Superior Plus Corp. (“Superior”) /zigman2/quotes/201409722/delayed CA:SPB -0.91% announced today the financial and operating results for the second quarter ended June 30, 2020. Unless otherwise expressed, all financial figures are expressed in Canadian dollars.
“Overall, we are pleased with the second quarter results, which were 13% higher than the prior year based on Adjusted EBITDA, driven primarily by strong unit margins and cost reductions in our U.S. and Canadian propane distribution businesses,” said Luc Desjardins, President and CEO. “Our sales volumes in our Specialty Chemicals and Energy Distribution businesses were lower than the prior year quarter, and the operational teams have done an excellent job adjusting the cost structure for the reduced volumes. We made great progress on reducing our debt during the second quarter, and the closing of the Brookfield Investment in the third quarter further enhances our liquidity and our ability to grow through acquisitions. Subsequent to quarter end, we acquired the retail propane distribution assets of Champagne’s Energy, our second tuck-in acquisition of 2020 and first since the Brookfield Investment closed.”
As a result of the various impacts of the novel Coronavirus (“COVID-19”) pandemic, we have made a number of adjustments to our operating facilities and how we operate to ensure the safety of our customers, vendors, employees and the communities we serve. The duration and impact of the COVID-19 outbreak are still unknown at this time, and it is difficult to estimate the full impact on our operations, the markets for our products and our financial results. At the current time, we do expect a modest impact to our business as it relates to our customers that operate in industries governments have classified as non-essential and customers required to operate at reduced capacity.
Luc Desjardins further stated, “The safety, health and well-being of our employees and the communities in which we operate remain our primary focus. Our goal is to operate safely and to mitigate potential exposure. As such, we implemented physical distancing strategies, increased cleaning and disinfection at our facilities and offices, provided personal protective equipment as required, executed remote working policies, and eliminated all non-essential travel.”
2020 Adjusted EBITDA and Leverage Guidance Update
Based on management’s evaluation of the anticipated impacts from the COVID-19 pandemic and reduced oil and gas drilling activity in North America, as well as the impact from the significantly warmer weather in the first quarter, Superior continues to expect 2020 Adjusted EBITDA to remain within the previously disclosed guidance range of $475 million to $515 million, albeit near the lower end of the range, based on current estimates. Average weather, as measured by degree days for the remainder of 2020 is anticipated to be consistent with the five-year average for Canada and the U.S.
On June 8, 2020, Superior updated its previously communicated expected Total Debt to Adjusted EBITDA guidance at December 31, 2020 from a range of 3.6x to 4.0x to a range of 3.0x to 3.5x, consistent with Superior’s long-term target range. The decrease reflects the proceeds of the Brookfield Investment being used to reduce debt. Superior continues to expect Total Debt to Adjusted EBITDA as at December 31, 2020 to be in the range of 3.0x to 3.5x, based on current estimates.
Business and Financial Highlights
Superior achieved second quarter Adjusted EBITDA of $67.7 million, an increase of $8.0 million or 13% over the prior year quarter primarily due to higher EBITDA from operations in U.S. propane distribution (“U.S. Propane”), as well as higher EBITDA from operations in Canadian propane distribution (“Canadian Propane”) and lower corporate costs, partially offset by lower EBITDA from operations in Specialty Chemicals.
EBITDA from operations during the second quarter was $76.9 million, a $5.5 million or 8% increase from the prior year quarter primarily due to higher results from U.S. Propane and Canadian Propane, partially offset by lower results from Specialty Chemicals. Please see below for further discussion on the second quarter EBITDA from operations by business.
AOCF before transaction and other costs during the second quarter was $40.8 million, a $9.8 million or 32% increase compared to the prior year quarter primarily due to higher Adjusted EBITDA and lower interest expense, partially offset by higher cash tax expenses. AOCF before transaction and other costs per share was $0.23, $0.05 higher than the prior year quarter due to the increase in AOCF before transaction and other costs.
Superior had net earnings of $7.5 million in the second quarter compared to a net loss of $29.3 million in the prior year quarter. The $36.8 million increase compared to the prior year quarter was primarily due to higher unrealized gains, and lower selling, distribution and administrative costs (“SD&A”), partially offset by an income tax expense in the current quarter compared to an income tax recovery in the prior year quarter and lower gross profit. Unrealized gains on derivative financial instruments and translation of U.S. denominated debt increased $59.5 million due primarily to changes in the market prices of commodities and foreign exchange rates relative to amounts hedged, and to a lesser extent, the impact of the weaker Canadian dollar on the translation of U.S. denominated debt. The change in income tax recovery in the prior year quarter to an expense in the current quarter was due primarily to the increased net income before income taxes in the current quarter compared to the prior year quarter net loss and the impact of U.S. tax regulations enacted in the second quarter.
Net cash flows from operating activities in the second quarter were $187.6 million, a $24.1 million increase from the prior year quarter primarily due to the impact of higher net earnings net of non-cash adjustments and to a lesser extent the change in non-cash operating working capital.
U.S. Propane EBITDA from operations for the second quarter was $27.1 million, an increase of $14.3 million or 112% compared to the prior year quarter primarily due to higher average unit margins and lower operating expenses, partially offset by lower sales volumes. Average U.S. Propane sales margin for the second quarter was 46.2 cents per litre compared to 38.7 cents per litre in the prior year quarter primarily due to sales and marketing initiatives, including effective margin management in a low wholesale propane price environment, the impact of the weaker Canadian dollar on the translation of U.S. denominated gross profit, and to a lesser extent, customer mix related to a focus on organic growth of higher margin propane customers. Total sales volumes decreased 11 million litres or 5% primarily due to lower commercial and wholesale sales volumes, partially offset by higher residential sales volumes. Average weather, as measured by degree days, across markets where Superior operates in the Eastern U.S. was 30% colder than the prior year quarter and 28% colder than the five-year average. Operating expenses decreased $5.5 million or 8% primarily due to cost reductions related to workforce optimization initiatives and realized synergies from the NGL acquisition and the tuck-in acquisitions, partially offset by the impact of the weaker Canadian dollar on the translation of U.S. denominated expenses.
Canadian Propane EBITDA from operations for the second quarter was $21.2 million, an increase of $1.2 million or 6% compared to the prior year quarter primarily due to lower operating expenses and higher average unit margins, partially offset by lower sales volumes. Average propane sales margins in the second quarter were 19.4 cents per litre compared to 16.9 cents per litre in the prior year quarter due to sales and marketing initiatives, including effective margin management in a low wholesale propane price environment and customer mix related to a decline in lower margin sales volumes. Total sales volumes were 360 million litres, a decrease of 77 million litres or 18%, primarily due to lower wholesale, oilfield, commercial and motor fuels sales volumes related to the impact of COVID-19, and reduced oilfield activity in Western Canada. Average weather across Canada, as measured by degree days was 2% colder than the prior year quarter and 8% colder than the five-year average. Operating costs were $51.4 million, a decrease of $6.5 million primarily due to cost reductions in response to lower sales volumes.
Specialty Chemicals EBITDA from operations for the second quarter was $28.6 million, a decrease of $10.0 million or 26% compared to the prior year quarter primarily due to lower gross profit, partially offset by lower operating expenses. Gross profit decreased due to lower chlor-alkali sales prices and volumes and lower sodium chlorate sales volumes, partially offset by higher sodium chlorate sales prices and lower electricity mill rates. Operating expenses decreased primarily due to cost reduction initiatives related to COVID-19, lower freight costs related to reduced sales volumes and the impact of the closure of the Saskatoon sodium chlorate facility in 2019.
Superior’s corporate operating and administrative costs for the second quarter were $7.0 million, a decrease of $1.5 million primarily due to lower discretionary spending and cost reductions related to COVID-19 and lower long-term incentive plan costs related to Superior’s share price.
|Three Months Ended||Six Months Ended|
|June 30||June 30|
|(millions of dollars, except per share amounts)||2020||2019||2020||2019|
|Gross Profit [(1)]||219.8||223.7||619.0||652.0|
|Net earnings per share, basic and diluted [(2)]||$||0.04||$||(0.17)||$||0.11||$||0.73|
|EBITDA from operations [(3)]||76.9||71.4||300.8||320.7|
|Adjusted EBITDA [(3)]||67.7||59.7||287.0||299.6|
|Net cash flows from operating activities||187.6||163.5||272.4||275.7|
|Net cash flows from operating activities per share basic and diluted [(2)]||$||1.07||$||0.93||$||1.55||$||1.58|
|AOCF before transaction and other costs [(3)(4)]||40.8||31.0||228.7||242.0|
|AOCF before transaction and other costs per share, basic and diluted [(2)(3)(4)]||$||0.23||$||0.18||$||1.30||$||1.38|
|AOCF per share, basic and diluted [(2)(3)]||$||0.20||$||0.10||$||1.25||$||1.28|
|Cash dividends declared||31.8||31.5||63.0||63.0|
|Cash dividends declared per share||$||0.18||$||0.18||$||0.36||$||0.36|
|[(1)]||Revenue and gross profit have been presented excluding realized gains and losses on commodity derivative instruments and the comparative figures have been restated. These gains and losses are included in gains (losses) on derivatives and foreign currency translation of borrowings in the unaudited condensed interim consolidated financial statements. For purposes of determining margin per litre, gross profit has been adjusted to include realized gains and losses on commodity derivative instruments. See “Non-GAAP Financial Measures”.|
|[(2)]||The weighted average number of shares outstanding for the three and six months ended June 30, 2020 is 175.6 million and 175.3 million, respectively (three and six months ended June 30, 2019 –174.9 million). There were no dilutive instruments with respect to AOCF and AOCF before transaction and other costs per share for the three months and six months ended June 30, 2020 and 2019.|
|[(3)]||EBITDA from operations, Adjusted EBITDA and AOCF are non-GAAP measures. Refer to “Non-GAAP Financial Measures” for further details and the First Quarter Management Discussion & Analysis (“MD&A”) for reconciliations.|
|[(4)]||Transaction and other costs for the three and six months ended June 30, 2020 and 2019 are related to acquisition activity and the integration of acquisitions. See “Transaction and Other Costs” for further details.|
|Three Months Ended||Six Months Ended|
|June 30||June 30|
|(millions of dollars)||2020||2019||2020||2019|
|EBITDA from operations [(1)]|
|Canadian Propane Distribution||21.2||20.0||107.8||104.3|
|U.S. Propane Distribution||27.1||12.8||130.5||138.2|
|[(1)]||See “Non-GAAP Financial Measures”.|
On July 13, 2020, Superior announced the issuance of 260,000 perpetual exchangeable preferred shares (the “Preferred Shares”) in its wholly owned subsidiary Superior Plus US Holdings Inc. for gross proceeds of US$260 million (the “Brookfield Investment”) to an affiliate of Brookfield Asset Management Inc. (“Brookfield”), on a private placement basis. The Preferred Shares entitle the holders to a monthly dividend at a current rate of 7.25% per annum through to the end of Superior’s second fiscal quarter in 2027, and may be exchanged, at Brookfield’s option, into common shares of Superior at an exchange price of US $8.67 per common share. On an as-exchanged basis, the Brookfield Investment currently represents approximately 15% of the pro forma fully diluted outstanding common shares.
Superior used the proceeds of the Brookfield Investment to immediately reduce the credit facility debt, and expects to use the available liquidity to accelerate its retail propane distribution asset acquisition strategy with a primary focus in the U.S. Pro forma the Brookfield Investment, Superior’s Total Debt to Adjusted EBITDA leverage ratio was 3.0x based on the trailing twelve months ended June 30, 2020.
Dividend Reinvestment Program
Superior reinstated its Dividend Reinvestment Program (the “DRIP”) with the February 2020 dividend paid on March 13, 2020. On June 15, 2020, after the Brookfield Investment announcement, Superior suspended the DRIP. Superior’s DRIP program will remain in place should Superior elect to reactivate the DRIP, subject to regulatory approval, at a future date.
Business Development and Acquisition Update
On August 3, 2020, Superior acquired the propane distribution assets of an independent propane distributor in Maine for total consideration of US $27.3 million (CDN $36.5 million). The purchase price was paid primarily with cash from Superior’s credit facility, as well as deferred payments.
Debt Management and Leverage Update
Superior remains focused on managing both its debt and its leverage ratio. Superior’s Total Debt to Adjusted EBITDA leverage ratio for the trailing twelve months ended June 30, 2020 was 3.7x, consistent with the leverage ratio at December 31, 2019.
Superior’s Total Debt as at June 30, 2020, was $1,881.7 million, a decrease of $74.4 million from December 31, 2019 primarily due to cash generated from operations used to repay debt, partially offset by the impact of the weaker Canadian dollar on U.S. denominated debt, the acquisition of Western Propane completed in January 2020 and new leases.
Superior is well within its covenants under its credit facility agreement and unsecured note indentures. Superior’s Senior Debt to Credit Facility EBITDA ratio was 3.6x as at June 30, 2020, and cannot exceed 5.0x. Superior also had available liquidity of $357.8 million available under the credit facility as at June 30, 2020. Pro forma the Brookfield Investment, Superior has less than $100 million drawn on the credit facility and over $650 million in capacity.
MD&A and Financial Statements
Superior’s MD&A, the unaudited Interim Consolidated Financial Statements and the Notes to the Interim Consolidated Financial Statements for the three and six months ended June 30, 2020 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 .
2020 Second Quarter Conference Call
Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the Second Quarter Results at 10:30 a.m. EDT on Thursday, August 13, 2020. 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 Financial Measures
Throughout the second quarter earnings release, Superior has used the following terms that are not defined by International Financial Reporting Standards (“Non-GAAP Financial Measures”), but are used by management to evaluate the performance of Superior and its business: AOCF before and after transaction and other costs, earnings before interest, taxes, depreciation and amortization (“EBITDA”) from operations, Adjusted Gross Profit, Adjusted EBITDA, Senior Debt, Credit Facility EBITDA and Senior Debt to Credit Facility EBITDA leverage ratio. 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 meanings 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 are 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 items may only be relevant in certain periods. See “Non-GAAP Financial Measures” in the MD&A for a discussion of Non-GAAP financial measures and certain reconciliations to GAAP financial measures.
The intent of Non-GAAP financial measures is to provide additional useful information to investors and analysts, and 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, EBITDA from operations, Adjusted EBITDA and Credit Facility EBITDA 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 and Adjusted Operating Cash Flow per Share
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 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 a 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. AOCF is reconciled to cash flow from operating activities. Please refer to the Financial Overview section of the MD&A for the reconciliation.
Adjusted Gross Profit
Adjusted gross profit represents revenue less cost of sales adjusted for realized gains and losses on commodity derivative instruments related to risk management. Management uses Adjusted Gross Profit to set margin targets and measure results. Unrealized gains and losses on commodity derivative instruments are excluded because of the accounting mis-match that exists as a result of the customer contract not being included in the determination of the fair value for this risk management activity.
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, losses (gains) on disposal of assets, finance expense, restructuring costs, 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 ability to service debt. Adjusted EBITDA is reconciled to net earnings before income taxes.
EBITDA from operations
EBITDA from operations is defined as Adjusted EBITDA excluding costs that are not considered representative of Superior’s underlying core operating performance, including gains and losses on foreign currency hedging contracts, corporate costs and transaction and other costs. Management uses EBITDA from operations to set targets for Superior (including annual guidance and variable compensation targets). EBITDA from operations is reconciled to net earnings before income taxes. Please refer to the Results of Operating Segments in the MD&A for the reconciliations.
Operating expenses include wages and benefits for employees, drivers, service and administrative labour, fleet maintenance and operating costs, freight and distribution expenses excluded from cost of sales, along with the costs associated with owning and maintaining land, buildings and equipment, such as rent, repairs and maintenance, environmental, utilities, insurance and property tax costs. Operating expenses exclude gains or losses on disposal of assets, depreciation and amortization and non-recurring expenses, such as transaction, restructuring and integration costs.
Operating expenses are defined as SD&A expenses adjusted for amortization and depreciation, gains or losses on disposal of assets, impairments and transaction, restructuring and other costs.
Non-GAAP Financial Measures Used for bank covenant purposes
Senior Debt includes total borrowing before deferred financing fees and vehicle lease obligations, and excludes the remaining lease obligations. Senior Debt is used by Superior to calculate its debt covenants and other credit information.
Credit Facility EBITDA
Credit Facility EBITDA is defined as Adjusted EBITDA calculated on a 12-month trailing basis giving pro forma effect to acquisitions and dispositions adjusted to the first day of the calculation period, and excludes the impact from the adoption of IFRS 16 and EBITDA from undesignated subsidiaries. Credit Facility EBITDA is used by Superior to calculate its debt covenants and other credit information. Please refer to Non-GAAP Financial Measures in the MD&A for the reconciliation.
Credit Facility leverage ratio
Credit Facility leverage ratio is defined as Senior Debt divided by Credit Facility EBITDA. Senior Debt to Credit Facility EBITDA is used by Superior for calculation of bank covenants and other credit information.
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 Adjusted EBITDA, the duration and anticipated impact of the COVID-19 pandemic and the expected economic recession, estimates of the impact COVID-19 may have on our operations, the markets for our products and our financial results, expected Total Debt to Adjusted EBITDA ratio, anticipated impact from the weaker Canadian dollar, business strategy and objectives, development plans and programs, organic growth, weather, economic activity in Western Canada, product pricing and sourcing, caustic soda and hydrochloric acid markets, caustic potash customer mix, volumes and pricing, wholesale propane market fundamentals, electricity costs, exchange rates, expected synergies from the acquisition of NGL and other acquisitions, improvements and the timing associated in North American chlor-alkali markets, expected seasonality of demand, and future economic conditions.
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, expected life of facilities and statements regarding net working capital and capital expenditure requirements of Superior or Superior LP, the assumptions set forth under the “Financial Outlook” sections of our MD&A. The forward looking information is also 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, the anticipated impact of the COVID-19 pandemic and the expected economic recession, 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 .
View source version on businesswire.com: https://www.businesswire.com/news/home/20200812005730/en/
SOURCE: Superior Plus
Vice President and Chief Financial Officer
Phone: (416) 340-6015 Rob Dorran Vice President, Investor Relations and Treasurer
Phone: (416) 340-6003
Toll Free: 1-866-490-PLUS (7587)
Is there a problem with this press release? Contact the source provider Comtex at firstname.lastname@example.org. You can also contact MarketWatch Customer Service via our Customer Center.
Copyright Business Wire 2020