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Rogers Sugar releases Q1 2020 results

Feb 11, 2020 (MarketLine via COMTEX) --

Rogers Sugar has reported its first quarter fiscal 2020 results.

The Company recorded adjusted EBITDA of $30.2 million for the first quarter of fiscal 2020, in line with the comparable period last year.

“During the first quarter the business completed a detailed supply chain plan, which will deliver our domestic customers all of their sugar needs, despite having harvested half of our expected volume in Taber.” said John Holliday, President and Chief Executive Officer of Rogers and Lantic Inc. “Having gone through the exercise, we are confident in our ability to produce the expected sales volume, while minimizing the financial impact from a smaller crop and having some contingency plans for unexpected events.  For the Maple products segment, we have achieved meaningful gains in plant efficiencies, and, with the addition of some planned overtime, we were able to increase production levels.  The footprint optimization project, when completed in the second quarter, will provide further improvement and support our long-term vision to be a low cost, high quality, customer focused business.”

First Quarter Highlights

Total sugar volume was in line with the prior yearOverall Adjusted EBITDA (1) was comparable to the prior year whereby the increase in the Sugar segment was offset by the Maple products segmentProgress continued on the maple segment footprint optimization project during the quarter with the installation and commissioning of the new bottling line at the new Granby location.   The project is expected to be completed by the end of the second quarter and to generate significant long-term benefits through improved efficiency and lower operating costs.  In addition, production backlog was reduced through improved productivity and temporarily increasing headcount and overtime at the Degelis and Granby locations which increased operating costs in the current periodFree cash flow for the trailing twelve months ending December 28, 2019 was $11.4 million lower than the previous year mainly explained by a decrease in adjusted EBITDA , an increase in capital and intangible spending, net of operational excellence capital, higher payments for capital leases and income taxes, somewhat offset by a reduction in interest paid, in repurchase and cancellation of shares and pension plan contributionRogers remains committed to adding value for shareholders and returned $10.5 million to shareholders during the quarter, of which $9.4 million was through dividends and $1.1 million was through share repurchases.  Subsequent to quarter end, an additional $4.2 million was used towards share purchasesOn February 11, 2020, the Board of Directors declared a quarterly dividend of $0.09.Sugar

Our sugar segment generated solid results due to an increase in adjusted gross margin driven by lower energy costs, and stable total sugar volume when compared to the first quarter of the previous fiscal year.

Industrial market segment volume decreased mostly due to non-recurring sales to a competitor that occurred in the first quarter last year and due to timing in certain large industrial accounts.

Total consumer volume increased for the current fiscal year due mainly to the additional volume negotiated with a National retail account for which additional shipments started in April of fiscal 2019.     

First quarter liquid market volume increased over the comparable quarter last year due mainly to additional volume from new and existing customers that were gained during fiscal 2019.    

Finally, as expected, first quarter export volume decreased for the current quarter when compared to last year due to negotiated delays in shipments to Mexico as we initiated our plans to manage the impact of the reduced factory output in Taber, resulting from the weather-related loss in sugar beet production.  The reduction of Mexico deliveries was slightly offset by an increase in deliveries of the Canada specific quota to the United States, due to timing.

Revenues increased in the first quarter of fiscal 2020 versus the comparable period last year due to higher weighted average raw sugar values in Canadian dollars, which is passed on to all domestic customers. 

Adjusted gross margin for the current quarter was $1.5 million higher or $8.21 per metric tonne higher than the comparable quarter in fiscal 2019, mainly explained by lower energy costs as no carbon tax was incurred in Taber during the current quarter compared to $1.51 per GJ paid last year.  The benefit from the additional consumer volume was offset by additional maintenance costs in Montreal, associated with timing of work and higher operating costs in Taber. An early frost damaged the sugar beet crop, which resulted in lower quality beets having to be processed.

Administration and selling expenses were $0.2 million higher for the current quarter versus last year, mainly due to additional employee benefits expenses.     

Distribution costs for the current fiscal year were $0.3 million higher than last year due to additional transfer costs.

Adjusted EBITDA for the first quarter increased by $1.7 million when compared to the same quarter of fiscal 2019, which is explained by higher adjusted gross margins of $1.9 million, adjusted to remove depreciation, somewhat offset by higher administration and selling expenses of $0.2 million, excluding depreciation and amortization expense, as explained above. 

The adoption of the new IFRS 16 Leases standard resulted in a $0.6 million increase in adjusted EBITDA for the current quarter.

Maple products

Adjusted gross margin for the current quarter was $2.0 million lower than the comparable period, representing a decrease of 3.6% in adjusted gross margin percentage.  This was not unexpected as it, in large part, stems from a reduction in gross margin percentage for certain customers since the second half of fiscal 2019 as a result of competitive pressures.  In addition, the Maple products segment incurred additional labour costs of $0.3 million in the current quarter due to additional personnel and overtime in order to temporarily increase production capacity until the completion of the operational footprint optimization, which is expected by the end of the second quarter of the current year.  Finally, depreciation expense increased by $0.3 million, mainly due to additional property, plant and equipment acquired as well as the start of the long-term lease of the new Granby location, which started on October 15, 2019. 

Administration and selling expenses were $0.2 million higher than the first quarter last year due mainly to an increase in employee benefits associated with additional personnel. 

condensed consolidated interim financial statements. As is permitted with this new standard, comparative information has not been restated and, therefore, may not be comparable.

Adjusted EBITDA for the first quarter of fiscal 2020 decreased by $1.7 million due to lower adjusted gross margins and an increase in administration and selling expenses, as explained above.

The adoption of the new IFRS 16 Leases standard did not have a material effect on the current quarter.

Outlook

Sugar

Market conditions remain positive for our sugar business and despite challenges in our manufacturing and supply chain plans as a result of the smaller crop in Taber, we continue to expect that the Sugar segment will exceed last fiscal year’s adjusted EBITDA.

As a result of severe adverse weather in late 2019, the beet harvest at Taber was terminated early, leading to lower than expected refined sugar volumes of approximately 65,000 metric tonnes, compared to previous expectations of 125,000 metric tonnes. As a result of the lower production volumes from Taber, the Company has optimized its supply chain to continue to service its customers. These changes mainly include the supply of cane sugar from the Vancouver and Montréal refineries, as both refineries have excess capacity to supply to the Company’s domestic market.  The Company will continue to mitigate the financial implication of a smaller sugar beet crop in Taber.

Given the smaller crop in Taber, export volume is expected to be approximately 15,000 metric tonnes lower than fiscal 2019.  The Company has a long-term relationship with its customer in Mexico and, as a result, we were able to reduce its shipments in fiscal 2020 and roll commitments into fiscal 2022 at no additional costs to the Company.  Shipments to the USA under the Canada-specific U.S. quota of 10,300 metric tonnes have been fully considered in our reconfigured supply chain and will be fully delivered in fiscal 2020.  At this point in time, the Company does not anticipate any additional volume under the Canada-United States-Mexico Agreement (“CUSMA”) for the current fiscal year despite the fact that it is anticipated to be ratified within the new few weeks.

The Company anticipates that the consumer segment should be approximately 10,000 metric tonnes higher than fiscal 2019.  Last fiscal year, the Company gained additional business with an existing consumer account which started in April 2019 and as such, will improve consumer volume in fiscal 2020. 

The Taber factory delivers a significant portion of its volume to liquid customers, which is still expected to occur in fiscal 2020.  Therefore, the Company’s liquid segment is expected to be comparable to fiscal 2019.

Finally, the industrial volume is expected to also be comparable to fiscal 2019.

Despite the challenges expected as a result of a small crop in Taber, the Company anticipates that the overall sales volume in fiscal 2020 should be approximately 735,000 metric tonnes, thus approximately 6,000 metric tonnes lower than fiscal 2019.  

Energy costs and carbon tax savings of approximately $2.5 million are expected in the first half of fiscal 2020 as a result of the temporary removal of the carbon tax in Alberta as well as the shorter slicing campaign. 

In light of the smaller crop in Taber, it is expected that total distribution costs will increase in fiscal 2020 as we reconfigure our supply chains. 

With the completion of the air emission project, capital spend for the Sugar segment is expected to return to a level of approximately $20.0 million, including a high proportion of return on investment capital expenditures. 

Maple products

The current quarter margins reflect the more competitive market conditions we are in today and as such, we don’t anticipate any short-term change in gross margins. In addition to defending our current market share, the Company will continue to invest in the business to lower operating cost and build new sales volume through the pursuit of new markets and value-added products.

Manufacturing throughput increased during the quarter with a combination of improved line efficiency in Degelis and planned overtime. The transition to the new manufacturing network is expected by the end of the second quarter, which is expected to reduce operating costs and increase the overall network capacity, as well as allow for growth.

The Company expects to spend approximately $8.0 million for its footprint optimization, slightly higher than anticipated, of which, approximately $4.7 million will be spent in fiscal 2020 to complete the Granby relocation.

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