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Executives

Luc Desjardins - President and CEO

Wayne Bingham - EVP and CFO

Analyst

Damir Gunja - TD Securities

Sarah Hughes - Cormark Securities

Joel Jackson - BMO Capital Markets

Patrick Kinney - National Bank Financial

Jacob Bout - CIBC

Superior Plus Corporation (OTC:SUUIF) Q4 2013 Earnings Conference Call February 20, 2014 10:30 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Superior Plus Corp. 2013 Q4 and Year-End Results Conference Call. I would now like to turn the meeting over to Mr. Luc Desjardins. Please go ahead, sir.

Luc Desjardins

Thank you. So good morning, everyone and thank you and welcome to the Superior Plus 2013 Annual and Fourth Quarter Results Conference Call. With me in this morning call is Wayne Bingham, Executive Vice President and Chief Financial Officer; and Jay Bachman, VP, Investor Relations and Treasurer. Wayne Bingham will provide an overview of the fourth quarter results after which I’ll provide an update on the businesses. Wayne?

Wayne Bingham

Thank you. Good morning everyone and thanks, Luc. And welcome to the 2013 fourth quarter conference call. I’ll make a few comments as Luc mentioned and then turn it back to Luc. Our consolidated AOCF for the quarter was $0.56 per share compared to $0.59 in the prior quarter and in line with our expectations. For the year, we recorded an AOCF before restructuring of a $1.69 per share compared with a $1.79 for the prior year’s quarter. The quarter and annual results were impacted by the increased number of common shares outstanding in 2013 from our successful March 2013 equity issue.

I should note the achieved annual results before restructuring were in line with our guidance. After restructuring we achieved an annual AOCF of a $1.56 per share. We continue with our focus to pay down debt and execute on our overall debt reduction program albeit recent propane commodity price increases and seasonality have caused a slight uptick in our ratios.

I’ll now make some brief comments on the individual business performance. I will refer to EBITDA on a pre-restructuring basis.

Turning to Energy Services, Energy Services recorded an EBITDA of 45.8 million, compared to 47.3 million in the prior quarter. In the propane Canada operations, margins were $18.6 per liter compared to $17.8 in the prior quarter. Residential and commercial sales volumes were up 9% reflecting the weather and sales efforts. Margins in USRF were up slightly at $8.8 per liter as compared to $8.7 per liter in 2012. Overall gross profit for Energy Services was 134.1 million versus 129.6 million in the prior quarter. Propane supply and other services provided positive growth for the quarter. However, this was offset by a quarter-over-quarter reduction in GP at SEM and a slightly lower quarter-over-quarter results at USRF primarily due to challenges in the wholesale business.

Turning now to Specialty Chemicals, the fundamentals in the chemical industry continue to be very good with a fourth quarter EBITDA of 31.1 million compared 28.8 million in the prior quarter representing an 8% increase. Chlorate volumes were strong and up by 21,000 tonnes due to the Tronox volume exports in Chilean demand. The pulp market continues to be firm in North America and the inventory is balanced in the 33 to 35 day range. On the chloralkali side of the business, quarter-over-quarter chlorine and caustic sales were down while HCL and potassium sales were up on an NECU basis debt backs are up 10% over the prior quarter. Production at Port Edwards was curtailed at times during the quarter due to chlorine demand.

Turning now to Construction Products, our construction products division recorded Q3 EBITDA of 9.8 million compared to 10.2 million in the prior year. The U.S. construction industry fundamentals continue to improve and in particular in the U.S. housing industry. The CPD U.S. GSD is benefiting from the housing fundamentals with quarter-over-quarter revenue growth of approximately 21%. On the C&I side quarter-over-quarter revenue both came in at around 11%. Year-over-year sales in Canada were down in part due to the 2013 rents closures. Overall gross profit improved by about 1.5% for the CPD business reflecting the initiatives that Luc has discussed in prior calls.

Turning now to debt management, our efforts to reduce debt continued in the third quarter and our leverage ratio at December 31, 2013 was 3.9 times. As I mentioned earlier, we have experienced an increase in propane prices and of course the normal seasonality. We remain committed to our 3 to 3.5 times goal with an emphasis on the lower-end of that range.

On October 28th last year, we did redeem the senior unsecured debentures in the amount of 150 million using our bank lines. With the recent ramp-up in commodity prices, we have added that short-term liquidity facility of 125 million which we anticipate repaying and counseling within 90 days. Finally, guidance remains unchanged for 2014 at $1.65 to $1.95.

I’ll now hand it back to Luc.

Luc Desjardins

Well, thank you, Wayne. We’re pleased with Superior performance for 2013 as a whole and for the fourth quarter with the businesses performing consistent with our expectation. Our 2014 financial outlook which is unchanged from what was provided in the third quarter is consistent with our previously provided guidance provided as part of destination 2015 with anticipated improvement in 2014 in the range of 5% to 7% and 9% to 12% for 2015 before the impact of restructuring cost of course.

The operational initiative that underpin destination 2015 continued to track well and we continue to work on execution throughout the remainder of 2014. Due to the nature of the significant number of the initiative particularly in the Energy Services division, we continue to anticipate that we will see progress from a financial prospective in the second half of 2014 and to 2015 year. An integral part of the efficiency initiative that will allow us to sustainably reduce our cost in the second half of 2014 and into 2015 is the reorganization of many of our core operational processes as well implementation of our ADD IT system.

The reorganization of many of our core processes has begun in the Ontario region and the progress to-date has been tracking to our expectation. The implementation of the standard operating model is integral to improving the operations throughout Canada and partly in the state, and although much work remains to be implemented, best practice across our entire organization North, South Canada and U.S. is happening and I’m encouraged by our effort to this point.

In construction with the implementation of our standard operating model the Canadian propane business has been busy with the implementation of our ADD IT system. To-date the IT system has been implemented and very well in the Atlantic BC region as well as our primary centralized operational and customer service center. Further rollout of this system is scheduled for after the 2013-14 heating season to minimize a disruption of the business during our busiest period. The project will recommence in the first week of March in the Columbia region, the implementation to-date has gone very well and I’m confident that we will capture the benefits of both standard operating model and ADD system in the second half of 2014.

As a reminder, the impact of these initiatives will have our current operating cost to gross profit percentage for the Canadian Propane business is approximately 73.5%, compared to the best supplier for North America at the 65% level. Superior is targeting exiting 2014 an operating ratio of 68% with further reduction by the end of 2015. Although weather can have an impact on these percentages, we do anticipate that our operating cost will trend lower in the second half of 2014 and then 2015 on a normalized basis.

As it relates to the costs associated with Superior structuring activity, Superior incurred 15 million in costs in 2013 related to restructuring activity, primarily in the energy service and the remainder relating to the construction product business. Superior anticipates incurring additional 7 million to 10 million in costs throughout 2014.

I would also like to highlight that Superior is reviewing strategic alternative for its CPD business which was disclosed as part of our fourth quarter earnings release. I continue to feel positive about our businesses and I’m confident the execution of our business plan for 2014 and into 2015. I remain very confident that our ongoing focus on improving the day-to-day operation of our businesses will continue to move forward providing us with a foundation for future growth, operational and financial improvement for many years to come.

I’d like to spend a minute to provide a more thorough update on each of the businesses.

Weather conditions at the end of 2013 and throughout the first quarter of 2014 have presented both, an opportunity, and a challenge for energy business, Canada and U.S. As noted in our press release weather in the fourth quarter in Canada was 4% cooler than the prior years and 7% colder than the five year average. With weather in the Northeast U.S. being 13% colder than the prior year and 6% colder than the five year average, weather for beginning of the first quarter 2014 has generally been colder than average with average weather in the Northeast USA being 10% colder than the five year average and 20% colder with the prior year. Weather across Canada for January has been 1% colder than the prior year and 2% colder than the five year average. Weather in Canada for January has been impact by significant regional differences with Eastern Canada being colder than average and Western Canada being warmer than average.

We anticipate that the colder than average weather will positively impact our heating related volume, particularly in Eastern Canada and the Northeast U.S. mitigating some of the benefit that colder weather brings, are some operational and supply challenges due to severity of the weather. As many of you may have heard or read about there have been significant supply constrains with respect to propane particularly in the East part of Canada and U.S. Midwest. The propane supply issue were due to a combination of the colder than average weather experienced in quarter four and quarter one, combined with low inventory beginning the heating season due to strong fall crop drying in North America and demand for the impact of innumerous winter storms.

Propane shortages were prevalent throughout Eastern Canada and certain parts of the U.S. which result in significant increase in the wholesale cost of propane. The wholesale price depending on which supplier hub you are referring to went from 50% to 100% higher than the prior year throughout the end of quarter four and throughout the beginning of the first quarter 2014 pretty similar. A high wholesale prices presents a number of challenges for Superior, including higher working capital level and the potential for margin erosion which is always a risk when price of the commodity goes up so fast.

Superior has been very diligent to manage both of these risks very well. The largest impact will be on Superior working capital level which we anticipate would be higher than prior year levels. We anticipate that the impact on margin will be minimal due to active pricing management on higher proportion of residential volumes due to the cold weather. Also propane prices have recently begun to moderate but are still higher than the historical levels. We anticipate that prices will moderate throughout the remainder of quarter one with the assumption there are no further propane supply disruptions for the remainder of the 2014 heating season.

Superior’s size and scale were important factor in Superior ability to continue to source product during this very challenging time. Superior Wholesale Supply group, we’re able to demonstrate the value proposition they provide to not only Superior but Superior customer throughout the challenging time. All-in-all we anticipate that the cold weather should be a positive for Superior in the first quarter and business fundamental for -- yes, now I’ll move to the business fundamental for the Specialty Chemicals.

Business are essentially unchanged from the update in quarter three for the chemical business. Superior continued to anticipate that its 2014 result will be impacted by higher electricity prices particularly in the sodium chlorate plant. The sodium chlorate business will benefit from a supply agreement with Tronox which will provide a positive contribution to Superior and Superior is optimistic that the Tronox supply agreement will continue to provide benefits for Superior as we optimize our logistic and manufacturing network in North America. We anticipate that the overall market for chloralkali which includes caustic, chlorine, hydrochloric acid will remain steady throughout 2014.

Our chloralkali facility is strategically located in Saskatoon, Saskatchewan and Port Edwards Wisconsin are in close proximity to our customer base which provide us with a significant freight advantage relative to product produced in other parts of North America. Pricing for caustic soda and potassium caustic have been steady modestly improving throughout 2013.

In 2014, we anticipate that selling price for caustic, chlorine, hydrochloric acid will be similar to 2013. As confirmed in our press release, the expansion of our hydrochloric acid facility in Port Edwards and Saskatoon are anticipated to be in commercial production in the fourth quarter of 2014. Both projects remain on budget. Demand for product from these facilities have been strong and we anticipate having the majority of production been contracted prior to being in commercial production.

Currently approximately 70% of Port Edwards capacity has been contracted and we’re at negotiation with respect to the remaining capacity. Further, we anticipate the Saskatoon facility will be close to fully contracted by the fourth quarter of 2014. Weather condition that impacts Superior Energy business will have a modest impact on the chemical business as well. Numerous winter, storms heightened transportation of product into the beginning of 2014.

Although we anticipate that this will normalize for the remainder of the quarter. There may be a modest impact for the quarter as a whole. Winter condition did positively impact runway of the icing demand which should help to offset weakness in other parts of the business due to transportation issue.

Similar to our chemical business, the fundamentals of our construction product business are similar in update that we said at the quarter three result. The fundamentals in U.S. operation continue to steady improve, growth in the U.S. gypsum and GSD business have been consistently improving at the rate of 15% to 20%. Based on the existing U.S. housing start and the state of the U.S. economy, we’re anticipating that this will continue throughout 2014.

Historically the improvement in commercial GSD has lagged improvement in the residential sector by 12 to 18 months. We’re encouraged that we have recently begun to see positive sign of improvement in the commercial GSD market and are optimistic that we’re in early stage of the recovery in this end-used market which historically for us contributes to 50% of our EBITDA in our construction business.

Our commercial and industrial insulation business continued to perform well. Over the last two years the industrial portion of this business has been steady with commercial activity lagging of course, but similar to the improvement in the commercial GSD space we’re beginning to see sustainable improvement in the commercial insulation space. Irrespective of the strategic process I previously discussed, we continue to focus on initiative we had previously outlined improve the business and are making excellent progress in all of our initiatives. The execution of our pricing and procurement initiative are tracking very well and I’m positive that we will meet our goal of improving margin over the next years.

We continue to be optimistic about improving our financial performance throughout 2014 and 2015. We are not anticipating a material impact from weather for this first quarter for CPD as lost sales volume in January as a result of weather should normalize by the end of the first quarter. So generally weather impact the timing of sales volume as oppose to the absolute volume in other business. From a corporate perspective, we will continue to focus on reducing our debt. We ended 2014 with a total debt to EBITDA before restructuring cost of 3.9 which was higher than we previously anticipated largely due to increase in working capital requirement as I previously note and Wayne alluded to.

We anticipate our debt to EBITDA at the end of 2014 will be in the range of $3.6 to $3.9. We remain committed to reduce to our total debt to EBITDA to the 3% level maybe 3 to 3.5 in the medium term. While we continue to focus on minimizing our working capital requirement to assist in our debt reduction initiative we’re unfortunately not able to control the commodity cost of our energy product. Our balance sheet maturities are in excellent shape with no material maturities until 2016. We continue to have excellent access to capital markets.

So in conclusion, we’re heading our milestone to establish as part of destination 2013 and we have defined path forward to meet our goal and become best-of-class organization. I am confident that we will achieve this goal based on the commitment and active involvement I see from our Superior leadership team and all of our employees.

With that said, I would now like to open up to any question that you may have.

Question-and-Answer Session

Operator

Thank you, Mr. Desjardins. Questions will now be taken from the telephone lines. (Operator Instructions) The first question is from Damir Gunja with TD Securities. Please go ahead.

Damir Gunja - TD Securities

Thank you good morning.

Luc Desjardins

Good morning.

Damir Gunja - TD Securities

Just wondering if you could touch on the rationale a little bit behind the review of the CPD business just given where we are sort of in the earnings cycle. And I don’t know if you can go there now, but if you were to sell it how would you feel about redeploying the proceeds?

Luc Desjardins

Sure, so I’ll take the first part and Wayne will take the second part. Timing is always a difficult thing to pin it right on. We’ve had a good steady improvement in 2013 and we’re starting 2014 with another major improvement in the division. And when we look to update growth in commercial especially which is probably going to start in 2014 late or 2015 and other forecasts are really showing towards that we think what we -- the timing for us if we know success is happening and we’ll improve the business we also believe that the industry potential buyer also are very knowledgeable. They understand that what level of the industry growth that we are in and they do know that the market is really coming back strongly and residential and right after that commercial.

So there is no real I think surprise, we believe that people that are in this industry that are smart at it and really gets everything that’s going on in that will give us the right level of value for what’s coming in this industry. At least we’ve established a solid management team with a solid structure with a solid initiative, so the game plan is written it’s happening so we’re into a good position and we also believe that if somebody comes to the table with the right value which is not done we will look at the proceed of that but we want to do our homework first and make sure that we hire the proper consultant to tell us what this world is all about and what we can expect. Maybe, Wayne for the other half, go head?

Wayne Bingham

Sure -- good morning. Certainly in the near-term if we did decide to sell it there would a significant reduction in our bank debt such that I think we would achieve our goal our debt goals pretty quickly. And what that then opens up is opportunities I think to focus on the other two divisions and there are opportunities to deploy capital at ERCO as well as in Energy Services with tuck-in. So I think as Luc mentioned it’s an opportunity of time to look at it. We have selected an investment bank to assist us with all of that, no decision has been made by the Board yet. But you constantly have to assess as Luc mentioned the market, the multiples and the buyers that might be willing to pick the asset it is a premium asset, 115 branches in North America diversified so it’s incumbent upon Luc and I to take a hard look at it and report back to the Board.

Damir Gunja - TD Securities

No, that’s fair. Maybe just one follow-up, is there a set timeline to the process?

Wayne Bingham

No real time line we will be discussing with our investment banker that we have selected. We’re not going to report on anything when we have something to say we’ll come out and say it, so but based on it probably is a process of 30-60 days for us to get our minds around the market and understand what’s going on probably more 60 than a 30.

Damir Gunja - TD Securities

Okay, thank you.

Wayne Bingham

Thank you.

Operator

Thank you. The next question is from Sarah Hughes with Cormark Securities. Please go ahead.

Sarah Hughes - Cormark Securities

Good morning guys.

Luc Desjardins

Hello.

Wayne Bingham

Hi, Sarah.

Sarah Hughes - Cormark Securities

Hi. So I guess just wanted a clarification on one thing Luc you talked about in the energy side and the weather impact and you talked about on Q1 indicating that it’d be positive for the business and you’ve passed on pricing. Are you going to be hit with this similar kind of higher delivery logistic cost in the quarter offsetting some of that higher volume and move on pricing?

Luc Desjardins

Absolutely, absolutely it started from all the in-bound transportation across North America to get propane and because of our logistic and our team here at SEM who are professional at buying propane and other types of liquid, we are able to do a hell of a good job for all our customers on getting the right supply. I think our size and our approach and our professional team helped us but everything have to be how do we service those customer, how do we service those customer and the in-bound transportation cost with delay, with the weather, with more volume than the past, it was a big huge struggle by the day it was a conference call everyday on all of that and it cost us a lot more because we were not focused on have it at the best cost, we just wanted to have it to service our customer. And then you go off-bound, all of our trucks and all of our people were doing everything in their power to get to their customers, commercial, residential and others and an outstanding job was done.

And that cost us, and overtime people working seven days a week, people working around the clock. We didn’t stop anything from servicing those customer which cost us more and we are pleased we did that. And what we see that potentially that will happen as we have done a great job and many customers that we don’t have also called and say, can you supply us and we said no. We stick to our customer presently because it’s a crisis and we owe to those customers to service them.

And I assure you in this industry, North America with what happened, we have done an outstanding job. So, now what we should do and we will do is in April everything -- and we told customers, we’d like to visit you in April. We’d like to explain to you all of our logistic and supply and we think we can be a good supplier to all of those customers. So, we are going out in April, May to visit them all and explain to them the value proposition that we have that probably doesn’t show in regular time, certainly show them in those difficult times. And we hope that could give us a chance to capture new customers as this winter is over and we will do our utmost to go there and get additional customers.

Overall I think the net-net is going to be okay but there is maybe some other cost in bound and out bound and yet there is more volume and we had to run by day to just continue to maintain those same margin because price of propane was just skyrocketing every day. Shot up fast.

Sarah Hughes - Cormark Securities

And the shortage issues, is that calming down a little bit now in most recent weeks or?

Luc Desjardins

Yes, it’s absolutely, it’s not the prices of December and January, it’s still very, very important, it’s still critical but to the lower level than six, seven, eight weeks, yes.

Sarah Hughes - Cormark Securities

Okay. And then just one question on the ADD system that you put-in in Canada, are you able I guess say Atlantic Canada out West, have you been able to to-date seen any ways of decreasing your cost in those regions or is still too early yet?

Luc Desjardins

No, it’s a very good question and I’ve alluded in my presentation about an operating process that is really, there’s two parts to the system. First it will give us a much better forecast, it will give us information daily to all our branch what have you done yesterday and how did you achieve the basic operational day that you should be achieving. So it’s a very, very important tool. But comes with that tool standard operating model system, so if you have the good system and it gives you which is a core of the distribution business. People that don’t have top quality system don’t run distribution business very well. So, now that we are selling that everywhere immediately after we have ADDs installed, we bring in the team to standardize an operating business model, how you operate day-to-day, hour-to-hour with every employees across Canada.

So, the system is one big piece of improvement and a must and right after that as important is how is everybody going to do good working day everyday and how to measure that review it and adjust. And that’s the operating model system that’s getting put in place following right after the ADD system the month after that goes in. So, you have a huge, huge amounts of heavy lifting going on and it’s probably over the top when you think of normal improvement of work for our business it’s at the level of massive work.

But we also feel good because we are in the last six months, including all of that and making it happen. We have a lot done already. The operation are, really the standardization of our business model is happening. So by June, July we are going to be at the point, mid-summer this 2014 where we have all the tools and we have the operating model to be efficient and that’s coming.

Sarah Hughes - Cormark Securities

Great. And then just last question from me maybe Wayne, on the fixed price side of things on the energy, the revenue level we saw in 2013 should that be a good base number as we go forward here?

Wayne Bingham

I would think so, I think as Luc mentioned I think there is going to be a real opportunity to enhance that business for us to be able to put with volatility on that speaking for SEM on the natural gas side, there may be an opportunity but certainly on the propane side fixed price business, there will be an opportunity there as customers realize that security of supply is very, very important as well as pricing. But as it relates to SEM, it’s probably in the, I would say $5 million range for EBITDA is reasonable, $3 million to $5 million.

Sarah Hughes - Cormark Securities

Okay, thank you, that’s it for me.

Luc Desjardins

Alright, thank you.

Operator

Thank you. (Operator Instructions) And the next question is from Joel Jackson with BMO Capital Markets. Please go ahead.

Joel Jackson - BMO Capital Markets

Hi, thank you, good morning.

Luc Desjardins

Good morning.

Joel Jackson - BMO Capital Markets

I wanted to ask you about some of your commentary around the chloride business, you talk about reduced contribution, maybe talk -- maybe you can elaborate on some of the cost issues you’re seeing that are sort of offsetting some of the gains from the Tronox arrangement?

Luc Desjardins

Yes, Joel there was two things happened in the fall of 2013, one larger company buying lot of chlorides shutdown a plant and it kind of those were -- at the same time that everybody negotiates 2014 and it create a kind of revival for the industry and it gave us for that period for pricing for 2014 a bit of wind in our face to price properly for 2014, so we’ve had a tweaking of the chlorate price but somewhat negative, not too much but somewhat negative and for the 2014 year.

And then energy cost is 70% of our variable cost but 65% of our total cost of the Company and chemical. So when you look at energy costs and BC going up like 7%, 8%, 9% even though they don’t have any shortage and different province across Canada, the province and the government is using that to help their deficit and a trade for manufacturer that buys a lot of energy, a cost that’s much higher than inflation and honestly besides telling them that this one deal will hurt them it’s a very tough task and they are increasing price like I said to the 7% to 10% increase every year which is kind of crazy but that’s the world we live in. So that has affected our costs.

Joel Jackson - BMO Capital Markets

Okay. And in the Canadian Propane business, you talked about your Investor Day a few months ago about targeting a headcount reduction of 150 to 175 people in 2014, can you give an update on that range and where you are?

Luc Desjardins

Yes, it’s, we can measure it, we know it with the ADD system execution and the operating model that comes right after that, we’re now organizing the work we’re doing it as we speak actually in the biggest region in Ontario starting in about a month over there, we could see that there was a lot of waste at every level, maybe a third of all the efforts of everyone was a waste and we kind of took that away, gave them the proper tools and organized, helped them organize a good day of work for them which was going to be for all of our employees.

And when we do that we become more efficient and we can reduce personnel, the easiest way to reduce personnel is we have, every year there’s people leaving anyway. So we look at that first and then we are also going to be right sizing where it makes sense. And there will be a reduction of personnel at the tune of what you mentioned before the year is over. And there was also by the way there will be one smaller scale but still the good amount about 70 people in our U.S. business.

Joel Jackson - BMO Capital Markets

And finally maybe you could comment a bit on the duration of some of your salt supply arrangements. Because obviously after a couple of mild winters you had a strong winter, salt prices have gone up about for players like -- buyers that didn’t have contracts, so maybe you could talk about if you’d expect a bit of increases to your salt cost for a specialty chemical business? Thanks.

Luc Desjardins

It’s a very good question and I’ll ask Wayne to respond to that.

Wayne Bingham

Basically, I mean first thing we all have to remember is that road salts and the salt that we use are two different grades, so there’s a different supply demand equation associated with those two so we’ve recently renegotiated some contracts and actually got favorable pricing on salt, so no supply issues for us and very positive momentum going forward on pricing.

Luc Desjardins

Maybe I’ll add to that that in our Saskatoon operation which is a lot of salt, we own the salt mine inner basement of that plant and we get it for free which is an additional competitive advantage for that region for us?

Joel Jackson - BMO Capital Markets

Thank you very much.

Luc Desjardins

Sure.

Operator

Thank you. And the next question is from Patrick Kinney with National Bank Financial, your line is open, please go ahead.

Patrick Kinney - National Bank Financial

Thank you very much, just with respect to the CPD process, if the sale of the business were to take place sort of later in 2014 and as Wayne mentioned you achieve your debt level targets, does that give you the green light to then start redeploying free cash flow right away or are you still handcuffed to the CRA decision to come in 2015.

Wayne Bingham

Well I think, Patrick it’s Wayne, I think at point in time the Board would ask us to take a look at the dividend, it would ask us to see opportunity in the balance could be sub three which would be fantastic and we would be in excellent shape to invest in our other and focus on our other two energy services and specialty chemicals.

Patrick Kinney - National Bank Financial

Okay, so just because you are not going to spend some time the CRA decision in 2015.

Wayne Bingham

No.

Luc Desjardins

No.

Patrick Kinney - National Bank Financial

Okay, great, and just moving over to USRF I know you guys mentioned challenging market conditions for the wholesale business continuing through 2014, I just wasn’t sure if that was all weather related or if there is something structural that is impacting that business perhaps beyond 2014?

Luc Desjardins

No it’s a very good point. It’s not so because of the weather what happened is we have the arrangement for many-many years of USRF with one or two key suppliers that were organized to and kind of integrated almost to our business. So it was an easy and a very good arrangement. These companies were -- that major company was sold and broken to divisions and sold to different people and kind of disappeared on us overnight. So we struggled at the beginning of 2013, so how do we do our supply chain and now that we don’t have that banker or suppler that with relation that are 20 years and older.

And then we got a bit in the gray zone, so we kind of went to bid everywhere to get liquid, oil and diesel and it affected our supply base how we do. It’s gets reorganized to do a good proper job of supplying our demand.

When the year -- when we were going to a big complicated but we get -- now we have product that comes to us directly and there is product that goes to the rack and there was a discrepancy from our re-price and the price of the rack that went up and down more than historically. So what we did with that we’ve hired a consultant Ettie Carney. We reorganized our work and we start the quarter three of 2103 to visit all the potential suppliers and reorganize the work load, so it’s now structured, organized and disciplined.

We have the right supplier now and are with us for 2014, and we’re really doing it the right way. So we were in a gray zone in kind of a mess from suppler base for that 6 to 9 months period. Hurt us completely reorganized with top suppler that if price of the rack if it goes lower we’re going to end up paying that price, and so we now have an arrangement and there is couple of supplier that are really -- it’s already started and I can assure you from December, January, February it’s going extremely well.

Patrick Kenny - National Bank Financial

Okay. That’s very helpful. Thanks for that Luc. And then maybe just lastly probably for Wayne just, I know there is a lot moving parts within your foreign exchange exposure just wondering if you maybe simplify it for us a little bit and perhaps provide us with update on how much cash flow is hedged for 2015 and maybe beyond?

Wayne Bingham

Sure, for 2014 it’s above 85% to 86%, Patrick, and for 2015 probably 68% to 70%.

Patrick Kenny - National Bank Financial

Okay, great, and anything beyond 2015?

Wayne Bingham

We do some hedging which is probably in the range of I don’t know, I haven’t got it in the I’d been reinjured I would take the low-end as you got to 17%, 18%, 20% and then maybe moving up to 40%.

Patrick Kenny - National Bank Financial

Okay, great. That’s all the questions I had, thanks guys.

Luc Desjardins

Yes, thank you.

Operator

Thank you. The next question is from Jacob Bout with CIBC. Please go ahead.

Jacob Bout - CIBC

Good morning. Just wanted to go back to the propane shortages and obviously there is a lot of bad press associated with that. If you step back a little bit, how do you think about the potential damage that has been done to the industry and from the lesson learned?

Luc Desjardins

Yes, very good point and in about two weeks time we have a session on actually all of that to with all of the best what are the learning of what happened. I think because of our size because of internal large logistic team and their different side that we have across Canada. We are I think in the better shape in the rest of the world and we perform very well. So having said that there were lessons learned, we have high cost of inbound and outbound and which were huge and how do we get organized in the future and do it better and how do we learn with what happened what it means.

We believe and I believe that from a majority of our customer other energy cost went to roof too much, so compared to that everything got to be very expensive those shortage of energy. And I think for the midterm and I don’t think there is a real impact but still price of propane is going to come back down it’s already started somewhat, so you are going to end up with I believe not that much damage mid long-term for our customers. I do think though that we were seeing a start up of growth in the auto industry in BC and Quebec and that might slow it down a bit this year and we were expecting to grow a 1% this year it might only grow 5%.

So that one I’m not fully assured because people have to invest some money to -- and they’ll probably think about it a bit more than in the past, because it’s such gain to go to propane for taxi and light trucks. So maybe there a bit less growth in -- it was going to come back and grow it that might slow down a bit that growth but the rest of the business I don’t see any change for the demand.

Jacob Bout - CIBC

Yes, thank you. And maybe just a quick question here on the chemical markets in particular on the caustic side. I know last quarter you were talking quite optimistically about we are looking at price increases of $30 to $40 a tonne. It seems as if the ability to see those price increase going forward has been lessened. What's your view right now on the cost for a corroborate?

Wayne Bingham

Hi Jacob it's Wayne. I think we're still very, very positive. I mean as you know and I think our shareholders know and the other analysts, we have orbits that are unique to our plants and what we're seeing on the caustic side -- there are a few moving parts with exports which help obviously the supply demand for North America, but nothing has changed in our view. Our outlook is good today and caustic as it was when in the prior quarter.

Jacob Bout - CIBC

So as far as price increases in 2014, you're still confident $30 a tonne increase, or?

Wayne Bingham

In that range I think we have a comfort level there.

Jacob Bout - CIBC

Okay excellent, thank you.

Wayne Bingham

Yes thank you Jacob.

Operator

Thank you. (Operator Instructions) There are no further questions registered at this time. I'd now like to turn the meeting back to Mr. Desjardins.

Luc Desjardins

So, thank you. I'd like to conclude the call and thank you for your participation in Superior 2013 annual fourth quarter result call. Thank you very much everyone.

Operator

Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.

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