Superior Plus' CEO Hosts 2013 Annual Investor Day Conference (Transcript)

| About: Superior Plus (SUUIF)

Superior Plus Corp. (OTC:SUUIF) 2013 Annual Investor Day Conference Call November 29, 2013 9:00 AM ET


Luc Desjardins – President and Chief Executive Officer

Greg L. McCamus – President-Energy Services and Superior Propane

Keith Wrisley – President-U.S. Refined Fuels

Dave Tims – President-Energy Supply and Oilfield

Paul S. Timmons – President-Specialty Chemicals

Paul J. Vanderberg – President-Construction Products Distribution

Wayne M. Bingham – Executive Vice-President and Chief Financial Officer

Jay Bachman – Vice-President-Investor Relations and Treasurer


Alexandra M. Syrnyk – BMO Capital Markets

Jacob Bout – CIBC World Markets, Inc.

Luc Desjardins

Right on time, everybody is already sitting down, 9 o’clock, very disciplined group. Welcome, good morning to Superior Annual Investor Day. I’d like also to welcome any of our listeners and I know there is many that are on the webcast. We’re very pleased to be able to provide our investor with a comprehensive update of Superior this morning. Since last year update much has happened to ensure the future and current success of our businesses and I remain more confident than ever on our future success of Superior.

In addition to me, there will be – speaker this morning will be Greg McCamus, Keith Wrisley and Dave Tims for the Superior Energy Services Group; Paul Timmons will speak on the Specialty Chemical and Paul Vanderberg will speak on the Construction Product Distribution Group. Wayne Bingham, Superior Chief Financial Officer will provide an overview of Superior financial position and the balance sheets. This is the team.

So much of this slide is a summary information, but I’d like to highlight just a few point. Superior has three distinct business segment which provide excellent end use and geographic diversification for shareholder. While the businesses are not designed to be complementary to each other, we believe the value of broad-based diversification, in evidence by the financial outlook of 2013 and 2014 which highlights the benefits of the diversification of our assets base.

Although diversification can be a positive, we do not rely on it to improve our overall financial results, instead Superior is and remain committed to improving our business by running them as efficiently as possible, so that each business can operate at the highest possible level of excellence. So work in progress.

As we will highlight throughout the presentation, we believe we have real and executable plans to improve each of our business. I joined Superior approximately two years ago. My goal since that time and the visions for Superior has been quite simple actually, in every business that we are operating want to become the best in North America in each of our individual business, and that’s a goal we can achieve, it will take few years, but we’ll get there.

We continue to work towards this goal and all aspect of our business, we will accomplish this by becoming more customer centric and what does that mean, to be customer centric is to understand customer by segment, have sales and people that connects them, understand each of the segment and this will allow us to find and differentiate ourselves in each of our segment, also ensuring also that we can price properly for the goods and services we offer in all of those different segments. We continue to invest in sales and marketing to ensure we are capitalizing on all of our market opportunities.

We continue to focus on improving the day-to-day efficiency of our business, as we become more efficient, we’ll improve productivity of management and employees, which will allow us to reduce our cost in a prudent way coming into 2014.

Evidence of our focus and efficiency is that our Energy Service and CPD business we are investing a new system especially the ADD IT system implementation, and for CPD their common ERP system platform in North America. In CPD business, as well as reviewing our day-to-day operating processes to which will allow us to streamline the way we do business and the way we access information.

A lot of rebuilding to do at many levels, I said that in the last two years and that’s why we announced that our project was no destination 2013 and half, it was destination to 2015, like to do everything in 12 months. But when you rebuild the business from the base, it takes about three years if you run, takes five years if you have too many mistakes.

Ultimately, our process improvement project will transition into a continuous improvement project everywhere in all of our businesses which will ensure we remain focused on running our business, as efficiently as possible into the future.

As you will hear throughout the presentations during – the 2013 has been many, we have taken action in large number of initiatives that will allow us to become a better company in the future. I think I’m on the wrong slide Angie.

We’ll stay on that one, just one more slide for me. Business today is increasingly competitive. In order to be successful over the medium and long-term it is imperative that Superior adopt a culture were everyone makes a difference; a culture of continuous improvement and best of class at execution.

Over the last two years, we have made significant strides in these areas and it continues to be a key focus for us. In fact during 2014, many of our management, supervisors and employees would be participating in the new training program to maximize each and good working day. I want to assure each of you that execution of our business initiatives is not something we take lightly. This is a top propriety across the entire organization.

Our core focus through 2013 and for 2014 remains unchanged. We are committed to executing on the initiative that underpin destination 2015. Each business will be providing you with a comprehensive review of their respective initiatives and I want to briefly comment on a couple of them. We’ve remained committed to improving our top line, profitable in a sustainable manner. We believed that with investment that we are making and we made a lot in 2013, in sales and then marketing and the difference businesses we had, we think it’s possible to achieve 2% internal growth more than any industry we are in and that a good margin by having professional approach to sales and marketing. And 2014 will be a year where we are in the better position to address our cost structure, without the work being done over the last two years, underlying process and ensuring we have the appropriate team in place which all starts there. And the system and place which we were not finished, we have another about six months and we are in the propane group, finalize our system restructuring. If you don’t have that in place it’s really very difficult to reduce costs and a matter that I view has been prudent, sustainable for the mid, long-term of the corporation.

So we are not in the slash and burn business, we could have had a better year if we did that. But what we are building is a block operation process organization, customer service. Three, four, five, seven years from now if that doesn’t go away. If you slash and burn you do it all in one year, you have a good two years, then you go down. We have seen many company doing that, many of you if you heard the Company do that be careful. You have two years.

To assist to our process work we have hired new professional in many senior positions. In late 2013 and during 2014 many of our managers and supervisors building this training accordingly. And this training will help ensure that employees are fully utilized and enhance their existing skill set, we would have good employees that know what to do. We need to help them having a proper organization updates of work.

This will improve our productivity and it will improve our customer service. Some of those key performance indicator we’re already seeing improving. We will continue to leverage our size across North America with respect to procurement, supply chain across the entire organization. We remain focused on debt reduction therefore large acquisition are not on our agenda this time. We will though consider small tuck-in acquisition. In fact this week 48 hours ago we closed a small acquisition in our U.S. refinery business, which Keith will speak to it shortly.

Tuck-in acquisition will be something we will continue to look at. If the price is right, we have tangible operating synergy and immediately accretive to the shareholder. We will do something bigger when we have less debt.

Overall, we see 2014 as a year of heavy lifting. With ongoing focus on improving our day-to-day operation the work we have done in 2013 that will continue to 2014 will provide us with a solid foundation for current and future operational and financial improvement.

With that, I will turn the presentation to Greg McCamus to discuss Superior Energy Service. And what we will do is there will be a question at the end of all the presentation, but we thought today we will have after each President presents, we will have a time out in case you have a have a specific question for each one of them. So we will do that as well. So Greg?

Greg L. McCamus

Thank you, Luc, and good morning. Great to be here once again. My annual sojourn to the basement of the caddy and it certainly brings back memories to see lots of familiar faces and some new ones. And I look forward to the opportunity really to update you on basically what we have been up to for the last year. And certainly our plans going forward as Luc mentioned. So my role really today is to I am going to give you a brief overview to remind those of you who may not be familiar.

And to remind those of you who are a bit familiar with what our Energy Services group is all about. But then I am going to talk more specifically about Superior propane and I have been intimately involved in here for the last 18 months. And then Keith Wrisley from our U.S. Refined Fuels business will give an update on our U.S business. And then David Tims will talk about our wholesale and supply in fixed energy business.

So with that let me just give a quick overview of Energy Services. Energy Services is comprised really of three distinct, but related businesses. Superior Propane as you know is Canada’s largest retailer of propane. And this business includes many small residential customers across the country and also a large commercial and industrial business from coast-to-coast. That business is being undergoing some pretty significant change over the last couple of years and I’ll review that in more detail in a few minutes.

Our U.S. Refined Fuels business, we go to market under the brand of Superior Plus Energy Services is a major provider of propane heating oil and motor fuels, diesel and gasoline through out the U.S. northeast. We build that business through acquisition in 2009 and 2010 primarily and some tuck-in subsequent to that and that represents a strong foot print for us in a very large market south to the border.

And then in our supply and portfolio management business, this year we've actually combined our wholesale in oilfield sales efforts with our fixed price energy services business and that’s providing us with an opportunity to focus on cross-selling energy to many of our large industrial and oilfield customers.

And we continue to grow the retail power business in the U.S. as the market there continues to be more conducive than the utility price environment here in Canada. So together, these businesses represent approximately 50% of the AOCF of Superior Plus and a very well positioned set of assets to support our future growth.

The Energy Services business is well diversified. This is one of things I want to highlight. If you look at the chart, a little over 57% of our gross profit is from the traditional Superior Propane business, well about 32% now comes from the U.S. and the rest is in our Wholesale and Supply Management business. But even within those businesses, there is some really important aspects of the diversification. As an example, in the U.S., we are more heavily a residentially heat load driven business. So more than 50% of the gross profit from that business comes from the small customer segment.

In Canada, we have a large commercial and industrial business, which is more dependent primarily on the economy and this well diversified in its own right which I’ll talk about. In the U.S. we also have a large commercial motor fuels in wholesale business, which is more consistent year around more ratable. And in our supply business, we tend to have opportunities when supply is tighter when its volatility which frankly offsets some of the risks could that create sometimes in our retail business.

So all in all, a good story on diversification within our energy services portfolio. There is some key fundamentals in our marketplace that are important to understand. While propane prices have run up a bit recently this year, we still see reduced pricing relative to crude compared to historical pricing. And this is really due to some of the dynamics in the border environment in terms of the drilling for liquids-rich gas. It thus resulted in an absolute reduction in propane pricing in the market.

With lower absolute pricing for propane, we see a number of benefits to our business. So for an example our residential customer that is buying propane is paying say in the $0.80 to $0.85 range for leader. Oil is certainly well over dollar. If you look at that relationship, a couple of years ago, propane, would have been more expensive than oil in well in access of a dollar a liter.

So this pricing trend is good for our business on a number of fronts. First of all customers are more likely that to use more volume when the pricing is lower, especially in our commercial businesses.

We’re also seeing an increase in customers converting from oil to propane and many commercial applications we’re seeing a pretty short-term return in conversions. And we’re running consumer promotions on both sides of the border to assist customers in transitioning from an old branded to a new high efficiency propane furnace and we’ve see many conversions in both of the businesses in U.S. and Canada. Pardon me. I’ve got a bit of this cold this morning around, so excuse my voice a little bit.

With relatively little propane pricing, customers do tend to walk in, so some of the benefits that we get in David’s business, on the supply side we’re able to transfer it to customers in terms of fixed price offerings, which is attractive. And another sector that’s been really important for us is the auto propane sector. That’s a business that had been in structural decline for a number of years and we’re starting to see growth in that business again. And that’s a result of really what I call depot-based delivery type companies, taxi companies, bus lines, businesses that – trucks on the road and come back into their yard where they can be refilled and we’re starting to see some good conversions in that business as well.

We have this year seen a bit of a slowdown in our oilfield volumes as a result of the slowdown in drilling earlier in the year, but we continue to see this market strengthening and expect it to be a steady contributor to our volumes as we move forward.

In the U.S. Northeast market we continue to see a structural decline in the heating oil business and that’s really been exacerbated by the pricing dynamics that I talked about a minute ago with lower gas and propane pricing. And as Keith will cover in a few minutes, our strategy to offset this decline is to continue to focus more on growing propane and growing in commercial fuels. I will make the point though that if you look at out entire gross profit in Energy Services, less than 10% of our gross profit really comes from the residential heating oil business in the U.S. So while we do have some vulnerability to it and we do focus on it, it is becoming a lesser and lesser part of our business.

Certainly the decline in heating oil is a drag on our current growth rate, but it also presents an opportunity for us. Heating oil is characterized in the U.S. market and in Canada by thousands of smaller regional players or local players and many of those do not have the ability to migrate a customer to propane nor do they have the range of services that we can offer. So there are really opportunities for us to convert their customers to our propane offers and we do have programs as I mentioned running in both of those markets.

While we certainly watch it closer, we do not see a significant threat from the expanding natural gas infrastructure. There is good lead time and visibility on these projects. They’re big projects. In many of the areas we serve we’ll not be cost effective to build new distribution infrastructure and Keith will talk a little further about some of the data around this in a few minutes.

So for many customers outside the gas footprint, their choice of energy suppliers restricted to propane, oil, electricity, wood or some of the green energy options like solar or geothermal and we expect that the economics of propane will fair favorably in the future and that oil will continue to decline. While the pace of this change is difficult to predict, we feel that this positions propane very well. I found this quite surprising and I mentioned this last year, but there are eight times the number of homes in Canada and a similar number is the U.S. Northeast that are fueled by oil as propane. And so we would expect as time goes on that to continue to convert and to continue to provide us with opportunities and a big market opportunities for conversions.

A medium-term opportunity for Energy Services continues to be consolidation in the U.S. Northeast market. We estimate there to be 4,000 to 5,000 small and medium-sized heating fuel companies in the U.S., at least in the U.S. Northeast markets that we’re in and these present a good opportunity for tuck-ins within our current footprint and also expansion to other continuous propane markets.

We established a strong presence in the U.S. and a track record in completing acquisition successfully. Over the last two to three years we’ve developed a very solid leadership team led by Keith and a broad and growing set of bundled services and products and a stronger and more focused sales organization that’s helping us to increase organic growth. So in short-term, we remain focused on paying down debt, that’s our top priority and we reduced our activity in the acquisition side. But as Luc mentioned and as Keith will get into some of the details on when we do see an attractive opportunity that’s accretive, we’re certainly prepared to move on and we’ve got an example of that this past week.

So I am now going to move to provide a more specific update on the various lines of business. So I am going to cover Superior Propane first and then the others will come up. I know many of you are familiar with the company, but I will also give a quick overview and then talk more about our strategic initiatives.

Superior Propane is Canada’s leading propane company and a well established brand in Canada for more than 60 years. We’ve got about 150,000 customers across the country. We deliver about 1.3 billion leaders a year and we have about 1,500 employees across the country. Safety is a very important component of what we do and we are a leader in the safety field in Canada, which makes us a very attractive partner, particularly for customers in those safety sensitive applications like large, commercial and industrial mining, oil field et cetera.

We hold a unique position in the Canadian market with a large distribution network across the country from Whitehorse to Saint John's Newfoundland. Roughly 50% of our workforce are locally deployed drivers and technicians who support our customer’s day to day needs. This depth of distribution gives us an advantage in terms of our ability to serve many large and complex customers across Canada with 155 distribution points and 46 local market operations that are managed by local PNL managers. This is a real advantage for us, for example with the national account segment.

Our customers vary widely from small local residential heating accounts to some of the largest oil field companies in Canada with millions of leaders in annual usage. Commercial applications range from agricultural, which we’ve seen a big push on this year with crop drying, forklift operations, production load for manufacturing, automotive as I mentioned earlier in many other applications. This variety of customers gives us good diversification and that we’re less dependent on weather and heating load than many propane companies. And each of these segments has their own unique dynamics and requirements.

If you look at our overall gross profit by line of business, the volumes and unit emergence actually vary widely between the many customers’ types, large industrial and oil field account served at much lower unit margins, but provide large volumes and consistent volumes. This chart breaks out our total gross profit contribution by line of business for our liquids margins.

The largest segment is industrial customers, which includes oil field and that makes up about 37%, just over a third of gross profit. Residential heating accounts represent – in the red, they represent about 20% of the contribution of the profit. Just as a note, the next biggest category which is commercial as we call it there, which is 26%, we’ve actually now served to split and split that really into small commercial and large commercial and if you look at small commercial and residential together, they operate very similarly, we’ve segmented that business and that represents in total about 30% of our annual contribution.

You can see that auto propane, agriculture and agent are meaningful contributors. Agent is someone that buys like a bulk, with tank on site and would fill smaller tanks, like think of a big box store or a gas station chain and that’s a significant contributor as well.

Up until 2013 we’ve seen declining contribution from small customers and growing volumes from larger accounts particularly in oil field and industrial. And as I’ll discuss shortly we’ve now reversed this decline in small accounts and are starting to see growth in both segments, in large accounts and small accounts, thanks to the investments that we’ve made in sales and marketing, segmentation and better all over execution and pricing across our business.

So it was just about a year ago that I had the opportunity to update you on our plans to improve the business and at that time I’ve been on board as Interim President for a few months and was just taken over as full time responsibility as President of Superior Propane. A lot has been accomplished in that last year and I will talk about that and there certainly is a lot more that remains to be done.

We’ve made some good strides in building our management team, I’m very proud of our progress there. This includes several new members of our senior leadership team. We added Susannah Robinson as Vice President of Residential and Small Commercial Sales and Marketing. Susannah is here and she has made great strides in the improvement and turnaround in that business. We’ve recently added Inder Minhas. He is also with us today as VP, Finance, and [Inaudible] as VP of Information System who is not with us today, but has joined us.

Our general management and front line leadership team has been revamped and we’ve added key resources in logistics and sales and marketing. Talent management is a huge part of our future and we put a lot of focus on it working closely with Julien Houle, who is here in the audience somewhere and is helping us with talent management and we’ve got lots more to do there but have made really good strides in the past year with the leadership team and the operational team in the field.

We have completed two out of the six region conversions on to the new ADD IT system and with some very promising results. This project frankly took much longer than we expected this year and when I stood here this time last year, we had an ambitious goal to convert all of our regions in 2013. We’ve got two out of six completed and we plan to do the remaining four as we get through the winter season. This was really delayed due to the incredibly complex nature of our current ERP data structure and but given the past issues with conversions that we’ve had and just the nature of that kind of beast we had to take the time to do this right.

Our conversion to the new technology including the new handheld devices for drivers and technicians and a totally new delivery and customer service system went very smoothly. We’ve had no material billing or customer issues and as I mentioned we’ve completed two of six, we just completed British Columbia, we did Atlantic Canada in September and we are now going to pause until March to complete the remaining four regains. The roll out has really validated ADD as the right solution for our business and I look forward to the completion of that project as we get into the first half of 2014.

We’ve also seen some great improvements in our sales results. As I told you last year, we segmented our business into small commercial and residential and the large commercial national and industrial segment we call it C&I. In the small commercial and residential segment we’ve seen a 20% year-over-year improvement in new customer sold and installed and we’ve also seen a reduction in customer attrition or customer losses as well.

In prior periods we’ve seen this business decline on a customer account basis at a rate of 10% customer loss per year. We’ve stabilized that and reduced that decline to about 2% this year and we see our way to stabilizing and starting to grow this business again. And while the customer accounts decline we’ve actually seen absolute growth in volumes and gross profit because we’ve been selling higher value customers and loosing the lower value customers. So a lot of work on cost to serve, pricing and strategy with those customers that Suzanne and team have been driving.

In the large C&I space, we’ve added sales resources and invested in national accounts team. It will take until next year for us to really see the impacts of the national accounts investment to kick-in, that’s a long sale cycle, but already this year, we have seen a 12% increase in the new business sold versus prior year. So we are seeing that traction and improvement.

We are also starting to see measurable improvements in our operational execution and our delivery efficiency even without the benefits of the ADD system just by operating more effectively and the implementation of our regionalized management team.

We have installed this year 6,000 tank sensors targeted at the most attractive and beneficial customers. To give you a sense of that, so these 6,000 sensors aren’t 6,000 individual customers, but delivery locations, some for multiple customers or multiple sensors for customers, those 6000 delivery locations make-up about 20% of our entire volume. So they are very attractive and very high usage locations.

For those accounts, if you looked at that business at the end of the third quarter last year, we would have delivered 50,000 times to those 6,000 locations. This year, we’ve delivered 32,000 deliveries. So we’ve seen a better than one-third reduction in the number of deliveries that reduces your truck fuel, reduces labor et cetera, so that’s a big impact.

We have also seen a huge improvement in our gas incidents, which is a real issue for customer dissatisfaction, obviously if you run the amount of fuel. So the ability to really see the actual volume in that tank in real time has created some great efficiencies for us. One of the things that we’ve talked about is improving our fill rate or the percentage that we fill a tank. On those specifically 6,000 locations, if you look at last year’s performance, we delivered on average a 35% fill, this year we are well over 50% with those deliveries. So another indication that, it’s not all of these sensors, but certainly putting sensors on the right customers has had a really good effect on our delivery improvements.

As a result of this plus some of the operational changes that we’ve made, our average fill rate for the entire customer base has increased from 40% in prior period to 46% this year and that’s an indication of the solid improvement we are seeing in operations and dispatching. We are also seeing continuous improvement in all of our other operational metrics from technician productivity to customer satisfaction.

One of the things that I am particularly proud of is the fact that our employee engagement scores are up dramatically year-over-year. We use an external company to do this work for us who does work for many, many companies across North America. We have a pretty good database on what engagement level should be, a really good engaged company should be in the 70%. When we did our survey two years ago, we were down in the mid-40s, which is quite low. We just got the early results and we’re up at the 60% range. So in one year, we made a pretty impressive improvement and they are telling us that’s almost unheard of to see that kind of improvement in one year. So we have seen some really good, I guess feedback from our employees about the progress that we are making across the business as well.

And now, I am going to talk about how we get the best-in-class and while we’ve made some good improvements and I am proud of the progress we have made in the last year. We have a very specific plan to get us the best-in-class performance. So I’d like to update you on our strategy to attain that by 2015. And our objectives are pretty simple; we need to return our business to consistent growth and to grow our gross profit, which is really the revenue that we charge for propane, less the cost of the propane by 2% annually and that’s a combination of primarily volume growth, but also margin management. And we need to leverage the investments we’ve made in the ADD system and other things that we are doing to employ rigorous continuous improvement technique to reduce our operating expense to 66% of our gross profit.

Attaining both these objectives will deliver the performance necessary to attain our Destination 2015 objectives, and underpinning all of this is a continued focus on talent management and the evolution of our customer centric culture.

To put operating expense ratio in perspective, in many industries and certainly some of the ones I’ve come from it’s more common to look at operating expense as a percentage of revenue. In our industry, revenue does tend to vary with commodity pricing, so it’s a little more difficult to drive those lines. So we really look at it from the standpoint of the operating expense to gross profit ratio.

To put this in perspective, our OpEx to gross profit ratio was in the 77% to 78% range in 2010 and 2011 and we succeeded in reducing that to 72.5% for 2013. We expect to get that ratio to 70% next year and to 66% by 2015.

Now I’ve looked at the large U.S. propane companies that are public, the MLPs as they call them. And looked at their performance over the last number of years and this ratio I will caution it does bounce around a little bit with weather variation from year-to-year, but if you look at it on an average that would get us to best in class performance to get to 66%.

So we are going to attain that benchmark by continuing to growth gross profit slightly as I mentioned but by implementing our cost improvements linked to the new systems and processes and better operating efficiency. And may be I will just move forward and talk about some of those things.

So as discussed briefly in our third quarter update we are implementing a restructuring process during the fourth quarter of this year and into 2014, designed to realize the efficiencies identified in our work over the last year.

In addition to the new tools and business processes identified in our ADD IT system implementation, we’ve also been working to develop a new management operating system across our company and we call this the superior way project. Over the previous few years the company is been reorganized several times and also purely implemented a poor IT infrastructure not a good combination. And the result is a business that has really adapted locally to working around the systems and has not developed a rigorous, consistent and repeatable process to manage the business. The Superior Way project is designed to develop and install this new management system consistently across the business.

We’ve been working within an internal team, supported by Alexander Proudfoot who is an expert in the field of process improvement and efficiency. This team is developing, piloting and then we’ll implement this management system across our business. And this will allow us to take full advantage of the new system tools and to streamline and improve our business processes from soups to nuts.

We expect this to deliver savings in terms of headcount in the range of 150 to 175 positions by the end of 2014 as a result of the improved field processes and efficiency. And this project has kicked off in the last couple of months and we will implement it over the course of 2014.

So key components of how we’re going to get to the ratio, ADD provides much more efficient delivery forecasting and management, a much simpler customer service interface, and real time and accurate billing. I just talked about the Superior Way program and we also expect to be able to improve our use of seasonal labor to become more flexible in our labor cost and to improve and simplify the tools that we use to manage our business.

We’ve also done some work and continue to assess the profitability of the products, customers and markets that we are in. We've already done some consolidation of locations and continue to look at more. We’d made a decision to exit the small customer HVAC service business and instead use partners to support appliance installation and service. We think this is a more successful and less costly way to manage that business.

We are also in the process of doing a deep dive on our cylinder business. The filling of small cylinders for use in forklift and construction heating applications, is a good business for us, but it is very labor-intensive and in the past we have not been very disciplined about which market we sell into. The result is we have some markets that are not providing a return which we will assess and exit or fix and we are also looking at automation of that business to improve the economics overall.

Procurement is also a key initiative for us. We have had distributed procurement or purchasing in the company and we are in the process of setting up a national supply chain management function. We're made some progress on this in the past year in our telecom and some of our other infrastructure costs, but there is a lot more yet to do and we have got a big effort and focus on doing that as we move forward. So all of these projects will allow us to improve our cost structure by $12 million over the next couple of years and will get us to our goal of improved operating cost by 2015.

The second strategic goals I mentioned is to ensure that we return the company to consistent growth and gross profit. Again, if you look at our history we have had several years of significant decline in gross profit as much as a 10% decline in 2010. We've turned the corner on this in 2012. However, if you decompose the growth that we saw in 2012, we actually still have declining volumes, but we got a real benefit of a catch up in pricing, those of you may recall we talked a lot about this last year, but we had a lot of commercial and industrial contracts that they have not been reviewed for inflation and freight cost adjustment in several years. So we had a big catch up in 2012 which led to a growth in gross profit, but again underlying that was still a decline in volumes.

As you look at 2013, we are actually tracking to a growth in the 3% of gross profit, which is driven largely by volume increase, a little bit of pricing improvement, but largely volume increase. And there is a bit of a weather effect there, there is no question, but if you decompose it for weather, we still are seeing sequential growth in both the segments that we are in.

We feel that given the traction that we're getting in improving sales and marketing and the customer experience benefits that we will get from some of the process and systems investments that we're getting that we can deliver consistently 2% year-over-year growth in gross profit in 2014 and 2015.

There are some key programs that we are counting on to deliver this growth and we're already seeing the benefits as I mentioned in many cases. We are focused on improving and increasing the size of our salesforce and channels in each area. In the large account business we have invested in national accounts this is a great opportunity for us. We have added to this team and we now have a team of five national account representatives across the country, last year we had one. So we put a big investment in our team.

It was built in 2013 and it will start to pay dividends in 2014 and beyond. We're also putting resources into some of the key growth segments like auto propane and some of the specialized and segmented marketing and support that goes along with that.

On the residential side in small commercial we have moved from being solely depended on inbound calls as a source of business to implementing new feet on the street sales teams that go out and build the business proactively and respond to larger inbound customer increases from full home heat customers and small commercial accounts. This is really modeled on the business model that we put in place in the U.S. business that has worked successfully for us and is driving the growth there. And as I said, we’ve been really wholly depended on a call center to be the source of inbound customers up until this change that we made. So Suzanne and team have really put a new focus on that business, a more proactive, aggressive sales team and that’s improving our close ratio and starting to get us out there, targeting the right customers, not responding to customers calling us.

Our pricing and margin management is also very essential in this business. We have to be competitively priced, but we also have to make sure we’re targeting the right accounts in the right delivery districts, with the right kind of usage patterns to make sure we maximize the gross profit we’re making in this business. This team has done a lot to align our pricing strategy with our cost served in order to be more strategic about how we’re pricing that market and that’s leading to some of the year-over-year improvements we’ve seen.

While we’ve been competitive on larger customers we’ve also been moving pricing up on some of the smaller, low flow residential customers where we need to improve returns and this has helped us to maintain and slightly grow margins in the segment.

In addition to new sales, we’re focused on reducing the loss of customers. While some of this will be a result of improved customer experience in the processes that we’re working on, we’ve actually built a proactive retention and move team to ensure that we’re top of moving accounts and customers at risk, customers that move are a major transition point for losing a customer and picking up a new one. So it’s a really important one for us. Efforts so far have improved the rate of customer attrition by 15% this year and we expect continued improvement as we look out to 2014 and beyond.

We’re also investing in the web and developing a new platform that will leverage search engine marketing and optimization to drive more searching customers to our site. We really believe we can lead the industry. We’ve got a strong brand and we also will have some additional new tools as part of the ADD investments that we’re making. ADD allows us to facilitate a series of customer interactions including ordering service online, viewing your bill, schedule and delivery and looking at other account information. So the impact of these efforts are growth in gross profit of, as I said, 2% or about $5 million per year annualized obviously assuming normalized weather.

So underpinning our strategic goals is a continuous improvement approach to talent and customer centricity. We’ve put a premium on upgrading the talent on the company and this is coming from within, but also by adding new skills from the outside and we continue to add strength to the Company in operations management and in logistics in particular.

Our frontline team has been key to our success and have frankly worked through some of the challenges to focus on the customer over the last few years and we will continue to focus on improving customer sat and by measuring and reporting on it consistently. We recently implemented a monthly customer net promoter score survey, which is designed to provide real-time performance feedback to us as a company, but also to the various specific regions and markets that we operate in.

We also continue to focus on employing engagement and I mentioned the strong improvements we’ve seen, but we’re certainly targeting to get our engagement score with employees about 70%. There’s obviously a high correlation between employee engagement and customer satisfaction and we need to continue to work on both.

So in summary, that really concludes my formal remarks. We have an operating expense initiative that is targeted to get our operating expense ratio to gross profit to 66% by 2015 that will result in improvement in operating expenses of $12 million over those two years. We’re also focused on growing our top line with a corresponding increase in gross profit of 2% per year. And that will contribute another $5million in improvements of the business on annual basis.

So with that I’d like to – I guess ask if there are any specific questions on Superior Propane before we move forward and talk about the U.S Refined Fuels business.

Question-and-Answer Session

Luc Desjardins

We’ll have questions at the end of course of all the presentation, but there might be one or two or three specific questions on the presentation, we will start. So anybody on the line?

Unidentified Analyst

[Question Inaudible]

Greg L. McCamus

I guess for those on the phone the question was about the variability of the OpEx to gross profit ratio. And yes, it will vary by quarter and yes, it will vary and here where we have really warm weather and cold weather. I am not going to give specific quarterly targets, but you will see it vary through the year. But you should be able to compare quarter-over-quarter prior periods to see the improvements in the business as we go forward.

Luc Desjardins

And it will take time during the year to make it happen. You remember we talked about our ADD system. We stopped, the reason is winter time one of service customer properly so we don’t go up. And we want to make sure customer is number one. And then when it comes to how the execution of the reduction which actually has some in every businesses, we want to make sure we do it in the proper way. And it will take parts of most of the 2014 to get to the real number. So we are really talking about 2015 achieving that number. But it’s going to be progressing as the year unfold. Yes.

Unidentified Analyst

Yes, the question I’ve got is, if the difference between heating oil and propane is so compelling. Why in your advertising your marketing campaigns you have to use boots in the ground so to speak. I would have thought that I would have gone to the press like that newspaper advertisements and television advertisements and maybe even lobbying in the Congress, because it sounds to be pretty compelling, to switch to propane from heating oil for the individual.

Greg L. McCamus

Yes and we have done some marking there is no question. What we are finding is that first of all, for consumers, it’s a – it’s still a big capital investment even though there is a good return on it. They do it does have a pay back associated. And we have seen some good take up, but we are certainly seeing that a lot of customers are waiting for that inflection point when they have a break down and they have a leak in their tank. And that is when they are choosing to make that change.

So we have run some test marketing campaigns – to be honest one of the challenges with moving quickly in that business is the capacity to install furnaces. And we don’t do that work. We do some of it ourselves, but most of it we outsource to third parties. One of our strategies is that we are really focused on is building out a more broader and more consistent network of partners that do insulation for us. And I think as we get that built we will be in a position to wrap it more aggressively finally.

Luc Desjardins

Very good point and started my career in consumer package goods and behavior change even though large excess – hey this is good let’s do that. Behavior changes so long. But we get it and maybe where we could present the case we will. And more in the future. Good question, thank you.

Greg L. McCamus

Got a question here.

Unidentified Analyst

When I look at the Slide 19 propane volumes drop in 2014 2015 in the OpEx. What could derail us especially considering what we’ve seen in 2013, I think the reduction in cost where we’re known as forthcoming, I think as we thought at the start of the year or even in 2012?

Luc Desjardins

Well, I don’t see things that are going to derail that. I think the reason that we didn’t see more cost reduction this year is it frankly took us longer than we expected to be able to do the system transition which is pretty key to improving our processes. And so the good news is we stood here last year and said we’re going to six regions and we hadn’t done one yet. Now we’ve done two and we have a good understanding of what it takes to do it.

So I’m very confident that we understand how to get there and that we’ll get those regions transitioned and that will gives us the leverage to be able to make the changes that we need make. We’ve done a lot of work to identify were those cost are coming in. We’ve got a year behind us to traction on it. And frankly, I would have seen it probably if we’ve done all of that. We would have seen a little bit of benefit this year but we always saw it as a 2014 and into 2015 improvement.

Greg L. McCamus

So very important, I think you might have missed that part in my presentation at the beginning. We know what we are doing. And we knew we could get the margin, the sales development quickly. Our teams get organized by segment, get going. We knew also looking deep in the company at every level that our employees 1,500 of them in this Canadian business are not well supervised to do a good propane work. We knew we had systems that were totally disorganizing the business for many past years which created that kind of negative situation for the corporation for those years.

And we also knew that, and that’s why I said we called it Destination 2015, and I accept my point to have done that many time in my career. You first reorganize the management team, almost brand new management team. Then you go into process and systems. We have the data, the information and you have an operating standard way of doing things, which we don’t have.

And then once you put those decent place you can operate better, then you start to reduce costs and I’ve seen and you guys have seen and here is a company that says, I slash and burn, I just saved $10 million, $20 million, $50 million and three years later the company goes valent, because they didn’t develop their processes, the system, the operating methodology to be solid and sustainable. Win the business for the mid and the long-term here and what we’re doing and every decision we made, we’re making it for the sustainability of the mid and long-term of the corporation. Could we have done better faster, and get more EBITDA last year.

Yes, sure, we would be a better company in 2017, no. So every decision is calculated to make it sustainable mid, long-term and investor that gets that are going to benefit over a period of time. Investor that say what you’ll do for me in this month? Hey, we are building the business. So said it many time in many discussion, it’s work in progress and Destination 2015 is not Destination 2014.

Unidentified Analyst

I had a question on the new residential customer adds.

Luc Desjardins


Unidentified Analyst

Just wondering how this gained momentum through the year, because I know the new initiative for you at the end of 2012 and is this specific region you saw this 20% increase or was it cross country and kind of what you live?

Luc Desjardins

Yes, well first of all it is pretty consistent across the country. We have a much bigger residential business in the East and in the West, so it’s a bigger component of our business here. It was really driven by frankly we didn’t have focus on it. So bringing in the right marketing and leadership, organizing the efforts, measuring our performance, providing them with the right tools and compensation and frankly we got that 20% lift really by focusing on improving our success on inbound increase and converting them and doing marketing to drive more people to inbound route.

What we are really seeing in the last probably three months is that we piloted it now. We’re rolling out more of a as I say feet on the street, rest it will actually go to knock on doors, we will go to the follow up on some of the larger inbound increase that come to us and that’s helping us to improve our close rate. When somebody looks at moving into a house and putting in a big heating complex, now they typically don’t want to just deal with the cost and they want someone to come and see where the tank is going to be sited and talk to them about their appliances and that gives us an opportunity to close the business not just respond to the business.

So Suzanne and her team have put the management oversight, the metrics, the measurements for the inbound side and now are starting to drive that external focus and so that’s how we got progress this year. It’s pretty consistent across the regions, but the bigger impact would be in the Ontario, Quebec and Atlantic markets where we have a big residential business.

Greg L. McCamus

Right, we’re going to move on because we’ve got lots of other business to talk about and we also have a question period at the end. So time wise I don’t want to lose most of you at 1 0’ clock and we said, we’ll finish by noon. It might be a bit late with those question by business, but I think those are the right question and we’re glad we decided to do this way. So we’re going to go to the U.S. with Keith. Keith?

Keith Wrisley

Good morning. My name is Keith Wrisley. I’m the President of the U.S. Refined Fuels business headquartered in Rochester, New York. I have been in position now for one year, so when I stood before you last year, I had just taken over the President of the U.S. Refined Fuels. I have been in the refined fuels business for over 25 years. Prior to coming to Superior, I served as the Manager of Retail Fuels for Sunoco which was one of the acquisitions. As you can see by the map on the right, the U.S. business is concentrated in the northeast U.S., as a result of three key acquisitions in 2009 and 2010. There are ample distribution points and terminals throughout the marketing area to service customers effectively.

In additional to company owned locations, the U.S. business distributes liquid products and propane through various throughout agreements with pipeline in Midstream terminal companies. The residential customer base is highly concentrated and the average distance from the distribution point to the customer location is within 65 kilometers, 40 mile radius which is quite different from the Canadian propane footprint which spans coast to coast, approximately 7,500 kilometers or 4,600 miles. 25% of the homes in the Northeast are heated with heating oil and only 4% of the homes with propane.

The focus for the U.S. operation has been to grow the propane business to offset the heating oil attrition and provide a full set of energy product offerings and services to our customers. In USRF, we strive to be first quartile in health and safety.

Even with the discovery of natural gas from the Marcellus shales area heating oil and propane continue to be a primary source of fuel in the Northeast due to limited infrastructure to supply natural gas to oil communities. While the graph was last updated by the EIA two years ago, this graph represents natural growth by sector. EIA data shows this trend is continuing as the pipeline growth to residential areas has been slow.

As is shown, residential usage has remained flat to degree days as electric generation use has grown substantial. Of the three major states that we operate in, Connecticut being at the far end of the pipelines has seen the least amount of residential natural gas growth and remains a strong heating oil market.

Natural gas growth in PA and New York has been about 1% and this includes the growth in metropolitan areas such as Philadelphia and New York City. Natural gas in suburbs and rural metro areas remains limited and most new home starts in the last 20 years in these markets have been predominantly propane. So while we are watching natural gas closely, we do not see a huge threat of displacement due to the natural gas expansion in the next few years in the markets we serve.

The lack of natural gas pipelines and the high density of rural customers are relying on portable fuels as USRF become uniquely competitive position in the market. The large U.S. propane companies are structured as Master Limited Partnerships or MLPs. This is a high payout capital structure with certain tax advantages, not unlike the Canadian income trust. The MLPs tend to focus on acquiring smaller propane players ratcheting up the prices and they live with a high level of attrition.

They’re also focused only on propane and do not have a broad set of product offerings. At the other end of the scale the smaller local companies tend to be small heating oil or propane-only companies and tend to sell on price with little attention to service and other offerings. These companies have limited resources.

U.S. refined fuels is positioned in the middle ground offering a wider set of products and services and a price point below the MLPs, but above the smaller local companies. As we continue to expand our propane and commercial offerings, our value adds to the consumers will allow us to increase margins while still maintaining a competitive advantage to the MLPs. In addition, we will drive ancillary revenue from HVAC and the electricity business.

Our goal of becoming the best-in-class company starts with an outside in-look at customer experience and providing the best customer service at the lowest cost to serve. We strive to be an energy solutions provider for our customers, not a distribution company. The use of customer feedback and net promoter score shows the company has a healthy organic growth platform.

As residential heating oil equipment becomes older and less efficient and the product cost on a BTU basis remains higher than other fuel sources, there is a shift away from heating oil for residential heat. With the separation of propane bases from crude stocks, propane provides an exceptional value for the portable fuels customers to move away from heating oil. Residential heating oil accounts for only 22% of the USRF annual gross profit. In 2013, a go-to-market strategy was developed to attract customers through multiple channels. Heating oil to propane conversations is one of these strategies.

USRF with this experience in oil to propane conversation is better equipped to handle the conversation process than its single product customers. Commercial distillates, gasoline and propane fuels growth in the small and medium size commercial sector provides better asset utilization during the non-heating months and more ratable earnings. We continue to grow this market segment at a steady rate.

USRF continues to focus on reducing our operating expenses growing the business through a professional sales organization making small tuck in acquisitions and improving our field leadership team. USRF continues to focus on reducing operating expenses growing the business. In addition in 2013 we will complete the consolidation of our customer service centers reducing the field management and administration by 30%.

In addition we completed the integration of the field offices on to the ADD Energy system in the ADD Energy point of delivery automated billing system.

Our professional sales team has increased our acquisition of propane customers significantly over the last two years. While the industry average for propane growth in the northeast is 1%, USRF is positioned to grow organically at 46% annually. 1% to 2% of this growth is expected to be a result of heating oil to propane conversions.

In 2013 we added Brian Miller as Commercial Sales Manager for our commercial sale team to round out our management team. On Wednesday, November 27, 2013, Superior Plus completed the acquisition of Townsend Energy Company of Le Roy, New York for approximately $11 million U.S.

The acquisition brings synergistic opportunities with our current New York operations. Townsend has approximately 10,000 residential customers which are primarily propane. In addition there is 40 million gallons of commercial distilling in gasoline and Townsend’s prior year EBITDA was $2.5 million approximately.

In November of 2012, USRF lost a long-term supply agreement with Sunoco that covered 75% of the petroleum supply. The contract ended due to the sale of the refining assets to PES, a joint partnership with an off tick agreement with JPMorgan Chase. This combined with the change in refining and distribution in the northeast precipitated a new supply procurement and forecasting strategy to be developed that focused on reducing working inventory in our terminals, exiting low volume third-party terminals and developing a new procurement relationship with our suppliers.

The process is ongoing and is expected to be fully implemented by the end of the first quarter 2014. We anticipate a $0.01 per liter decrease in the residential distillate cost of goods sold compared to the prior 12 months. This will provide an additional $2 million to $3 million of the EBITDA in 2014.

For 2014 we will continue to focus on improving our operational efficiencies and delivery through the use of onboard truck technology and a change to the driver compensation program. Our service optimization is focused on exiting poor performance sectors and better tracking of technicians through technology developments by ADP and Verizon.

Lastly, we are reviewing our process for the competitive procurement of goods and supplies to decrease our cost of G&A. The two areas we’re focused on, our digital marketing and telecommunications. These cost initiatives are expected to reduce expenses by $1 million and we expect to be completed with these initiatives by the end of Q1 2014.

The reduction in operating expense and increased gross profit, we've reduced our operating expense to gross profit ratio by 4% due to the mix of heating oil, commercial distillate and gasoline, which have lower profits per gallon. Our OpEx to gross profit is higher and will continue to be higher than Superior Propane.

Service continues to be a differentiator for USRF in the suburban and metro rural areas. Running this as efficient service business target and product offerings that provide value to our customers while returning the profit to the company is our primary goal. As we evaluated the service offering over the last year, we identified service offerings that are not core to our residential business and provide limit profits.

In other areas, we found people, processes and efficiency opportunities that will reduce our operating expense. We are completing the transition plan and are working with HVAC partners to outsource segments that are outside our core business. The outsourcing of these non-profitable segments with key HVAC partners will allow us to maintain the value add with our customers and will reduce our operating expense to gross profit for the HVAC service business from 95% operating expense to 80% operating expense.

Continuous improvement to be best-in-class is a core value of the U.S. Refined Fuels and we’re excited about the opportunities in 2014 to decrease our operating expenses and increase our gross profits.

At this time I will take any questions.

Luc Desjardins

Any question on the U.S. business? One here, Alex.

Alexandra M. Syrnyk – BMO Capital Markets

Thanks. Just on the tuck-in acquisition front. So this one was the Townsend Energy, one you recently completed. When you talk about the MLPs and it sounds like they will go after the same sort of businesses. Are you seeing that level as being quite competitive or are the MLPs targeting businesses that are bigger than for instance something like the Townsend?

Luc Desjardins

So I’ll start this one. Just for more clarity. In 2014, we hope to do a few like this, not so many because we like to get the debt to the three level that we promised in balance sheet, but the zone that we are in is kind of a good position in the States. We have the MLP all propane wants to buy large highest propane company that are for sale. We kind of forget some times the smaller one. And they don’t want to buy a company that’s mixed between commercial oil, industrial, little bit of propane, when it’s mixed, they don’t go there. And the one that are specific, independent owners, they don’t buy the independent family-owned company and they don’t go out to buy, acquire a lot of businesses.

So there is a zone in the middle that kind of fits where we are, we don’t want a lot of residential oil because that’s declining, but if it’s 50% propane and 50% other type of wholesale oil or commercial then the mix is kind of okay, you pay. What we pay here is 5.5 times EBITDA and we have synergy that I think a year will be 2.5 times with the synergy we have.

So if we could do from 2015 start to find those type of company and how the zone where, we don’t have acquisition from the big MLP because they do more propane plus. We don’t have competition from other oil company unless it’s a big scale so far, which we don’t want to buy anyway. And we are mixed as to be somewhat big in residential oil, then we will pass as well. This one was small in residential oil, perfect, good size of the propane and then other type of distribution of oil or diesel, which we’re comfortable with.

I think we have an opportunity in the zone that it doesn’t look like there is a lot of player and buyer in the zone that we are in. That covers it and Keith, is there anything else that comes to your mind though.

Keith Wrisley

The MLPs are focused strictly on propane because their MLP is structured to tie-in the commercial fuels of 40 million gallons or ton that we would have in the commercial piece. It doesn’t fit into their models.

Luc Desjardins

More to come in 2015 than 2016, we are excited to get there more acquisition one day.

Keith Wrisley

Any thing else on the U.S., okay, Dave Tims and then we’ll take the break and…

Dave Tims

Good morning everybody. I was certainly delighted that the weatherman cooperated this year for us and delivered some cold and snowy weather, it’s the sales and marketing guy that always bring joy to our hearts.

So last year at Investor Day I discussed how we realigned our wholesale supply marketing and oilfield businesses, so that we could bring additional products and services to our customers. I’m pleased to report that we’ve made good progress on that initiative.

Just by way of background our supply portfolio management business operates in Calgary under the name of Superior Gas Liquids and provides Superior propane with excellence in wholesale supply procurement, risk management, rail and truck transportation logistics. We have a team of over 25 professionals all experienced in the various aspects of the natural gas liquids business.

During 2013, we continued to work closely with Superior Propane to expand their fixed capped and call it price offerings to customers. This region specific price protection that we provide differentiates our propane supply from smaller competitors that don’t have the sophistication to provide these kinds of pricing alternatives.

For larger industrial customers the ability to more effectively manage their energy price risk is a true value added service.

In addition to providing supply services for our internal business units, we also undertake third-party wholesale marketing efforts. Third-party marketing accounts are about one third of all our activity and has grown considerably over the past 18 months. These activities are complementary to our Energy Services business, and that most of our sales occur in geographic regions where superior propane or our U.S. Refined Fuels businesses do not have an active presence.

For example, we were chatting earlier with some of the folks about how actively we have been in the U.S. Midwest during a great crop drying season this year. This increased marketing activity ensures that we maintain high utilization rates on our contract rail and storage assets and while it contributes to our overall profitability and more importantly provides us with real-time supply dynamics, market insight, all of which benefit our own internal supply requirements.

As you can see, our overall strategy for the supply portfolio group is very straightforward. Firstly, it is customer focused. We do this by integrating our supply and oilfield sales teams, with that we have combined our efforts to provide oil and gas producers with integrated product offerings. Our customers are responding favorably to secure a reliable performance, clear pricing alternatives, technical expertise, and industry-leading safety programs.

One of our overarching superior key initiatives that Luc has discussed is a process of continuous improvement. During 2013 Superior Gas Liquids appointed a Commercial Manager to review all of our corporate Superior Plus assets and develop a strategy to incorporate several key ERCO Superior Propane and USRF fuel plant in deeper locations as part of our wholesale platform. These locations have put us into new wholesale commodity business opportunities in propane, butane and condensate in Fort Nelson BC, Grande Prairie, Alberta and just down the road in Stevensville, Ontario. We are optimistic that there is additional growth opportunities in number of these markets that will provide us with additional marketing and procurement benefits.

I use this snap every year and it’s really a graphical representation of our wholesale supply market footprint. It illustrates our key supply regions, which is centered in the Edmonton-Fort Saskatchewan area as well as eastern [Inaudible] Ontario which is a key supply point as you know for Eastern Canada and Upstate New York. Last year I discussed how we added North Dakota Bakken supply as part of our portfolio and that's where we have been able to secure cost advantage propane into our Manitoba and northern Ontario requirements.

At Investor Day last year I discussed how Washington State market prices become more active, and tend to counter seasonality to the BC market and how that provide us with opportunities to move Canadian propane into that market throughout the winter. Well, this year we're seeing exactly the opposite situation, where U.S. supply fits into Canadian pricing all year long. This highlights why we need to remain flexible on our supply contracting, what works one year is guaranteed not to work the next. So we do this by keeping our supply chain to generally to one year or less and we try to stay as nimble and flexible as we can in order to respond quickly to changes in the North American supply dynamics.

Another of our key strategic initiatives was initiated by our Group, is one of the continuous effort to maximize our purchasing power in the North American propane markets. Similar to what Keith has undertaken in his supply portfolio last year we engaged outside industry experts to come into our office and review all elements of our procurement process. They had some excellent concrete refinements that we have applied to this current 2013 supply year, which we believe allowed us to optimize our supplier relationships to gain an advantage over smaller propane buyers in the market.

We have done this through reworking of our supply contracts to increase the levels of discount supplied to flat rate deals and these are deals where I am talking about the ability to move gas from gas plants for example, on a daily basis whether it’s summer or winter.

Through greatly reenergizing of Superior propane sales activity to the expanded effort to grow our wholesale business to the shrinking of our oilfields sales teams, these efforts have all reduced our dependence on expensive winter peaking supply and allowed us to take advantage of higher discounts on flat annual volume supply contracts.

We have realized procurement benefits of approximately $6 million in 2013 compared to prior year and expect some incremental improvements in 2014. Our supply portfolio team did an excellent job in moving the needle on behalf of Superior Plus.

Lastly, I’d like to touch on our fixed price energy services business. Those of you who follow the natural gas and power business are aware of the significant headwinds that this industry faces. Due to structural changes in the market and pricing value utilities, we are seeing a decline in Canadian natural gas customers while at the same time, some modest increases in Canadian and U.S. commercial power customers.

The low natural gas environment continues to create challenging market conditions where we currently do not have a compelling value proposition in Ontario for that retail customer base. This is an industry-wide challenge and not something you need to Superior.

However, we continue to unwind our legacy residential natural gas customers. We stepped up our commercial natural gas and power marketing efforts in all of our jurisdictions, particularly in Quebec and New York State and have hired experienced sales and marketing management into the business and we continue to look for opportunities.

So that end, we recently ended the Alberta power market at the request of one of our large commercial customers that we serve in Ontario and we see opportunities to support our oilfield and industrial groups with this power product offering.

So overall, we remain cautiously optimistic about this business and we certainly see great optionality in the platform that we built if market conditions were to change.

So in conclusion, we have some exciting opportunities ahead of us in the supply and marketing business. The Superior Gas Liquids team is excited to be challenged by look to grow our wholesale business both geographically and from a customer business and our key will be to remain nimble in an ever changing North American supply dynamic to ensure you that we keep Superior on the leading-edge of the supply curve.

On that maybe pass back to Greg for some summary remarks on Energy Services and we can catch any questions at that point in time.

Greg L. McCamus

Thanks Dave. So I will just wrap up quickly. Just to summarize what you have heard this morning, we have got three really big initiatives, if I summarize within Canadian propane, obviously our expense improvement initiative, which is really driven by the completion of the ADD IT system and also going to leverage this new Superior Way project to fix our processes and the goal is to end 2016 with an operating ratio of 66% and that will result in about $12 million improvement over 2014 and 2015.

Secondarily, we continue to focus on growing our gross profit 2% per year target which is $5 million per year improvement. And then we got a series of things going on in our U.S. refined fuels initiatives, the supply strategy, the strategic supply agreement, $2 million to $3 million improvements in 2014, continuous improvement in operations, which is another $5 million over 2014 and 2015 and then a reorganization of our service function to be more efficient, which is $1.5 million impact in 2014.

So lot of work underway there, certainly underpinned by some great work by Dave and his team on supply chain management side and if I kind of had to wrap up with a bit of a summary of what that means, we believe we’ve got a very strong brand and leading positions in end-use markets in the geographies that we’re in. We are very really focused on improving our customer culture and being more customer centric as an organization across the piece.

We’ve really tried to put a new face on sales and marketing in this industry. We put a lot of focus on the ability to grow the segmentation of those customers and putting the right marketing programs in place to attract new business and to manage the existing relationships that we have got across our business. And we’re continuing to focus across the organization on improving efficiency and productivity except the comment earlier that it never happens as fast as you like it, but I assume – I assure you that we’ve got a lot of momentum going on those initiatives and that we will expect to see those improvements over the course of 2014 and certainly for the year 2015 as these initiatives begin to produce results. So with that, I’m going to wrap up. And are we going to breakdown? We’ll go to questions.

Luc Desjardins

I think what we’ll do is not to miss Dave. Maybe Dave, you can come back on the front, just in case there are some specific questions on the wholesale. We didn’t have a question for Dave and I know many of you are in energy industry. This is an expert. So any specific question for Dave? Dave, maybe you can sit so we can hear you.

Unidentified Analyst

I’ve got a question. I know you had account about third party marketing. Can you just maybe outline how much risk you are taking there? And I’m thinking of commodity type risk and how you handle that.

Dave Tims

Yes, that’s a great question. The majority of the business that we facilitate from a third party are also perspective, really relates more to our logistics capability than it does to any kind of position taking. So we lock in most of our supplier requirements, majority of our supplier requirements prior to the start of the gas here in April, which is our propane supply here.

In terms of our Energy Services marketing related to the wholesale side that’s really just incremental volume, which helps us build some of our discounts associated with our supply contract and majority of business that we are servicing there tends to be cost advantaged as a result of moving product by rail. For example, we got a large rail fleet, both contracted and supply rail cars. So the majority of that business would be reflective of volumes in rail, for example, and taking advantage of our…

Luc Desjardins

But we do not take the risk. So the customer wants propane, buys it from us and would build them immediately and we don’t take the risk between…

Dave Tims

It all tends to be spot-related prices.

Luc Desjardins

Yes. It goes directly to the customer that wants to buy or wholesale from us, which is good business because no risk and we make a little bit and we are going to do more of it, because that’s why not. We have the talent, we have the infrastructure and they’re going to get propane anyway somewhere, somehow and we can help and we can make a few dollars in between, do more of that.

Dave Tims

And any stores we would contract is going to be fully hedged and then also would be used to serve our superior propane requirements. So I’m sure there are customers who have access to supply.

Okay, so why don't we take a 10 minutes break. I know you are disciplined group, so we will bring it down from 15 to 10. Thank you.

Paul S. Timmons

When I follow Dave, I’d always have to adjust the microphone down. Good morning, everybody and welcome. It’s absolutely shocking that a whole year has gone by since I stood here and spoke to everybody before. It’s unbelievable, but it’s great to see everybody today. And I do appreciate the opportunity once again to update you on ERCO’s business. And two of my colleagues are with me today as well, you’d probably remember from the past, Ed Bechberger our Senior Vice President of Operations is over there. And hiding behind Ed is John Engelen, Vice President of Business Development.

So we will just continue on and see if I can figure this out first. Okay. I’m going to apologize for those that know the company well. I’m going to go over some ground that we’ve done many times in the past, but there are also lot of new faces. So I think it’s appropriate to just touch on few of the highlights. We’re a manufacturer of specialty chemicals, sodium chlorate and four chloralkali products. And in addition to that we are kind of unique in the chemical industry. We’re also supplier of technologies and engineering and technical services, which supports a lot of these businesses.

We recently announced the addition of Tronox business, chlorate business to our supplier portfolio, and I’ll talk about that a little bit more detail later on. But that effectively makes ERCO the largest supplier of sodium chlorate in North America.

And this is a significant change from what I presented last year. So it’s worthwhile having a little bit of discussion about it little bit later and I suspect there will be one or two questions on that as well.

In the chloralkali, we are actually quite a small player compared to the Dows and the OXYs of the world, but we are unique and that we’re number three in terms of size of the alkali KOH or caustic potash. And what makes us unique in that world is our geographical position.

We’re also the largest producer of sodium chlorate in the world and that’s an interesting business which has small and steady growth. And I’ll touch on each of these in a little bit more detail as I go forward.

So with reference to sodium chlorate we have the capacity to manufacture in seven locations in North and South America and exclusive rights to all of Tronox manufactured product in Hamilton, Mississippi, and that’s notionally 130,000 metric tons. The amount that we will choose to nominate in that plan can be adjusted annually and that will be done in a timely manner near the end of each year as we see how the market is adjusting the changing. This gives us a great deal of flexibility in terms of sourcing the product both from an electricity supply and optimization perspective as well as from freight optimization point of view because freight after electricity the second largest part of the cost of delivering sodium chlorate to our customers.

Our chloralkali capacity is favorably located in niche markets in the Prairies in Midwest U.S. and this gives us significant opportunities well in terms of freight, opportunity and advantage. The main reason there is that most chloralkali products are sold heavily diluted in water. So moving those products around with so much water is something that gives us an advantage to reduce cost of moving product around.

Our KOH capacity, as I mentioned, is the third largest in North America and with the addition of the two asset burners when we get that running will be the fifth largest purpose built asset producer in North America.

In addition to the production facilities that I mentioned, we also have sales offices in Tianjin, China and Tokyo, Japan, which helps us significantly with our export portfolio in our engineering technology supply. I’ve touched on this many years in the past, significantly diversified both in terms of geography and product mix.

So turning to each of these businesses in a little bit more detail, first of all with sodium chlorate. As I mentioned, we are now the largest supplier of sodium chlorate in North America and when you look at the overall world propane business, I will slide a little bit later on that shows the pulp business and paper business related products, tissue and so forth continue to grow at around 2% annually year-over-year around the world. And that’s important to us because a significant part of our business is in the export market. And there is really two components, well, there are really a lot of components on the pulp business, but two significant components, one is softwood pulp and the other is hardwood pulp.

Softwood pulp, the fundamentals of that remain quite strong worldwide, also in North America. And in recent days, recent months continue to see the fundamentals of that support price increases. The opposite dynamic is true on the hardwood side and what’s interesting in both of those is that there is really no new softwood capacity being announced worldwide, so we do expect that that business will remain quite robust as we go forward and what’s also of interest is the fact that with the addition of the Tronox portfolio to the ERCO mix, we significantly reduced our exposure on hardwood and significantly increased our exposure on softwood and softwood related products such as soft pulp and bleach pulp and so forth.

As we continue to position our customer portfolio in the future, we expect that realized pricing in 2014 will be probably flat and as we go forward thus compared to 2013 and as we go forward, we would expect that with the current market dynamics and the ability at 34% of the market share we should be in a position to see that we can match supply and demand fundamentals to ensure that we maintain reasonable profit margins in this product.

Electricity is a major component of our caustic sodium chlorite, if you follow as I mentioned earlier about freight cost and low natural gas prices in the southern U.S. have really depressed the electricity cost and prices in that region of the country.

In some of the Canadian jurisdictions we see an average of about 4% price increase on power cost going forward and I expect that the overall supply-demand dynamics beginning in 2015 will allow us to see fuel cost recovery of the oil and future price increases on power or in freight and so forth.

Talking a little bit more about this particular arrangement. This operating facility has the capacity to supply upto 130,000 metric tonnes per year and our contract with them is for initial term of three years for exclusive rights to our [Inaudible]. This facility is close to North American pulp and paper markets and having this facility strategically located as it is allows us increased flexibility in terms of optimizing sales to take advantage of mixes in electricity pricing and freight advantages. We have entered into this agreement and as I said earlier it improves our exposure and portfolio which is related to softwood and hardwood pulping.

It is very positive for our business and I see this going forward as what happened with the [Inaudible] acquisition in the earlier part of this decade where once that was absorbed over the first 12 months to 18 months. We enjoyed relative stability in the overall market dynamics for several years going forward. And I would say once next 12 months to 18 months settles out we will see similar stability in our chlorite market dynamics.

This opportunity we will be fully paid off in one year. So that is a significant advantage to us and the other thing that I’d mentioned is that it also attaches to it but it’s not immediately apparent. Significant parts of impact for our chloralkali business, because we will be supplying chlorine to that Tronox facility in Hamilton as part of the contract.

Our analysis of the future five demand fundamentals for the pulp market is present in this slide. The basis of this comes from changes in what we see in printing and writing paper, boxboard, tissue. And a lot of the demand growth is coming from a emerging market areas China, India and so forth. The supply side on this comes from published information and changes announced around pulp mills operating, shutting down, coming online, whatever it might happen to be, restarts and capacity debottlenecking improvements from the various printed sources, but this slide is one that we put together ourselves.

I briefly mentioned ERCO’s patented technology advantages. The sale of technology and engineering services, I believe this provides ERCO significant advantage in the marketplace. We are one of only two companies in the world that really have that capacity and that advantage. And that does give us significant insights into new developments and a first look at market opportunities on when mills are either changing capacity or maybe being increased or new mills coming on line.

At this point, from this information and all I can mention that we do see several opportunities with new projects and changes being considered in current customer mix and new developed mills being planned.

Turning now to our chloralkali business, this business, the chlorine, caustic soda, caustic potash, hydrochloric acid, applies basically these stocks to a variety of end user applications which are strong and growing in many areas, fertilizers, food additives, water treatment, oil and gas, oil and gas exploration and production and a significant advantage that we have is our geography, many of these products, as I mentioned earlier are shifting to diluted form maybe up to 65% water, resulting in high transportation costs, our facilities in Wisconsin and Saskatoon are strategically located in various customer orbits to satisfy the feedstocks for the businesses that I mentioned earlier here.

In addition, low natural gas costs has now given chloralkali producers in the Gulf Coast and export advantage with a lot of caustic now moving offshore as well as chlorine derivatives. So with what I would expect relatively strong advantage of the chloralkali producers basing their feedstocks on natural gas versus oil base, we should see continued export from North America and therefore not a lot of impact of these products into the geography.

I presented this slide last year, it was developed by IHS and shows that the margin for caustic soda based ECU continues to operate at the relatively higher levels and margin compression has not been even seen for many years compared to the early part of the decade. It is our view that this dynamic will maintain well into the future although I will admit there will be some small seasonal adjustments as some times colder weather depresses the requirement for chlorine and water treatment chemicals, but generally speaking we see a go forward relatively strong margins on the caustic soda ECU.

This slide really just depicts what I said a little bit earlier on terms of our sales volumes and the areas that we serve as you can see food, fertilizers and agriculture is a significant part of our business and being in the Prairie’s and being in the Midwest in the Corn Belt, soy beans and fertilizers and shipments to the West Coast gives us great advantage, similarly where we are located and some of our products being supplied into the oil and gas area, Eagle Ford, to the Permian Basin, Oklahoma, Texas, Alberta, Saskatchewan puts both Saskatoon and Port Edwards in the great spot.

Caustic potash we are number three in North America in size and very close to being number two in that business is a major chemical ingredient in the food, agriculture and fertilizer business. It depends on the K atom of that molecule to provide potassium for several specialty fertilizers, and I am happy to say that 2013 if the next 30 days or so, continue as it has been, we will see record production, record sales on KOH into the fertilizer business, what record KOH sales overall from Port Edwards, at least since ERCO has owned it and we see substantial opportunity for further growth in this business as we go forward and many of our customers in the fertilizer business are reporting and projecting up to 5%, 8%, 10% growth in their specialty fertilizers and we would like to make sure that we keep up with them.

We also have, I think hydrochloric acid side of this business as we supply acid and we have two new burners coming on. The ability to have complete flexibility in terms of supplying the chlorine molecule either as hydrochloric acid or as chlorine.

Unfortunately earlier this year as was made known to everybody we had expected to take delivery of a burner from our supplier and I suppose being loaded on flatbed truck, it was damaged and so we suffered years delay as we’ve had to basically, have them build new burner for us, that should be now coming on mid next year or so. And it’s just one of those things that happened but I can say the acid business is quite robust and we do anticipate that when that burner does come on that it will be – the output from that will be immediately and well received.

The two projects that I referred to will double our hydrochloric acid output capacity and both will be in commercial production certainly by this time next year. One of them in the third quarter and second one, starting up at the early part of the fourth quarter. Both of these projects are substantially sold out as we speak, and as I said earlier we had one of them right now, we could easily moving another 20 to 30 railcars a week of that product.

Having both of those burners though in our portfolio and for those that are not familiar with the ERCO, chloralkali story, The chloralkali producers are typically one of two breeds, those that are primarily on the chlorine molecule and derivatives chain or an alkaline chain. We are basically on the alkali chain where we make majority of our income, but to do that we need to be able to move the chlorine molecule, and these burners and the arrangements that we make with now Tronox as part of the chloride supply agreement, we’ll mean that by this time next year essentially we would have complete flexibility and the freedom to move however the market would prefer in one direction or another, so we will be reducing any concerns or any limitations that we would have and being able to ship or sell chlorine as we go forward.

This map shows the Wisconsin area where 110 additional thousand tons will be sold into that marketplace, and as I said a little bit earlier lot of that now is being spoken for in the oil and gas production in Oklahoma and North Texas. And the additional 70,000 tonnes that will be coming out of the Saskatoon, we will be supplying the oil and gas production and oil and gas industrial markets in Alberta and Saskatchewan.

The other advantage I believe I mentioned last year is that our Saskatoon facility sits on top of the [Inaudible] solution mine, our main raw material. So essentially it’s free which that and very well freight costs give us significant advantage for that facility over others.

We are working on several initiatives. Our production technologies, our ERCO’s own design, so we continue to tweak those to improve operating rates, operating capacity and electrical efficiency and chemical conversion efficiency.

On this slide I mentioned, industry consolidation, the Tronox project is evident of our continuing effort in that regard and our technology and engineering offerings continue to leverage our capacity in the international sales opportunity.

At our Port Edwards facility, we see the opportunities we go forward for some small and further capacity increase either on the KOH or the NaOH side, depending on how the market would dictate that and at this point in time, it would probably be on the K side. And a few other advantages that I would mention is that in our industry, there are relatively high barriers to entry. If you look at the players in this business that are existing in 2014 as we hasn’t changed much from what you’ve seen in the last two decades.

These include for ERCO a very stable and long-term work force, very focused sales and service team, a very small group as well as internal technical strength. We have demonstrated in the past the ability to bring on and execute capital projects on time and on budget in both of those burner projects or one of them at this point in time for the reason mentioned earlier on the delivery problem. I’m absolutely confident will be delivered on budget.

So we do have a great deal of international experience. We are active right now in many countries in terms of sales and have the ability to export sodium chloride from both the East Coast and the West Coast and with the Euro-Dollar foreign exchange cost right now at about $1.43 shipping in New York from our East Coast operation is as good as selling to some North American accounts.

So we have strategically located facilities as I mentioned everywhere and we have added over the past year to our portfolio and supply position, significantly strengthened our and increased our flexibility around where we are going on the chlorine and hydrochloric acid side.

And I’d be happy now to take any questions, should there be any? Jay.

Question-and-Answer Session

Jacob Bout – CIBC World Markets, Inc.

Maybe just first a question on hydrochloric markets, we have been moving from a short market to an over supply, where do you actually see hydrochloric pricing selling out and when I guess.

Paul S. Timmons

Well, there are two parts to that really. I think Jacob, the first part to that say on that is that I don’t know that I shared your views that is necessary going to be in an over sold or our loose position. What I see at this point in time is still significant tightness there and in the orbits that we are working in, I’d expect that tightness will maintain.

In terms of absolute pricing, I am not going to get into a pricing discussion, but I will say that irrespective of what the pricing is, it’s likely to be three times what you are going to get for chlorine. So if you can move hydrochloric acid your results are going to be better by at least three times in that molecule. So it will be for us in our orbit, as I say, in the solo position with prices already established, an opportunity that will only improve our results.

Jacob Bout – CIBC World Markets, Inc.

Maybe turning to caustic, there’s been a bit of anomaly here on the West Coast with pricing being relatively low there and really creates an arbitrage opportunity into the central part of North America. How long do you see that lower price in the West Coast for this?

Paul S. Timmons

Well, I don’t think I am in a position to comment on West Coast caustic. I see

year-over-year where we are, 2013, our caustic prices are above 10% higher than they were last year and like you raise that point today because we are announcing caustic price increase today and couple of the other major, Dow and OLN announced earlier this week. So I expect that caustic pricing will be at a minimum stable if not improving.

Jacob Bout – CIBC World Markets, Inc.

Thank you.

Luc Desjardins

Any other question for Paul? Okay. As always at the end more ideas come, we’ll be here. So Paul, thank you very much. We’ll now move to Construction Products division with Paul Vanderberg.

Paul J. Vanderberg

Thank you, Luc, and good morning everybody. We’re pleased to have the opportunity today to update you on Superior specialty construction products distribution operations. This includes walls and ceilings products and services and commercial and industrial installation products and fabrication services operating under the Winroc and SPI banner.

There we go. Superior is just specialty walls and ceilings products distributor in Canada and we’re a leading walls and ceilings products distributor on a North American basis. The walls and ceilings operations are called Gypsum Specialty Distribution or GSD in the industry. We’re also a leading distributor and fabricator of commercial and industrial installation products on a North American basis. Our commercial and industrial installation distribution operations are called C&I in the industry and I’ll use those acronyms throughout.

We service the commercial construction market, the residential construction market and the market for industrial facilities and renovations of all these segments. We’ll talk more about end-use markets in a few minutes. Our value-added is a productivity partner for the installing contractor through stock and scatter distribution services in our GSD operations and through our installation fabrication services through our product extensive branch network and fabrication facilities. We operate 118 distribution locations in 29 states and five provinces and employ approximately 1,500 people.

The business is recently operated, as all of us know, in very challenging end-use markets, but very pleased and pleased to report last year, in 2012 that we began to see improvement pretty much across the board, especially in the U.S., the very large U.S. residential construction segment. For this year overall activity in North America has continued to improve and over the next several years we see continued improvement in this U.S. residential market in particular but we expect it will be partly offset my softer residential business in Canada. As the Canadian multifamily segment, as we see very busy here in Toronto is expected to ease off. In the past we’ve seen – the pace we’ve seen in the last couple of years.

Our non-residential markets, especially the U.S. new commercial construction are showing signs of recovery. But still activity in 2013 has been a little bit spotty. We’ve had a mix of some very good months together with some softer months and I can tell you when you have a very good month, you think when are we going to string some of these together. Its coming, we expected and that – but we’ve seen three or four very good months, so that that operating leverage really is there in the business.

Improvement in residential activity also bodes very well for the future of non-residents as the number of residential activity, especially new residential is a leading indicator for commercial activity with typical lags of 12 months to 18 months and since non-residence, our largest end-use segment, this is a very welcome lead indicator for us.

Our operating focus continues to be #1, managing our buy sell spreads. Margin Management, we’ll talk a little bit more about this in a few minutes, basically pricing and procurement programs and to drive our margin improvement. We continue to focus on operating cost, that’s what got us through the recent recession. We continue a very strong focus there and on working capital turn over.

With Luc’s encouragement, we continue to work on ways to improve the business that are not improved and not abandoned on our end-use markets. We talk a lot about end-use markets, but the fact of the matter is, a lot of our performance the last couple of years has been internally driven.

And there are some pretty important financial benefits through these activities, or may not necessarily see in just looking at EBITDA. If you take a look in 2013 at our revenue dollar run rate, it was 23% above the revenue dollar run rate we had in the year 2011. This year, we’re using 13% last working capital dollars to produce that 23% increase in revenue run rate. So all of these internal focus items on operations and working capital have really benefited the shareholders.

Our branch network was expanded in 2009 with the acquisition of specialty products and insulation. SPI brought entry into the commercial and industrial insulation business and expansion of our North American commercial ceilings network with entry into 27 new U.S. states. It also brought exposure to our industrial end-use market segment which improved our overall end-use market diversification.

Acquisition of SPI expanded acoustical ceilings distribution in nine U.S. states. The acoustical ceilings are used in a wide range of commercial construction and are driven about 70% by commercial renovation and 30% by new construction in the commercial segment.

Given the restructuring completed in 2012 and with a few additional tweaks that we’re implementing this quarter on our branch network, that our branch network is very well positioned to take advantage of improvement in our end-use markets.

In our C&I segment, fabrication of insulations is a very important value added for the insulations contractors. We precut the products that can be assembled on the job site and we do in our facilities with lower cost labor than the typical union labor you’d have on site, very, very big difference in cost there. We convert materials that are typically blocks or in flat sheets to round, curved segments that are used to insulate pipes, valves and specialty tanks and vessels.

We also laminate insulation for metal buildings in several facilities across their network. We’re located in key markets including the U.S. Gulf, Alberta Mountain States East, Midwest and Pacific Northwest and basically support our entire C&I branch network with fabrication.

We also export to large industrial products worldwide working with leading engineering consulting firms, mostly from our Texas operations. We provide them the same quality products across the world that they can get here and you can imagine some other real challenging places like New Guinea and other locations where it is really, really difficult for contractors to get the same quality products that they are used to in North America, so we are partners with them across the world.

Our fabrication network has really good opportunity to grow additional revenue and gross margin. We will talk more about that when we go through our initiatives in a few minutes. This business is diversified across both geographic and end used market segments. For end use segments new commercial construction is estimated to drive about 37% of the business and this would have been the last full fiscal year of 2012, commercial renovation 21%, residential construction 17% and industrial construction and industrial maintenance about 33%.

Now the pie chart for 2012 is on the left hand side. If we look at 2010 for the same categories on the right hand side pie chart you can see our industrial segment has really grown as a percentage of total. Non-residential has remained approximately the same with a slight change between new and renovation segments and the residential segment overall has declined, but if you look at it these changes overall are very favorable and driven by successful growth of our industrial installation business in the U.S. Gulf and in Western Canada.

We did expect from residential business in certain geographies in Canada really driven by our margin management and intelligent pricing programs. This has been very beneficial and I can tell you overall, year-over-year our profitability in our Canadian GSD segment has improved very nicely from these activities. And if we look at all the segments out there excluding our Canadian residential each and everyone of these segments has grown well in excess of the overall market, so again a very positive story.

So our geographic diversification along with our end used market diversification and participation in the industrial segment really gives us an advantage versus competitors that are as well diversified, and supported our results during the recent downturn and we expect are going to provide more consistent results as markets recover.

A couple of the comments on our market fundamentals here. Lets talk about what’s has happened in the U.S. last four or five years but generally our North American construction markets have bottomed and are again growing. U.S. residential and non-residential markets again improved last year and this year, with gypsum industry volumes expected to increase approximately 15% this year.

The Canadian residential segment has declined modestly in each of the last two years. Housing starts have declined again this year with activity driven mostly by changes in the multifamily segment and for all of us in Toronto it is pretty visible as you drive around the town here. But overall there continues to be quite a solid housing market across Canada. The dynamics are still pretty favorable there.

At the same time in Canada we have seen our non residential business continue to be pretty solid and that’s really lost that impact of lower residential activity pretty much across the board in our Canadian markets.

The U.S. commercial market, that’s had a real slow growth the last few years, but in 2012 and 2013 it’s began to recover. We are seeing modest improvement in volumes year-over-year in our U.S. commercial market and we again see better activity for commercial in the U.S. for 2014. This will also be driven by the lag benefit from the U.S. residential improvements, the typical 12 month to 18 month lag in new residential. So we see that as very positive.

Our industrial segment continues to experience quite steady growth and over the last two years the industrial segment has really been the one segment that’s been the steadiest for us with decent growth both in Canada and the U.S., mostly in the heavy industrial categories. This year in the second half industrial has been particularly helpful in our second half results and we expect a strong finish to the year and a strong start to 2014 and the industrial segment.

So longer term, you look at recovery in the U.S., continued recovery in the U.S. residential segment. We expect to have about 950,000 starts this year and the U.S., up from 780,000 last year. I think most market observers are looking at about 1.1 million plus or minus for 2014. I think we just saw this week some pretty welcome housing permit numbers right in the $1 million range, so a pretty nice improvement there. Once the government got back to work and started putting out statistics again, they actually are doing a better job. So we’re pleased with that and that bodes very well for us.

Longer term, we see housing fundamentals in the U.S. driven by demographics and pretty much everyone you talk to and these people are already born, the people are already there in the U.S. You are looking at 1.2 million to 1.5 million housing formations over the next decade or so and it’s really supported by people like the Harvard Joint Center for Housing Studies and other folks have spend a lot of time on demographics. So overall longer term we’re looking at pretty positive end-use market opportunity for U.S. residential.

On the Canadian multifamily side, I think most industry or peer groups, expect will have a decrease over the next couple of years, especially here in Toronto, but overall Canadian activity on the demographic side is supposed to – again these people are already there, support 175,000 to 185,000 starts over the next decade or so, which is still a pretty decent rate of activity.

Recovery in the U.S. residential volume, we talked about, this last year is very important for our business. Historically the cycles of the residential have been swing demand for our key commodities like gypsum board and insulation and that swing demand is really what drives manufacturer capacity utilization and higher capacity utilization is what drives pricing leverage. And pricing leverage really starts with the manufacturers, it works its way through the channels and we’ve seen the impact of that already in 2012, successful, pretty significant 20% increase in pricing with the gypsum manufacturers put in place in January of 2012. They also put one in place pretty successfully in January of 2013 and they have another one ready to go for January of 2014, which looks like it’s going to be pretty solid.

We support these increases. We’re very pleased that pricing leverage is beginning to continue and we see pricing leverage again mostly driven from manufacturers down channel as being very positive for distribution margins looking forward over the next few years. So as that residential volume continues, it will support overall pricing leverage.

Another factor that’s coming in gypsum and we’ve had two transactions in the gypsum manufacturer segment in 2013, both of which are consolidations. So we actually have two less producers and one producer owned by private equity now, which we expect is going to be much more profit oriented. So this all again supports better pricing leverage in our gypsum segment.

So let’s look a little bit internally and talk about focus areas for 2013. As we discussed here last year, we took a real hard look at our branch network. We closed the restructured in 50 locations last year in Q4 and Q1 this year. These moves were successfully completed and while the revenues from these former operations declined, overall profit margin improved along with reduction and up cost and lower acquired working capital. We continue to assess the branch network and this is what we always do as part of ongoing operations. We have a list that it comes up for expiry across our 118 branch network about every 10 to 12 days.

So this is an ongoing thing. We expect it to continue and we will always be evaluating all of our branches. But at the same time network assessment also includes looking at new locations where we have growth opportunities. We recently opened up in Louisiana, an industrial insulation facility and a fabrication facility. It’s a very good growth market. We had consolidation at two of our competitors and our customers were asking for an alternative and we are very happy to provide them with that. So a very good reception, we are off to a very good start there and we’re very pleased. So we will look at it both ways.

So for the next four slides, I’d like to take a look and review a little bit, provide some detail on business transformation activities that we have underway that are in various stages of development, but we wanted to share some more detail with you today. The transformation activities are really key to our Destination 2015 program and are designed o meet our financial targets, no matter what the state exist in our end-use markets.

We’d like to review the filing activities in more detail, our supply chain management and intelligent pricing, a project to combine and integrate our common business process and ERP systems, some selected branch restructuring, some tweaking as I mentioned a minute ago, our regional operations management structure, relocation of the corporate office from Calgary to Dallas and a review of our fabrication operations. So little bit on each in turn.

First on supply chain management and intelligent pricing. As we discussed here last year we spend a good part of 2013, establishing a supply chain function. The team is leading activities across the business and procurement and in pricing strategy in a much more centralized way. All aspect of procurements, all aspects of pricing are under review, and benefits are expected in optimizing margins and in optimizing additional working capital out of the system.

We have an annul procurement spend of about $600 million and we are working with focus category procurement plans for 2014. Coordination of pricing strategy across the business looks at things both in a central way and trying to reflect local market, competitive dynamics and conditions.

Those of you that were here last year may remember Ray Sears, who joined us in September last year as VP Supply Chain. Ray came from a leading roofing specialty distributor where he implemented a number of these similar programs and Ray and his supply chain team have really gotten the organization, got in the processes in place throughout 2013 and we expect to generate some good benefits from those activities as we get into 2014.

For nine months this year, year-over-year our overall profit margin for CPD was seven tens of a point higher than it was in 2012 and this was driven by the branch restructuring we did last year, was driven by our procurement programs and driven by our pricing programs. So these internal focus projects really do have an impact.

Further improvements, we are targeting for 2014 and beyond and we are expecting about half point margin improvement in each of those two years. If you look at it overall, half a point equated about $4 million in gross profit.

We’d next like to review some focus areas in business transformation and operating cost, and I am going to talk a little bit more here than just a bullet points on the slide.

As we discussed earlier, we are driving to improve financial results no matter where our markets are. So our specific initiatives underway include common business practices in ERP system and integration, some tweaking of the branch network, realignment of the regional operations management structure, relocation of the corporate office and finally we will talk a little bit about our fabrication operations and a few comments on each of these in turn.

First, common business practices. We have a very good opportunity to streamline the business and improve on customer service in the area of common business practices and ERP systems. When we bought a specialty products and installation back in 2009, the U.S. recession required that we defer integration of the ERP system at SPI with the one we had at Winroc.

We have managed to do this the last several years, but I have to report operating on two ERP systems is a real challenge. You dump everything into a data warehouse, try to massage it, come out the other way, it’s a real challenge to get to your net costing, it’s a real challenge to get your net margins and some of the initiatives like pricing analysis, procurement analysis is a challenge, trying to work through a data warehouse and Luc support to go after this and get this project started, very, very important.

And at the same time, it’s not just about ERP systems. Every process we do is different with one set of ERP versus the others. If you think about every thing from receiving product into a branch, on one end to applying cash from collections and on the other end, we actually don’t have identical processes because we are still on two system, so we’re very pleased that we’re getting this project underway.

We are starting a several year process of going after this and we are starting with 2014 with teams that are looking at business process integration and then in 2015, we are targeting conversion. At the present, we have not quantified potential savings. The first half of 2014 is really a scoping exercise on both the project and potential savings, but we expect there will be significant synergies and efficiencies from operating practices.

We are very focused on improving service being customer centric and especially supporting our front line sales people that are very close to the customers. We expect to have our conversions and branch conversions done by the end of 2015. So from end of 2015 on is when we really expect to see the most benefits of this.

Second focus area; review of our branch network. As I mentioned earlier, we continue to review the branches, local market conditions evolve, leases come up for expiry and as we approach year-end, we have four locations that we intend to close. We will get this work done in Q4 of 2013 and the benefits will accrue for 2014.

Our third focus area; our regional management restructuring as far as our organizational structure is concerned. Last month, we implemented a realignment of our regional operations management structure. We’re reorganizing based on geographic regions versus being organized between the C&I and GSD business and the reason we are starting down this is, we are starting down the whole integration path, pulling the company whole together, getting the company all-in-one set of business practices and ERP system, so let’s get lined up with the organization.

So the regional management teams now have operational responsibility across all CPD businesses within regional geographies. So we’re really pulling this business together as one company, one team. And key management processes and specialty distribution management disciplines really do apply across all the operations and all the product lines. We will have some specialty sales focus out there. We will still have some specialty production focus like the fabrication business and we’re going to have a specialty fabrication focus, I talked about a minute ago.

This organization is about one level overall flatter than the previous organization and with, obviously, the objective of having more customer contact and what I would call, more pressure on the marketplace and more sales pressure out there. We announced this last month. We only have four regions in the U.S. and one in Canada.

Fourth focus area, I’ll try to get through this here, but we have launched a process to relocate our head office from Calgary to Dallas, pretty big change. We’ve been operating on Calgary for 37 years, lots of history there, but for those of you familiar with oil and gas industry pretty tough to recruit specialty folks in finance and IT, in a heavy oil and gas town for construction products and it’s tough to play with the big boys out there. We’re taking a look at what’s happening with the business.

If you look downstream at our largest customers, a lot of our large customers are consolidating on the contractor side in the North American platforms. A lot of our upstream suppliers are also consolidating into North American platforms and really need to look at this as a North American business. Given the way the business has developed about two-thirds of our sales now come from the U.S. and being located in the U.S., centrally located in efficient corporate office, supported with systems and railcars, the whole business in a good travel hub is real advantage for us. So we’re driving forward with that and we are pretty excited about it. We announced to move here two weeks ago and we expect to be completed with the senior management team; IT, HR, finance and supply chain by this time next year.

So back to the bullets on the slide. These four initiatives, we expect will reduce overhead and admin cost within an initial reduction of about 25 positions expected and that doesn’t include future benefits once we get the systems integrated and the business processes integrated. But as we get into that it will be more of 2016 benefit. We expect pretty significant improvement there. But short-term, for 2014 and 2015, we expect about $2 million to $4 million in benefit, again with additional – I guess I got one slide ahead here.

So the last imitative is our fabrication business in the insulation segment. We have an extensive network of fabrication shops across North America. Last year we did a pretty significant business review and identified opportunities to improve these operations. We operate with several different sets of internal practices from costing to how we actually cut material. These businesses have come together over a large number of years, mainly from acquisitions and there is a chance to put it altogether. We’re restructuring these as cost centers and we’re restructuring them as part of our management reorganization to report to up to an Operations Manager that drivers common practices across all the fabrication operations.

We see significant opportunities to growth the top line revenue and pushing this through all the branches, pushing fabrication sales more overall we see an opportunity for about $5 million of additional gross profit over the next couple of years.

So, to summarize, the CPD business for Superior and its shareholders is a leading specialty distributor, with strong positions in two major specialty construction related product segments; walls and ceilings products and commercial and industrial insulation products. There are a number of business opportunities underway to improve the operations no matter what stage our end-use markets are in. These business opportunities leverage across the entire business by segment and by geography and the investors have a business here that’s well positioned. The platform will be even better positioned based on the opportunities and initiatives underway and there is significant upside operating leverage and financial leverage to investors from ongoing recovery in the North American end-use markets.

So in closing, we’re pleased to have the opportunity to share a little bit about the initiatives and business and we’d be please to answer questions.

Luc Desjardins

Such a clear, good presentation, Paul. I think everybody got the sense of all of your works that you are doing with your team. Anyone has any specific question? Okay. You’re interested in seeing the financial picture. So, Wayne Bingham.

Wayne M. Bingham

Good morning, everyone. I’ll just take a minute to introduce a couple of my colleagues I work with in Calgary. First being our Treasurer, Jay Bachman at the back, Jay, and we have Rob Dorran, who is our Manager of Financial Planning and keeps all of our financial planning and analysis straight.

To those online welcome and to those in the room welcome as well. Okay, just a couple of overview stats here on what SPB is all about. I’m sure you’re quite familiar with Superior, but enterprise value currently around $2.35 billion. Market value of the stocks are about, let’s call it, $1.4 billion, mid-point of our guidance for this year, $1.725 and I’ll have a little more color on that in a minute. What I’d like to do though if we cast our minds back to a year ago, to when we were here together, the stock was in the 9.75 range and if we go point-to-point from last year to this year with dividends we’re looking at about a 20% return, which is pretty healthy. If we look at it on a calendar year basis, which often we all do with our portfolios, January 1 tracking to year-to-date probably with dividends looking at about 14.75% and of course the TSX when I last checked was in the 11.35%. So that’s a nice 300 plus basis point relative advantage, if you will, versus the TSX. So we’re quite pleased about that. And as my colleagues have talked about this morning, there is certainly more to come in 2014, and as Luc has mentioned, 2015 is when we see all eight cylinders firing for the company. Okay.

On the guidance then, no changes here. Consistent with what we chatted about at our third quarter call. Mid-point, as I mentioned, about $1.725 for 2013 and mid-point of $1.80 for 2014. 2014 could have been better. Unfortunately as Paul Timmons mentioned, our HCL burner was dropped. We were planning to have that up Jan 1, but as he chatted about, that’s been revectored and we’ll be moving forward. But I think if you still have - doing a bit of a straw pull as my colleagues spoke, I stopped counting at 20 initiatives and what’s key to a business like ours or any business is not to be a one trick pony.

When you look across the portfolio of initiatives that we have in each business, all of which are tracking well, some will get ahead, some will perhaps fall behind, some will maybe be bad luck, but the key fact there for our business is it’s a portfolio and with the management team and the confidence I have in my colleagues that portfolio is going to start to fire. It’s going to fire a little bit in 2014, but as Luc mentioned in 2015, we expect the convergence of those, of the cash flows to be generated by those 20 plus initiatives to give our shareholders an excellent return.

And fundamentally, as my colleagues have talked about whether it’d be as Paul Vanderberg spoke about the U.S. economy, pulp and paper sector, the addition of Tronox, which really from the diversification point of view and quality of customers, all of that underpins or is the foundation for those initiatives. So things are pointing in an excellent direction and I think we as a team feel, and I certainly, as your CFO, feel very, very good about where we are and where we’re heading.

On the debt management side, a pretty good story. As I introduced our Treasurer, he’s - and I said to you last year he’s, if you look at him he’s pretty fit. My colleagues generate cash and he’s been running to the banks and paying down debt. He’s been very active in 2013 in terms of redeeming our convertibles, very pleased with our high yield investors that were with us in 2009 and carried our paper, but we are fortunate enough to be able to have the financial flexibility to reduce that. Our average term debt probably has a 6, 6.25 handle on it. So we’ve been trying to knock off some of the higher priced debt and the financial flexibility on our bank clients are excellent, roughly $200 million of capacity in terms of financial flexibility today in terms of the undrawn amount.

I should point out that also on the previous outlook slide, I think I forgot to mention that guidance that we discussed on the third quarter is before restructuring charges and the restructuring charges just reflect where my colleagues are in their plans and initiatives. So we have to spend money sometimes to make money, and as we mentioned at the third quarter, we’ll record that within the financial reporting rules allow us to. They’re quite prescriptive and likely will be fourth or first and second quarter next year.

On the capital expenditure side, a pretty good table there, up a little bit this year as you can see for the HCL burners both in Port Edwards and in Saskatoon that’s on of the top line, roughly half the expenditures. It’s about $43 million, $45 million expenditure for both and again as I mentioned earlier, those will start to provide cash flows. As Paul mentioned earlier, those will likely start to provide cash flows in the fourth quarter of next year.

Not too much else to say particularly on the capital. I think I may have missed a slide there in terms of the debt management, but bottom line in terms of our debt management table as well as our – we’ll maybe just go back there for a second. We are in excellent shape. I mean if you look at that everything is in that table from soup to nuts, and as you look at the payout ratio at the bottom it’s very, very healthy and that comes back and harkens back certainly to 2011. In November of 2011 when we took the tough decision to cut the dividend. That has paid dividends, if I could use that word, in terms of excess cash flow to pay down the debt. We’re quite comfortable with the debt. With the dividend today the debt still needs work as Luc mentioned earlier. We want to drive that thing down to the 3 to 3.5 range and certainly with a focus on the three handle.

Luc will talk a little bit later in the wrap-up on the dividend and dividend policy. Okay. Capital expenditures, we’ve talked about, specialty chemicals maintenance capital. It’s clinically important to maintain the facilities. In 2014, we will be spending some money on Port Ed facility on liquefaction equipment and as well the electrical equipment needs, maintenance capital. That is a healthy thing for the business. It will be up a little bit for 2014, but that is just prudent investment in our facilities.

Okay. In the financial world and in my world, which is pretty boring at times this is considered a Monet in terms of a picture. I’m not sure if people online can see it, but as you can see over the next – the hard work that Jay and team have done, has resulted as you can see, over the next couple of years with very minor redemptions or maturities, and those are related to our U.S. private placement notes.

We will knock those off over the next two years and that will take a set of covenants out of the balance sheet, which will also enhance future flexibility. And the large column that you see there in the middle, just to be prudent in our disclosure, we’ve included our bank facility. Many of our banks are here with us today and since I joined Superior in 2006 our banks have been there for us. So we anticipate it’s shown as the maturity, but there have been no issues. The support has been fantastic in 2006, 2007, 2008, 2009 and through to - so if we eliminated that you can see a very, very healthy maturity profile. And as we move out we will be looking at and thinking about the 2017 and 2018 and…

Little background noise. I guess that’s the crowd cheering. So a good picture, a lot of hard work went in to get where we are, a lot of hard work from my colleagues in terms of generating the cash flows, and it’s only going to get better as these initiatives get traction and as Jim Collins I think said, he talked about a flywheel in businesses. The flywheel is starting to turn and will turn and get more momentum in 2014 and 2015, as Luc has mentioned, is going to be a really exciting year for us.

Okay. On the financial position I think I’ve certainly talked about this. We’ve got about 500 million of converts outstanding. We do get questions in terms of potential dilution, but just to remind you from the corporation’s perspective the last three issues have an innovative cash option. So if indeed the shares do get in – the converts do get into the money, we have the option to take those out with the cash payment based upon obviously the market value. So it’s we do have one issue, I think I got a 11.35% strike, but we also have the ability to take that thing out with cash. So we’re carefully monitoring any dilution, which certainly may be on the horizon for our investors.

On the credit rating side, pretty much steady as we go. I think some of you may have seen this week that S&P has been doing a lot of work on their ratings methodology and we were put on a positive watch, we would expect, I guess over the next month or so that S&P would complete their work and revise the rating if applicable; certainly S&P will do what they do, but certainly a bit of positive news for Plus, but nothing has changed.

We want to be a strong BB credit. We are going to drive that debt ratio down to three times, we’re at 3.5 times as Luc said there is more work to do, and we want to be what I will recall a four or five star BB+ credit. We want to be at the top of the heap which is important. I think that cost of capital is very important for us as well as we compete for tuck-ins that Luc and Greg and Keith talked about that I view as to be kind of an optimal set of leverage for us.

Now, CRA update; basically steady as she goes here, no real new news, we have filed our notice of appeal and kicked off the court process, as I’ve mentioned to you, I think in our conference calls we feel we’ve got the best litigator in Canada with Al Meghji from Osler’s and he and his team are on the file, nothing has changed in my mind. I think many of you know, I did the due diligence pact and the deal with Ballard reviewed by the Board, extensive due diligence and since that time, certainly nothing has come to my attention.

In fact as a CFO, I feel more confident today, but as we have said in the past, it is litigation and litigation will be what it will be. We will make our case and at this stage, we are highly confident that that will be a positive outcome as we go forward. We have provided all the information in the table, if you look at the third quarter report, we have provided all the information there in terms of the tax and the 50% payable, so our investors can make their own individual assessments.

Tax horizon, again with Ballard a very, very good situation just to remind you that the Ballard tax losses are applicable to the Canadian side of the operations, we are quite fortunate on the U.S. side of the operations that we do not - currently are not paying tax, but that we anticipate based upon what we are seeing today in the book of business that 2016, they will start to the U.S. taxes, the reason for that is, you will recall, I guess in, 2008-ish, late 2007-2008, we commissioned the Port Edwards plant for about $135 million of capital cost allowance and bonus deprecation in the U.S. has allowed us to put together, have some pretty efficient tax sheltering. On the Canadian side, with the tax basis that we have in 2020 at a minimum in terms of not paying Canadian cash taxes.

So to sum it all up, very good access to capital, as I mentioned earlier, the balance sheet is in excellent shape in terms of the business and the cash flows that we can expect going forward, extremely positive for us and in terms of our certainly our bank covenants and liquidity excellent and the support in the capital markets and from our banks absolutely positive, so with that I will take any questions you might have on balance sheet.

Question-and-Answer Session

Jay Bachman


Alexandra M. Syrnyk – BMO Capital Markets

Wayne, you mentioned on the maintenance capital this year that there is some, I guess more one-time charges associated with chemical and electrical upgrades. What would you say in terms if you are looking for a run rate more normalized run rate, is it closer to $30 million or?

Wayne M. Bingham

On maintenance capital, I have may have to call a friend in a minute, Mr. Timmons maintenance capital historically has been in the $15 million range, and in terms of a run rate, is that above rate Paul.

Paul S. Timmons


Alexandra M. Syrnyk – BMO Capital Markets

Thank you.

Jay Bachman

Any other questions? Okay over to you, Luc.

Luc Desjardins

Okay. So game plan really when you look back a little bit for 2013 all those 20 initiative the key performance indicator internally are tracking well and moving up, and we invest in sales and marketing, operation, system now we are investing in productivity, new talent, so we are doing a transformation and that is not just cost and bottom line driven, it is a transformation to make the business solid at every level you can think of the business should be improved, and you’ve seen it from all the presentation that things are really moving well.

2014 to us we think we have by mid year anyway or a bit earlier, we have the solidity of processing system that give us confidence that we can now reduce cost properly, so maybe I’ll change on that, I’m not very good with those slides, where are we now.

Not sure we have the right slide, Jay can you help me, is this Slide 92 or 93?

Jay Bachman


Luc Desjardins

This is 92. So I am going to go to 93, I don’t listen well. So approximately 18 months ago we introduced Destination 2015 and our goal on improving our businesses, the objective was and remain the same, we want to identify areas where we could improve our business in order to become best of class in North America and I’m going to try. We are a good Canadian company, we can do stock, we can be the best of the best and we will be. It is not my first vertical.

Our goal is to build success on both operation, finance basis that is sustainable in the mid and long term, with the mid term in 2015 that is not too long down the road, another year or so, as the divisional presentation highlight 2014 is an important year for Superior as we continue to create the foundation to succeed and with the objective we have set for ourselves for Destination 2015. As part of this project we will remain focused on growing our business not just about cash, our target is to grow business to present above the industry average. We are actually doing better than that in most of our business right now.

A key part of our internal growth is maintaining a strong customer centric focus across each and all of our businesses. As Greg highlight in his presentation our energy business is at the initial stage of this objective, well I’m happy with the progress we’ve made throughout 2013, it is evident that the investment we have made in sales and marketing over the last 18 months is going to be good for the corporation, we believe starting even in 2014.

Construction Product business is further along with this initiative and I’m pleased with our progress we made this year. I’m confident that Paul and his team will continue to make progress in 2014 and for the future years.

2014, we’ll continue our focus on margins in 2012 and in 2013, the Propane leadership group made excellent progress in improving margin, and as Greg noted, I will do anticipate the rate of margin improvement to be more moderate, we will not cease to look for ways to improve business by segment, by customer and improve margin. As it relates to CPD, we are in the initial stage of improving our margins, 0.7 is good, another one point is 8 million so it’s on the move. And the market fundamentals will continue to look at operation, improvement, supply chain and all the work that Paul has talk to.

We will continue to ensure we operate as efficiently as possible which will ultimately translate into lower cost. It’s coming as a divisional presentation highlight this is an area of tremendous opportunity, a specific example of where we anticipate significant improvement is obtaining operating expense ratio of 66%, and in the year 2015 in our Canadian propane business and you’ve seen also for our U.S. business improvement is coming. That alone in Canada and every division will need some less people to do the same work as this will be more productive and more organized and that alone in Canada represents 150 to 175 employees, and I’m confident that with the right combination of leadership, the trainings that we’re putting in place the necessary steps to reach our goal we have set for ourselves in 2014 and in 2015.

Visualizing our size and scope of operation with respect to supply chain is an area that we have made strong progress over the last 18 months, was one of the low hanging fruit as some mentioned earlier that takes longer to get there, because you want to be methodic, you don’t want to break opportunity bring the company very healthy mid – long-term. Well those are some area margin some of the sales growth and some of the cost and operation supply chain has helped immediately.

Thanks to Dave and his team and they are going to continue to do so, $6 million now and the past year and David likes bring numbers, so we’ll keep going. Although I might team with their progress that was identified by the division and their respective presentation, I want to assure you that we will not stop and we will turn to new to improve every one of those 20 initiatives. It’s a work in progress continuously working at reviewing executing making the business better.

Lastly, I’d like to highlight that our financial strength continue to improve. We have made significant reduction in our leverage over the last two years and we are on our way to reaching our goal 3 to 3.5. Mr. [Inaudible] will be so happy. As we get close to our range, it will increase our ability to assess both acquisition as well as leverage and think about dividends at that time. Folks out there, we looked – our board every year looks at total balance act of cash flow and dividend and investment and then potentially acquisition down the road and we’ll have those discussions in the release. So I think we’ll have more interesting discussion as the year unfolds because there is more opportunity by having organize our balance sheets accordingly.

So in conclusion, we are very passionate about ensuring that Superior becomes the best company it can become. I am confident that with the initiative we have outlined for year-to-date. We’ll meet our goal 5% to 7% in 2014, there has been some issue that makes it, that is high as we would like and move down. But very confident that as in 2015 we even announced 9% to 12% and we’ll keep on that path. I think we’ll have a solid, sustainable corporation for many, many years to come.

Everything we do, I think the three stakeholders to win. It’s not one win, one lose it depends on the others. I will take all our stakeholders taking consideration when we develop the company to make it solid.

One of the reason why we didn’t slash and burn, there is some employees, and there is some investors, there is some customers and for the long term we better do it methodically because it will be a better company for many, many years to come. We’re developing a culture of what good looks like. Our HR [Inaudible] always talked about what does good look like and when you measure and compare, you know what you have to do to get there.

And it all starts there actually, what it looks like in management, what those look like in a distribution and operation and system and customer service and margin, and I think we know what good looks like and we will find the best in the world. Find that, okay, this is it, and then lead back. And it’s possible no body stops us between that, why not? Let’s go do it.

It’s important that we foster a culture of continuous improvement. Improvement has been the top class execution. So many things get done because you execute properly. Listen we’re doing a mad system. It’s starting from a biggest that you can think of a system project. And it’s happening and it’s happening well. You got a couple of problems solidly done. We can execute. Greg and his team has taken that one, Presidents involve every week for the discussion, every two weeks when I involve to look at every detail. We didn’t give that to an IT guy who will do it. No, no, no.

This is our business. We are going to follow it. We are going to make sure it happens, by week, by two weeks and by month. So future is every important, it’s a base of how we do thing. We have employees, with many more, organizing them and reducing some staffs because we need to ask to do real great well.

What happen to our results with employees? We are not a big company and we will go up again next year, again with you. Because we go down the spent that we want to be a winning company, we want to have success, we want to be proud that we say, I work for this company. I don’t think many of them were in there for the past. And we wouldn’t consider, we won’t tell the neighbor come and working, or they will.

So I’d like to talk to you about accountability. I think the last word I would like to leave you with because I feel that all of us at every level, every – we need to be accountable for being good and do things the best we can and making sure we do it the best as it can be done. And the accountability was lacking and I can assure you that it’s not anymore.

So I’d like to open the floor with additional question. Even though we did it by business, which I think it was a good thing. We decided back yesterday to finish our different meetings. You’re there and you know and you want to ask us specific question to one of their President, so it helps to get there quicker and faster. We are perfect on time. It’s 12 o’clock. Everything is good. We got time for question and lots of time and then management will circulate, we’ll have lunch here. Whoever can stay and peck here bring whoever you want. We even have a fantastic Board member here, who is Jim MacDonald, who is in Toronto and being a huge supporter of all of our project, a huge supporter and even shows up here in our business in Florida. If anyone has to see the company, we’d love that so much.

So having said that, question time. You may have question for our Board member too. Anything else, and anybody that comes up with a question. We have one here. Paul don’t go too far. He knows you business well.

Unidentified Analyst

This question is actually for Luc.

Luc Desjardins


Unidentified Analyst

So you’ve been here for 24 months…

Luc Desjardins

Yes, 24 months.

Unidentified Analyst

When you look at Superior, how do you think of the whole versus some other parts? And I think there has been some talk in the past about the possibility of some divestitures or are you looking now to actually possible something on, is there any business lines that actually makes sense. How are you looking at them?

Luc Desjardins

Thank you. No doubt at the beginning two years ago, our finance team and lot of the management have been through lots of stress because of high debt and tough situation and you saw the chart on sales and margin and profit going down. So it was more of a – we can call it a panic mode, but hold it back well. Now this is the stuff. And there is no doubt having three division, three business that are not initially integrated or related too much, it’s a little bit of stuff that goes in healthy clutter, but not too much.

One way you can resolve the problem is sell one and I am happy that we’ve improved quickly our balance sheet and we will start to improve each of the business quite rapidly. We’ve had, I think, what doesn’t show here. If you look at our result last year we had the SEN business line, $20 million disappearing, there was typically like more than impressed, but the business fundamental is, now it’s commercial only and it’s at the bottom that it can be. We will have it and if that business comes back we will be there too to appreciate new growth.

So we don’t have that situation anymore and the transformation when you think of CPD because it was potentially the one that we could so quickly for us years ago. Transformation, Paul and I agree, that’s what makes the business the best it can be and if there is that happens because the board in every year will look at those strategy in June, will look at the portfolio of our business and when the board judgment comes as to should we grow into business A, or B, or C, now we are in a good position. We don’t have it hard, we don’t have it hard, we don’t have that debt situation. So what do we do?

So we are solid, and we are improving those businesses, by a good, good mile. CPD is on there, now I believe the market coming back as we are actually more commercial, 60% commercial, we haven’t had any lift from sales in the state. We saw the results it surely will be like many million, they don’t buy better. Now we are going to get residential as out somewhat. Total restructuring of Canadian business last year has helped us a lot this year and now we’re doing another phase of that and just want to go up and up. So the whole prices, let’s go make more money for our shareholder.

We’re in a good position. I could say though that when I think of the three business and when you saw the acquisition we made this week and hopefully we have another one coming in the near future small add-on, we kind of almost doubled it like tier one. We don’t pay too much. We have a position in the space and the energy and how people will start to get something going in Canada too and opportunity for add-on creates a lot of – we’re good operator, we can execute. So when we add on the business like, since last month, they try to have a final year or two later, now 2.5 and we’re going to do more of that, that just have - we have to pull it. I believe in it and I think we will.

And then it is one of the three segment that we could think acquisition enrolled down the road. There will be some in 2014, one, two, three, four, I don’t know. And hopefully with three times average and in 2015 there will be more. So this one will grow more, the other two are – let’s make them better. Good growth with investment we did with in a tough situation we were, we invested in there, lots of money for those two plants, HCL improvement.

I think we have the courage to say this is real. We have a strategic position and there is good margin and that is good, we’ll do it. And in chlorite to large degree with that too, superb, yes we will do it. It’s best for the business. And then overall I think we are planning some acquisition to grow the energy making the other two best we can.

And the Tronox situation, the management team and Paul and Ed and John and [Inaudible] did a super job towards that case like turn 40 plus and understood the markets from every angle, and giving us some good internal growth for the years to come. So those are increasing much where we’re now and then June every year we sit with the board and say those are the situation of the company. What are your thoughts and negotiate that and discuss that and for the moment thus reflect. Thank you. Anyone else there with questions?

Okay. So remember what I’m telling you now. After 2015 look at this company, remember we are the best company in Canada, we will be the best class. Thank you.

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