Superior Plus Corp. (OTC:SUUIF) Q2 2014 Earnings Conference Call August 7, 2014 10:00 AM ET
Luc Desjardins - President and Chief Executive Officer
Wayne Bingham - Executive Vice President and Chief Financial Officer
Benoit Laprade - Scotiabank
Good morning, ladies and gentlemen. Welcome to the Superior Plus Corp., Second Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Luc Desjardins. Please go ahead, sir.
Thank you. So, good morning and thank you and welcome to the Superior Plus 2014 second quarter results conference call. With me in this morning call is Wayne Bingham, Executive Vice President and CFO; and Jay Bachman, VP, Investor Relations and Treasurer. Wayne Bingham will provide an overview of the second quarter results after which I will provide an update on our strategy and businesses. It’s up to you Wayne.
Great. Thank you Luc and good morning everyone. And also welcome to our 2014 second quarter conference call. I’ll make a few brief comments on the financial performance and then turn it back to Luc. Our consolidated AOCF for the quarter before restructuring costs was $0.25 compared to $0.24 in the prior quarter and in line with management’s expectations.
Turning now to Energy Services; Energy Services recorded an EBITDA of 17.2 million, compared to 15.4 million in the prior quarter. In the propane Canada operations, margins were strong at $0.186 per liter compared to $0.189 in the prior quarter. The volatile propane prices caused some minor margin compression quarter-over-quarter.
Overall volumes were down 10 million liters or 4% compared to the prior year’s quarter primarily due to reduced oil field demand. Margins in U.S. RF was strong at $0.076 per liter as compared to $0.064 per liter in 2013 and newly introduced delivery charge contributed to the increased along with a more favorable mix of higher margin wholesale volumes. Overall gross profit for energy services was 91 million versus 94 million in the prior quarter.
Turning to specialty chemicals, the fundamentals in the chemical industry continued to be very good with a second quarter EBITDA of 24.7 million compared 25.1 million in the prior quarter. Chlorate volumes were strong and up by approximately 26%, primarily due to the Tronox volume. The pulp markets continued to be firm in North America and the inventory is balanced in the 36 day to 38 day range. On the chloralkali side of the business, quarter-over-quarter gross profits were modestly higher than the prior quarter, reflecting improved caustic volumes and higher chlorine selling prices.
Turning now to construction products, our construction products distribution division recorded a Q2 EBITDA of 8 million compared to 8.3 million in the prior year. The U.S. gypsum sales were strong with good improvement in the C&I business. Western Canada markets were strong somewhat offset by DC and Ontario results.
Turning now to debt management, our leverage ratio at June 30, 2014 is 3.6 times on a pre-restructuring basis. We anticipate being at the lower end of our range of guidance up 3.6 to 4 by the end of the year and we continued to be intently focused on getting our leverage down to our target range of 3 to 3.5 with emphasis on the lower end of that range. And finally, guidance remains unchanged at 165 to 195.
I’ll now hand it back to Luc.
So we’re pleased with Superior’s performance for the second quarter 2014 as the results were consistent with our expectation. The operational initiative that underpin destination 2015 continued to track to our expectation and I am happy to report that we are beginning to see the financial impact on these initiative starting this coming quarters. For the remainder of 2014, we will continue to focus our effort on ensuring timely and appropriate execution on these initiatives in all of our businesses.
As it relates to our energy service business I am happy to report that ADD IT system has now been implemented across all of our operations. The implementation the ADD IT system has been a multiple year project and I am extremely pleased with the overall execution. I would like to personally thank the ADD project team and the Senior Leadership team of propane for their commitment and discipline to ensure the success of this project.
The ADD system is integral to our future success and is one of the key foundation for Superior Way project. In conjunction with their ADD implementation work on the Superior Way project continued throughout the second quarter. The Superior Way project involves the reorganization and implementation of standard operating processes at all level occur in the entire Canadian operation and on a smaller scale in the U.S. operation as we implement best practices across the entire business.
Implementation of the Superior Way is currently on their way across all operating region in Canada. We expect that the implementation will be substantially complete across the entire country by September of this year, so one more month away. The successful implementation of Superior Way project is integral to improving the operation throughout Canada.
Although we still have work to complete, implementation best practices across our entire operation, I’m encouraged by our effort to this point, while the second and third quarter are low contribution quarter for energy business, we’re happy with the progress we have made on right sizing our business and consequently reducing our cost structure going forward. As evidenced of our second quarter results, we have started to see the benefit of lower operating cost and anticipate that this will continue throughout 2014 and 2015.
In addition to improving our general operations and customer service level implementation to Superior Way has allowed us to reduce our full-time headcount by approximately 120 in our Canadian Propane business up-to-date. And in addition to the headcount reduction in Canada we have also reduced our headcount in the U.S. by 70 FTE.
The reduction in headcount and the U.S. business is due to the successful reorganization of our service organization which was completed during the second quarter. We anticipate in addition to the reduction of headcount in our Canadian business during the remainder of 2014 of approximately 40 FTE.
In addition to the day-to-day operation improvement work continue on our sales and marketing effort in addition to ongoing improvement in our energy supply function. We’re leveraging our size and getting a better price from the supply side as well. We continue to see financial improvement due to enhancement and our procurement strategy and are confident the 2014, 2015 leading year will provide additional benefit.
Our sales and marketing initiatives continued show initial sign of success and we’re confident that the benefits of this work will begin to show more direct improvement in the months ahead and in 2015. I remain confident that we will continue to see progress from our financial prospective in the third quarter and fourth quarter of 2014 and into 2015, as it relates to energy service initiatives. Allowing us to substantially reduce our cost and improving our internal growth as well as buying better the third quarter and fourth quarter of 2014 and into 2015 and beyond.
Turning to our Specialty Chemical business; the expansion of the HCL production capacity at our Port Edwards and Saskatoon facility continued to track very well. The Port Edwards expansion remain on budget and we now anticipate that this project will be operational at the end of this month, so during quarter three which is several months earlier than we previously anticipated.
The Saskatoon expansion is anticipated to be in production in the fourth quarter 2014 which is consistent with our prior update. We have experienced though a modest increase in the total budget by about $3 million of cost due to difficulty and producing, procuring specialized trade labor in Western Canada and the purchase of project specific equipment which due to demand in Western Canada is more expensive.
Substantially all our incremental volume is currently contracted and we continue to see opportunity to sell the remaining volume while optimizing overall net margin. Business fundamental for Superior Specialty chemical businesses are essentially unchanged from the update provide in quarter one. Superior continued to anticipate that its 2014 result would be impacted by higher electricity price, particularly in our sodium chlorate business.
We continued to see solid sales volume and are substantially sold out on sodium chlorate. Our sodium chlorate business continued to benefit from supply agreement with the Tronox project. The Tronox supply agreement continues to provide benefit for Superior as we optimize our logistic and manufacturing network on a North American basis.
We anticipate that the overall market for chloralkali which includes caustic, chlorine and 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 provides 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 throughout the first half of 2014 and we believe that this will continue to be the case for the remainder of the year.
As noted in our second quarter press release, our Hargrave, Manitoba facility has been shut down since June 29, as a result of local area flooding. The facility represents 8% of our North American production capacity. We’ve been able to continue to service our customers based throughout this period and anticipate the facility will be back up normal operating rate by the end of this month.
I would like to provide a brief update on the sales process of CPD. As noted in the second quarter press release, the sales process is well advance, but we do not have anything further to announce at this time. CPD’s second quarter results were impacted more significantly from the knock on impact of adverse weather experienced in the first quarter of 2014 then we originally anticipated, were very optimistic that the impact of this is now fully behind us and we shall see a very strong second half of the year from both volume and margin perspective.
In conclusion, we’re heading our milestone established as part of Destination 2015 and we have defined path forward to meet our goal of becoming best-in-class organization. Most importantly Superior has the necessary talent in place to ensure we execute a very high level as it relates to both our day-to-day operation but also our key initiatives.
I am confident that we will achieve our goals based on the June line commitment and active involvement I see from Superior leadership team and all of our employees across all of our businesses.
With that said, I would now like to open up any question that you may have.
Thank you. We will now take questions from the telephone lines. (Operator Instructions). Our first question is from Luis Pardo from Scotiabank. Please go ahead.
Benoit Laprade - Scotiabank
It's Benoit actually. Question on the Chlorate side, I know it’s a bit early, but have you started to negotiate contracts for the coming year? And how is the Tronox arrangement to be part of that?
Yes. I think approximately 50% of our open volume has been re-contracted; the pricing environment has been improved relative to the prior year. And we’re seeing modest price increase as part of our new rolled process continuing for the rest of the year, so a big plus.
Thank you. (Operator Instructions). Mr. Desjardins, we have no further questions at this time.
So there are no further questions. I’d like to conclude the call. And thank you for your participation in Superior 2014 second quarter results. Very excited about what’s coming next in the third and fourth quarter. So see you at that time. Thank you.
Thank you. The conference call has now ended. Please disconnect your lines at this time. And we thank all who participated.