TORONTO--(BUSINESS WIRE)--Superior Plus Corp. (“Superior”) (TSX:SPB) announced today the financial and operating results for the second quarter ended June 30, 2018. All financial figures are expressed in Canadian dollars.
“Superior delivered strong second quarter results driven by the continued strength in the chlor-alkali market, contribution from the Canwest Propane and tuck-in acquisitions and colder weather in April. The businesses are operating well and we are gaining momentum on our Evolution 2020 initiatives, including the tuck-in acquisitions and execution on the Canwest integration and synergies.” said Luc Desjardins, Superior’s President and Chief Executive Officer. “2018 has been a transformational year at Superior, having closed our largest acquisition in Superior’s history in July, significantly expanding our U.S. retail propane business, and completing the divestiture of our wholesale distillate assets in the U.S. We have made good progress in building our propane distribution business and look forward to applying our industry leading operational and digital platform across our North American geographic footprint.”
As a result of the closing of Superior’s acquisition of NGL Propane Retail East (“NGL Propane”) on July 10, 2018, Superior has increased its 2018 Adjusted EBITDA guidance range to $345 million to $375 million. See “2018 Financial Outlook and Updated Adjusted EBITDA Guidance” for further details.
Business and Financial Highlights
- Superior achieved AOCF per share before transaction and other costs during the second quarter of $0.21, 11% higher than the prior year quarter due to an increase in Adjusted EBITDA, offset in part by increased cash tax expenses.
- Superior achieved second quarter Adjusted EBITDA of $42.8 million, a $2.5 million or 6% increase over the prior year quarter primarily due to higher Specialty Chemicals EBITDA from operations and Energy Distribution EBITDA from operations, partially offset by higher corporate costs.
- Superior had net earnings from continuing operations of $11.4 million in the second quarter compared to a net loss of $1.6 million in the prior year quarter primarily due to an increase in gross profit, partially offset by an increase in expenses. Gross profit increased $21.7 million primarily due to contribution from Canwest Propane (“Canwest”), lower cost of sales and improved chlor-alkali results. In the second quarter of 2017, the Canwest gross profit contribution was reported as part of the Income from Canwest. Expenses increased $7.5 million primarily due to incremental expenses from Canwest.
- Energy Distribution achieved strong EBITDA from operations for the second quarter of $19.0 million, an increase of $6.2 million or 48% compared to the prior year quarter primarily due to the contribution from Canwest and tuck-in acquisitions completed in 2017 and the first six months of 2018, higher sales volumes related to colder weather and organic customer growth initiatives, and higher average unit margins in the U.S. propane distribution business.
- Specialty Chemicals EBITDA from operations for the second quarter was $30.7 million, an increase of $2.3 million or 8% compared to the prior year quarter primarily due to higher chlor-alkali sales prices for most products and higher hydrochloric acid and caustic soda sales volumes, partially offset by modestly lower sodium chlorate sales volumes and prices, product purchase costs and higher operating expenses.
Evolution 2020 and Strategy Highlights
- On July 10, 2018, Superior completed the acquisition of the outstanding equity interests in NGL Propane, NGL Energy Partners LP’s retail propane distribution business, for total cash consideration of US$896.5 million (CDN $1.2 billion). The purchase price was financed through a combination of debt and equity, including Superior’s recently completed United States and Canadian debt offerings of US$350 million and CDN$150 million aggregate principal amount of senior unsecured notes, respectively, the net proceeds of Superior’s recent bought deal offering of subscription receipts (the “Subscription Receipts”) and borrowings under Superior’s existing credit facilities.
- The acquisition of NGL Propane provides an established platform to execute on further expansion opportunities in the U.S. with a contiguous presence throughout the Eastern U.S. Superior continues to evaluate tuck-in acquisitions in Energy Distribution and Specialty Chemicals, deploying capital to build shareholder value using a disciplined approach. The U.S. retail propane market is highly fragmented, and there are a significant number of opportunities for Superior to continue its retail propane distribution expansion and realize synergies on future acquisitions due to the expanded geographic footprint.
- On June 15, 2018, Superior updated the Evolution 2020 aspirational goal of increasing EBITDA from operations by a range of $200 to $250 million by the end of 2020 as compared to 2016.
- On May 1, 2018, Superior closed the acquisition of the propane distribution assets of Blue Flame Gas, an independent propane distributor in Pennsylvania for US$11.0 million (CDN$14.2 million).
- On April 30, 2018, Superior completed the sale of the propane assets required by the terms of the consent agreement entered into with the Competition Bureau as part of the Canwest Propane acquisition, following approval by the Competition Bureau of the purchasers and satisfaction of certain customary closing conditions. Superior sold the assets to two separate third-parties in independent transactions for total cash proceeds of $13.2 million.
- On April 25, 2018, Superior closed on the sale of substantially all of its wholesale distillate assets in New York for cash proceeds of US$55.5 million (CDN$71.2 million).
- On April 3, 2018, Superior sold certain retail distillate assets in Pennsylvania to a third-party for total cash consideration of approximately US$16.1 million (CDN$20.7 million).
|Three Months Ended||Six Months Ended|
|June 30||June 30|
|(millions of dollars, except per share amounts)||2018||2017||2018||2017|
|Net earnings (loss)||11.4||(1.6)||58.7||51.6|
|Net earnings (loss) per share, basic (1)||$0.08||$(0.01)||$0.41||$0.36|
|Net earnings (loss) per share, diluted (1)||$0.08||$(0.01)||$0.41||$0.35|
|EBITDA from operations (2)||49.7||41.2||208.3||160.2|
|Adjusted EBITDA (2)||42.8||40.3||195.4||159.5|
|Cash flows from operating activities||177.3||39.2||237.9||128.7|
|Cash flows from operating activities per share – basic and diluted (1)||$1.24||$0.27||$1.67||$0.90|
|AOCF before transaction and other costs (2)(3)||29.3||27.5||167.4||136.8|
|AOCF before transaction and other costs per share – basic (1)(2)(3)||$0.21||$0.19||$1.17||$0.96|
|AOCF before transaction and other costs per share –diluted (1)(2)(3)||$0.21||$0.19||$1.17||$0.94|
|AOCF per share– basic (1)(2)||$0.14||$0.14||$1.06||$0.90|
|AOCF per share – diluted (1)(2)||$0.14||$0.14||$1.06||$0.88|
|Cash dividends declared||25.7||25.7||51.4||51.4|
|Cash dividends declared per share||$0.18||$0.18||$0.36||$0.36|
|(1)||The weighted average number of shares outstanding for the three and six months ended June 30, 2018 is 142.8 million (June 30, 2017 – 142.8). There were no dilutive instruments with respect to net earnings (loss) per share, AOCF per share or cash flows from operating activities per share for the three and six months ended June 30, 2018 and the three months ended June 30, 2017. The dilutive weighted average number of shares outstanding for the six months ended June 30, 2017 148.6 million shares.|
|(2)||EBITDA from operations, Adjusted EBITDA and AOCF are non-GAAP measures. Refer to “Non-GAAP Financial Measures” for further details and the MD&A for reconciliations.|
|(3)||Transaction and other costs for the six months ended June 30, 2018 are primarily related to the integration of Canwest and costs related to the other tuck-in acquisitions. Refer to “Transaction and Other Costs” in the MD&A for further details.|
Three months ended
|Six months ended|
|June 30||June 30|
|(millions of dollars)||2018||2017||2018||2017|
|EBITDA from operations(1)|
|(1)||See “Non-GAAP Financial Measures”.|
2018 Financial Outlook and Updated Adjusted EBITDA Guidance
Superior is updating the 2018 Adjusted EBITDA guidance of $305 million to $335 million to a range of $345 million to $375 million, which increases the midpoint from $320 million to $360 million. Superior’s 2018 financial outlook of AOCF per share is $1.75 to $1.95 before transaction and other costs, consistent with the 2018 first quarter release. However, given the increase in common shares issued in connection with the NGL Propane acquisition and the fact significant synergies are not expected to be realized until 2019, we currently expect to be in the lower part of the guidance range. Similar to Superior’s U.S. Propane distribution business, NGL Propane generates a material amount of EBITDA during the first half of the year due to the significant concentration of residential customers and seasonality of demand which is generally the highest during the first quarter. During NGL’s last reported fiscal year, approximately 65% of the EBITDA was generated in the months of January to June. Given that seasonality of demand, for the balance of 2018, the anticipated positive EBITDA impact from the acquisition of NGL (which closed in July 2018) is expected to be outweighed by the impact of the additional equity and debt utilized to fund the acquisition. On a pro forma basis, the company still anticipates the transaction to provide double digit accretion assuming normalized run-rate EBITDA of $117 million (USD $90 million) and anticipated run-rate synergies of $26 million to $32 million (USD $20 million to $25 million). See “2018 Financial Outlook” in Superior’s MD&A for further details.
MD&A and Financial Statements
Superior’s MD&A, the unaudited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements for the three and six months ended June 30, 2018 provide a detailed explanation of Superior’s operating results. These documents are available online at Superior’s website at www.superiorplus.com under the Investor Relations section and on SEDAR under Superior’s profile at www.sedar.com.
2018 Second Quarter Conference Call
Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2018 Second Quarter Results at 10:30 a.m. EST on Thursday, August 9, 2018. To participate in the call, dial: 1-844-389-8661. Internet users can listen to the call live, or as an archived call on Superior’s website at www.superiorplus.com under the Events section.
Non-GAAP Financial Measures
Throughout the second quarter earnings release, Superior has used the following terms that are not defined by International Financial Reporting Standards (“Non-GAAP Financial Measures”), but are used by management to evaluate the performance of Superior and its business: AOCF before and after transaction and other costs, earnings before interest, taxes, depreciation and amortization (“EBITDA”) from operations, and Adjusted EBITDA. These measures may also be used by investors, financial institutions and credit rating agencies to assess Superior’s performance and ability to service debt. Non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Securities regulations require that non-GAAP financial measures are clearly defined, qualified and reconciled to their most comparable GAAP financial measures. Except as otherwise indicated, these non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific items may only be relevant in certain periods. See “Non-GAAP Financial Measures” in the MD&A for a discussion of non-GAAP measures and their reconciliations.
The intent of non-GAAP financial measures is to provide additional useful information to investors and analysts, and the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate non-GAAP financial measures differently.
Investors should be cautioned that AOCF, EBITDA from operations, and Adjusted EBITDA should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior’s performance. Non-GAAP financial measures are identified and defined as follows:
Adjusted Operating Cash Flow and Adjusted Operating Cash Flow per Share
AOCF is equal to cash flow from operating activities as defined by IFRS, adjusted for changes in non-cash working capital, other expenses, non-cash interest expense, current income taxes and finance costs. Superior may deduct or include additional items in its calculation of AOCF; these items would generally, but not necessarily, be infrequent in nature and could distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. AOCF and AOCF per share are presented before and after transaction and other costs.
AOCF per share before transaction and other costs is calculated by dividing AOCF before transaction and other costs by the weighted average number of shares outstanding. AOCF per share is calculated by dividing AOCF by the weighted average number of shares outstanding.
AOCF is a performance measure used by management and investors to evaluate Superior’s ongoing performance of its businesses and ability to generate cash flow. AOCF represents cash flow generated by Superior that is available for, but not necessarily limited to, changes in working capital requirements, investing activities and financing activities of Superior. AOCF is also used as one component in determining short-term incentive compensation for certain management employees.
The seasonality of Superior’s individual quarterly results must be assessed in the context of annualized AOCF. Adjustments recorded by Superior as part of its calculation of AOCF include, but are not limited to, the impact of the seasonality of Superior’s businesses, principally the Energy Distribution segment, by adjusting for non-cash working capital items, thereby eliminating the impact of the timing between the recognition and collection/payment of Superior’s revenues and expenses, which can differ significantly from quarter to quarter.
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, losses (gains) on disposal of assets, finance expense, restructuring costs, transaction and other costs, and unrealized gains (losses) on derivative financial instruments. Adjusted EBITDA is used by Superior and investors to assess its consolidated results and ability to service debt. Adjusted EBITDA is reconciled to net earnings before income taxes.
EBITDA from operations
EBITDA from operations is defined as Adjusted EBITDA excluding costs that are not considered representative of Superior’s underlying core operating performance, including gains and losses on foreign currency hedging contracts, corporate costs and transaction and other costs. Management uses EBITDA from operations to set targets for Superior (including annual guidance and variable compensation targets). EBITDA from operations is reconciled to net earnings before income taxes.
Forward Looking Information
Certain information included herein is forward-looking information within the meaning of applicable Canadian securities laws. Forward-looking information may include statements regarding the objectives, business strategies to achieve those objectives, expected financial results (including those in the area of risk management), economic or market conditions, and the outlook of or involving Superior, Superior LP and its businesses. Such information is typically identified by words such as “anticipate”, “believe”, “continue”, “estimate”, “expect”, “plan”, “forecast”, “future”, “outlook, “guidance”, “may”, “project”, “should”, “strategy”, “target”, “will” or similar expressions suggesting future outcomes.
Forward-looking information in this document includes: future financial position, consolidated and business segment outlooks, the Evolution 2020 aspirational goal, expected Adjusted EBITDA, expected AOCF and AOCF per share, business strategy and objectives, development plans and programs, business expansion and cost structure and other improvement projects, expected product margins and sales volumes, market conditions in Canada and the U.S., expected synergies from the acquisition and integration of Canwest, expected accretion, EBITDA and synergies associated with the NGL acquisition, expected seasonality of demand, future economic conditions, our ability to obtain financing on acceptable terms, expected life of facilities and statements regarding net working capital and capital expenditure requirements of Superior or Superior LP.
Forward-looking information is provided for the purpose of providing information about management’s expectations and plans about the future and may not be appropriate for other purposes. Forward-looking information herein is based on various assumptions and expectations that Superior believes are reasonable in the circumstances. No assurance can be given that these assumptions and expectations will prove to be correct. Those assumptions and expectations are based on information currently available to Superior, including information obtained from third party industry analysts and other third party sources, and the historic performance of Superior’s businesses. Such assumptions include anticipated financial performance, current business and economic trends, the amount of future dividends paid by Superior, business prospects, utilization of tax basis, regulatory developments, currency, exchange and interest rates, future commodity prices relating to the oil and gas industry, future oil rig activity levels, trading data, cost estimates, our ability to obtain financing on acceptable terms, the assumptions set forth under the “Financial Outlook” sections of our MD&A and, in respect of the Evolution 2020 goal, also include the successful completion and integration of acquisitions contributing approximately $10 million to $200 million in annual EBITDA (including synergies), organic growth of approximately 3-5% in annual EBITDA for each business, the anticipated and sustained recovery in the chlor-alkali sector within Specialty Chemicals, no significant divestitures or changes in the strategic direction of the business. The forward looking information is also subject to the risks and uncertainties set forth below.
By its very nature, forward-looking information involves numerous assumptions, risks and uncertainties, both general and specific. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, as many important factors are beyond our control, Superior’s or Superior LP’s actual performance and financial results may vary materially from those estimates and intentions contemplated, expressed or implied in the forward-looking information. These risks and uncertainties include incorrect assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel, fluctuations in foreign currency and exchange rates, inadequate insurance coverage, liability for cash taxes, counterparty risk, compliance with environmental laws and regulations, reduced customer demand, operational risks involving our facilities, force majeure, labour relations matters, our ability to access external sources of debt and equity capital, and the risks identified in (i) our MD&A under the heading “Risk Factors” and (ii) Superior’s most recent Annual Information Form. The preceding list of assumptions, risks and uncertainties is not exhaustive.
When relying on our forward-looking information to make decisions with respect to Superior, investors and others should carefully consider the preceding factors, other uncertainties and potential events. Any forward-looking information is provided as of the date of this document and, except as required by law, neither Superior nor Superior LP undertakes to update or revise such information to reflect new information, subsequent or otherwise. For the reasons set forth above, investors should not place undue reliance on forward-looking information.