Superior Plus' CEO Discusses Update on Hydrochloric Acid Expansion at Port Edwards, Wisconsin Facility - Conference Call (Transcript)

| About: Superior Plus (SUUIF)

Superior Plus Corp (OTC:SUUIF) Update on Hydrochloric Acid Expansion at Port Edwards, Wisconsin Facility Conference Call August 22, 2013 8:30 AM ET

Executives

Luc Desjardins - President and CEO

Wayne Bingham - EVP and CFO

Jay Bachman - VP of IR and Treasurer

Ross Wonnick - CLO

Analysts

Alexandra Syrnyk - BMO Nesbitt Burns

Benoit Laprade - Scotia Capital

Andrew McGee - Cormark Securities

Operator

Good morning ladies and gentlemen. Welcome to the Superior Plus Corp. Update on Hydrochloric Acid Expansion at Port Edwards, Wisconsin Facility conference call. I would now like to turn the meeting over to Mr. Luc Desjardins. Please go ahead, Mr. Desjardins.

Luc Desjardins

Good morning everyone and thank you for participating in the update call on such a short notice. The focus of this call would be to provide you with an update on the status of the Hydrochloric Acid Expansion project at our Port Edwards facility. With on the call is Wayne Bingham, Executive Vice-President and Chief Financial; Officer; Jay Bachman, VP Investor Relations and Treasurer; and Ross Wonnick our Chief Legal Officer.

As noted in our press release the hydrochloric acid burner which is specifically designed and built for the Port Edwards facility sustained significant damage during the final stage of loading and preparation of transportation to ERCO, Port Edwards, Wisconsin facility. Superior, in conjunction with suppliers and acid burners have completed initial assessment. But at this time, a final determination of whether the acid burner must be replaced or can be repaired has not yet been made because the acid burner is specific to the configuration of Port Edwards facility; it is not possible to swap acid burner to our Saskatoon facility all within the same supplier putting us ahead of the schedule.

The project part of this accident was on time, on budget, with commercial production expected in the first quarter 2014; in fact the project was proceeding slightly ahead of schedule. As a result of the accident, commercial production is now anticipated to be in the first quarter of 2015. The capital budget for this project of 18 million is not currently anticipated to be impacted.

The hydrochloric acid expansion is currently on the way at Saskatoon facility has not been impacted by this accident and continued to be on time and on budget. As a reminder the Saskatoon facility anticipate to be commercial production during the second half of 2014 at a total cost of $25 million.

ERCO was currently assessing all options with respect to expediting both the Port Edwards project as well as the Saskatoon project. Although we do not foresee any material changes to the timeline that I mentioned earlier, due to the complex nature of the ordering and installation of material associated with both projects.

As detailed in the press release I would like to confirm that Port Edwards expansion delay does not have any impact on the 2013 financial outlook of 160 to 185 per share, which was previously confirmed on our 2013 second quarter results. Additionally, our longer term financial outlook remained solid and consistent with the target we have established as part of destination 2015 project, as a result of this delay we now anticipate that our growth rate for 2014 will be in the range of 5% to 7%. But importantly, our growth rate for 2015 is now anticipated to be in the range of 9% to 12%.

The growth rates for 2014, 2015 previously communicated to the market were 7% to 10%. We anticipate providing detailed financial outlook for 2014 in November as part of our third quarter earnings release and as part of our annual investor day detail of both will be provided at a later date.

Before I turn the call over to any question and answer for the delay of the Port Edwards facility, I would like to provide a brief update of our business. As I discussed in quarter two earnings calls, the fundamentals with our business continued to be excellent, our energy business continued to benefit from weaker commodity price and it relates to customer demand and usage. The chemical business remained stable with a solid outlook for construction and a solid outlook for our construction business continued to see ongoing improvements as a result of the pickup of the U.S. construction business.

In addition to industry fundamentals, Superior is not relying on improvement to our end use market to drive growth and improvement. As we have discussed in the past, we have implemented a number of business initiative activity over the last 18 months as part of the business transformation project labeled Destination 2015. This project is designed to provide Superior with fundamentals of the mid to long term operational and financial improvements and all of those initiative each one of them is tracking very well, improving the business details month by month.

So in conclusion, although we're disappointed with the delay of the Port Edwards HCL project, I am happy to report that is simply a short-term setback shifting the initial benefit from the 2014 to the 2015 year. Our long-term objectives and plans are unchanged as a result of the delays; we remain on track with all of our other business initiatives and are more confident than ever in reaching the growth target we have set for ourselves as part of Destination 2015.

And with that I would now open up the call to any questions you may have.

Question-and-Answer Session

Operator

We will now take questions from the telephone lines. (Operator Instructions) The first question is from Alex Syrnyk of BMO Capital Markets. Please go ahead.

Alexandra Syrnyk - BMO Nesbitt Burns

Hi guys. Sorry to hear about this, it’s truly unfortunate. But just a question regarding Saskatoon and the ramp up there, do you expect to see any benefit or commercial production actually flow through into 2014 or is that going to be more weighted to 2015 when we really start to see the impact from that as well?

Luc Desjardins

No, I’ll ask Wayne to answer that part.

Wayne Bingham

Sure. Hi Alex, Saskatoon is a 2015 project obviously the ERCO folks are very skilled in terms of project management and we’re doing our best to accelerate that. But I think practically speaking it’s a 2015 in service and start up of the run rate.

Alexandra Syrnyk - BMO Nesbitt Burns

Okay, great. And then in regards to any update to this whether we’re going to see a repair or a rebuilt here and it may change the time line, I assume that will be communicated when you do get more information on that?

Luc Desjardins

Good question Alex but the reason we talked above the four years when we put that project in work originally it would have been 14 months in total and even if it’s repaired or rebuilt that there is differences like 36 to-date it’s not like half a year. So it’s not going to be major impact, maybe two months, max. So, that’s like they’re repairing and in three months we’re calling them say we’re back and it’s not going to happen. That’s why we said the full rebuilt is the time that we have and as that changed by a month or two if it’s repair maybe but that’s short.

Wayne Bingham

And Alex we’ll give a full update as Luc mentioned at our next quarter it’s where we are at, it’s very early days, very recent incident for us.

Alexandra Syrnyk - BMO Nesbitt Burns

Yeah. No, I understand. And then just lastly you mentioned that there is not a change or meaningful impact you’re seeing to the CapEx budget. Is there any expense item? Is there anything that we should be thinking about in relation to this?

Wayne Bingham

No, Alex, we’re very, very comfortable. I mean the ERCO team has a history of excellent project management, and so no additional cost at this stage.

Alexandra Syrnyk - BMO Nesbitt Burns

Okay, great. Thanks guys.

Operator

Thank you. (Operator Instructions) The next question is from Benoit Laprade of Scotia Bank. Please go ahead.

Benoit Laprade - Scotia Capital

Good morning, gentlemen. Two question, one, was any of that HCL production presold under contracts, I guess, say otherwise did you have any obligations to provide HCL to customers on their contract?

Luc Desjardins

We did have two good customers, so we knew our business was solid that’s why we never deviate from our project being good. And we do have two customers that we have business with. The largest one confirm to us after a discussion yesterday that guys you’re very good at it, no problem, let’s make some arrangement for 2014 as best we can and as business as usual and looking forward to 2015 extra demand, extra shipment from you. Already confirmed and with all positive sign. Wayne, do you have anything else?

Wayne Bingham

Yeah. The nature of the contracts are such, Benoit, that there is no liability issues there that we foresee, so no additional costs that come out of that.

Benoit Laprade - Scotia Capital

Okay, so you don’t have to buy product and resell to them at a potential loss?

Wayne Bingham

No.

Benoit Laprade - Scotia Capital

Good. And secondly, I guess, on the side, do you have or do you estimate you would have any recourse either against the burner manufacturer or would you have any business interruption insurance where you can draw something from?

Wayne Bingham

Well, we’ve notified our insurers and it’s very, very early days and we understand that the supplier has notified their insurers. So there is something called contingent business interruption. And we’ve reported the incidence to our insurers and they’re talking a look at it. So, obviously, in our guidance, we haven’t assumed any type of recovery but we do have insurance in place and we’ll explore that as we go forward.

Benoit Laprade - Scotia Capital

Great. Good luck.

Operator

Thank you. There are no further questions registered. Sorry, we do have a question from Andrew McGee from Cormark Securities. Please go ahead.

Andrew McGee - Cormark Securities

Hi guys. Just quick question on the guidance, you’ve lowered it in 2014 and raised in 2015, I just wanted to ask whether or not there is anything behind the 2015 numbers other than the HCL coming online from Port Edwards such as maybe some improved confidence in other division?

Luc Desjardins

No, good question Andrew. And the reason we changed that of course we knew this project would be delay but when we start to look at every business, every initiative, which we expect by the fall at quarter three or by the November to really give all of you bit more color and specificity on that. The each of them is tracking positively and we’re talking here about 20 initiatives type of business, each one of them is really improving on margin, somewhat improving on the efficiency, delivering on time, customer attrition, you can name them the 15 are positive and tracking. So when you do that, and have to set it many time, I know it’s not all what we do for livings, when that we pay today hour or two hours. We have a strong feeling and fact that “Wow, this is happening.” And when you’re going up a hill, it’s always the first 24 months that say you’re going up the hill and you’re improving staff and it’s hard because you’re moving up and you’re against the hill. But when you get to the top and when you start to roll back, it speeds and improvement happens fast, and for us we see 2015 coming down the hill, that’s our space.

Andrew McGee - Cormark Securities

Great, thanks a lot.

Wayne Bingham

I say that because you know that we have a treasure here, that’s a crazy (bicycle rider). But it is true, which is first two years it’s all about execution, hard work, focusing, making it happen and it’s tweaking and not at their rate that it should and once you’re past that, then you have to have running rates happening.

Operator

Thank you. There are no further questions registered on the telephone lines. I would like to return the meeting over to Mr. Desjardins.

Luc Desjardins

Okay, thank you very much. So in conclusion, although we are disappointed, of course with the delay of Port Edwards HCL project; I am happy to report that it is simply a short-term set back, the delay of 12 months shifting the initial benefit from 2014 to 2015. Our long-term objective and plans are unchanged as a result of the delay. We remain on track with all our other business initiative and are more confident and this has forced us to do a review again where we are at on each of those initiatives, and more confident than even in reaching the growth target we’ve set to ourselves as part of the destination 2015. With that I would now like to thank everyone to be on the call this morning and we will probably see you in the call for the quarter three results very soon. Thank you everyone.

Operator

Thank you Mr. Desjardins. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

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