6.5 Paid in April, 2013
2011 $10.0 (3) $5.0 Q3 2013
2012 $10.0 (3) $5.0 Q3 2013
2013 $20.0 (3) $10.0 Q3 2014
Total $53.0 $26.5
(1) In millions of dollars
(2) Includes estimated interest and penalties.
(3) Estimated based on Superior's previously filed tax returns and the
midpoint of Superior's 2013 outlook.On May 8, 2013, Superior filed a notice of objection with the CRA's appeals division. After 90 days, if the CRA has not responded to or settled the notice of objection with Superior, then Superior can make an application to the Tax Court of Canada. Superior anticipates filing its application to the Tax Court of Canada in August, 2013, and that a decision in the Tax Court of Canada could be rendered by the end of 2014 or early 2015. If a decision of the Tax Court of Canada were to be appealed, the appeal process could reasonably be expected to take an additional two years. If Superior receives a positive decision, then any taxes, interest and penalties paid to the CRA will be refunded plus interest, and if Superior is unsuccessful then any remaining taxes payable plus interest and penalties will have to be remitted.
Superior remains confident in the appropriateness of its tax filing position and the expected tax consequences of the conversion, and intends to vigorously defend such position and intends to file its future tax returns on a basis consistent with its view of the outcome of the conversion.
Superior's 2013 financial outlook includes the impact of the reassessment although the interim tax payments made by Superior will be recorded to the balance sheet and will not impact either adjusted operating cash flow or net earnings.
Based on the midpoint of Superior's current 2013 financial outlook of adjusted operating cash flow per share of $1.70, if the tax pools from the conversion were not available to Superior, the impact would be an increase to cash income taxes of approximately 15 cents per share for 2013. As previously stated, Superior intends to file its future income tax returns on a basis consistent with its view of the outcome of the conversion.
2013 financial outlook
Superior expects 2013 AOCF per share of $1.60 to $1.85, which is an increase of five cents per share to the bottom end of the 2013 outlook from the outlook provided at the end of the first quarter of 2013 of $1.55 to $1.80 per share. Superior's 2013 financial outlook is consistent with Superior's 2012 actual results as the impact of continuing improvements in the businesses as a result of Superior's business initiative projects, average weather, as measured by degree days being consistent with the five year average, the absence of one-time restructuring costs, will be offset by the absence of the one-time TransCanada payment received in third quarter 2012 and a greater number of common shares outstanding due to the issuance of 12,960,500 shares on March 27, 2013. Superior's 2013 financial outlook has been provided on the basis that Superior will continue to prepare and file its future tax returns on a basis consistent with its view of the outcome of the CRA's challenge of its corporate conversion transaction.
For additional details on the assumptions underlying the 2013 financial outlook, see Superior's 2013 second-quarter management's discussion and analysis.
Debt management update
Superior's anticipated debt repayment for 2013 and total-debt-to-EBITDA leverage ratio as at Dec. 31, 2013, based on Superior's 2013 financial outlook is detailed in the associated table.
Dollar per Millions of
share dollars
2013 financial outlook AOCF per
share -- midpoint (1) $ 1.73 $ 212.8
Maintenance capital expenditures,
net (0.26) (31.7)
Capital lease obligation repayments (0.13) (15.4)
Payments to CRA in relation to tax
reassessment (2) (0.13) (16.5)
Cash flow available for dividends
and debt repayment before growth
capital 1.21 149.2
Expansion of Port Edward's and
Saskatoon facilities (0.23) (28.2)
Other growth capital expenditures (0.15) (18.5)
Proceeds from dividend reinvestment
program 0.04 4.9
Estimated 2013 free cash flow
available for dividend and debt
repayment 0.87 107.4
Proceeds from equity issue, net of
issue costs 1.12 137.8
Dividends (0.60) (73.8)
Total estimated debt repayment 1.39 171.4
Estimated total debt to EBTIDA as at
Dec. 31, 2013 3.3 times to 3.7 3.3 times to 3.7
times times
Dividends 0.60 73.8
Calculated payout ratio after all
capital and payment to CRA 69% 69%
(1) See financial outlook in Superior's 2013 second-quarter management's
discussion and analysis for additional details including assumptions,
definitions and risk factors.
(2) See CRA income tax update for additional details. Detailed second-quarter results
Superior's 2013 second-quarter management's discussion and analysis is attached, and is also available on Superior's website under the investor relations section.
2013 second-quarter and annual results conference call
Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2013 second-quarter results at 8:30 a.m. MDT on Friday, Aug. 2, 2013. To participate in the call, dial 1-866-223-7781. An archived recording of the call will be available for replay until midnight, Sept. 30, 2013. To access the recording, dial 1-800-408-3053 and enter passcode 7706964 followed by the pound key. Internet users can listen to the call live, or as an archived call, on Superior's website.
CONDENSED CONSOLIDATED STATEMENT OF NET EARNINGS AND TOTAL
COMPREHENSIVE INCOME
(in millions of dollars except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2013 2012 (1) 2013 2012 (1)
Revenues $ 854.4 $ 834.3 $ 1,904.3 $ 1,900.2
Cost of sales (includes
products and services) (664.4) (650.2) (1,461.2) (1,478.0)
Gross profit 190.0 184.1 443.1 422.2
Expenses
Selling, distribution and
administrative costs 170.3 166.3 349.4 346.6
Finance expense 15.3 18.7 33.8 40.1
Unrealized losses (gains)
on derivative financial
instruments 33.0 (9.8) 41.3 (7.4)
218.6 175.2 424.5 379.3
Net earnings (loss)
before income taxes (28.6) 8.9 18.6 42.9
Income tax recovery
(expense) 3.1 3.8 (12.7) (2.3)
Net earnings (loss) (25.5) 12.7 5.9 40.6
Net earnings (loss) (25.5) 12.7 5.9 40.6
Other comprehensive
income (loss)
Unrealized foreign
currency gains on
translation of foreign
operations 15.3 8.1 23.1 1.6
Actuarial defined benefit
gains (losses) 5.8 (8.7) 11.9 (3.6)
Income tax recovery
(expense) on other
comprehensive income
(loss) (3.2) 2.5 (4.6) 1.4
Other comprehensive
income (loss) 17.9 1.9 30.4 (0.6)
Total comprehensive
income (loss) for the
period (7.6) 14.6 36.3 40.0
Net earnings (loss) per
share
Basic and diluted (0.20) $ 0.11 $ 0.05 $ 0.36
(1) Three and six months ended June 30, 2012, has been restated for the
impact of adopting IAS 19 employee benefits, amendments on Jan. 1,
2013.We seek Safe Harbor.
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