Rogers Sugar Inc.

Good morning, ladies and gentlemen. Now, welcome to the Rogers Sugar First Quarter 2024 Results Conference Call. After the presentation, we will conduct a question and answer session, which will be open only to financial analysts. Instructions will be given at that time. Please note that this call is being recorded today, February 8, 2024, at 8 a.m. Eastern Time. Please be reminded that today's call may include forward-looking statements regarding future operations and expectations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. Please also note that there may be references to some non-GAAP measures during the call. Please refer to the forward-looking disclaimers and non-GAAP measure definitions included in the public filing with the Securities Commission for more information on these items. A replay of this call will be available later today. The replay numbers and passcodes have been provided in the press release. And an archived recording of this call will also be available on the Rogers Sugar website. I would now like to turn the meeting over to Mike Walton, President and CEO. Please go ahead, Mr. Walton.

Thank you, Operator, and good morning, everyone. Thank you all for joining us today. I'll start today by discussing our solid results for the first quarter of fiscal 2024, as well as sharing more detail on our strong growth outlook for 2024 now that the labor situation in Vancouver has settled. These results, as well as our positive outlook, demonstrate once again that the underlying sugar market dynamics and long-term demand trends continue to be very supportive for our business, and that our initiatives to drive performance improvements in our maple business continue to bear fruit. As I did last quarter, I'll discuss briefly what we are doing to position the business for long-term success by ensuring we have the right infrastructure and right model for running our plants so that we can harness those supportive market dynamics to produce consistent, profitable growth over the long term. I'll update you on our project to expand capacity in Eastern Canada, And I'll discuss a labor agreement we've reached in Vancouver that enables us to get that site back to full production and in a position to meet rising future demand. After that, I'll turn the call over to JS, our VP Finance and CFO, for a deeper dive into the financials. Let's begin with our results and 2024 outlook. As always, our aim is to deliver consistent, profitable growth by concentrating our efforts on supplying the domestic markets. This market has very strong fundamentals that support long-term demand for our sugar. Once again, we saw those fundamentals on display in Q1, and we expect those same positive bigger picture trends to drive strong results throughout fiscal 2024. We expect to build on our record performance in 2023 and deliver another year of higher consolidated revenue and adjusted EBITDA in fiscal 2024. At a high level, We generated an increase in first quarter revenue of approximately 10% year-over-year, as well as growth in gross margin and adjusted gross margin. Adjusted EBITDA declined by $2.8 million to $30.7 million due to a $3 million impact from our labor disruption at our Vancouver plant. Absent that one-time effect, we would have seen higher year-over-year adjusted EBITDA. Nonetheless, it was still one of our best quarters for adjusted EBITDA on record. In sugar, with Vancouver operating at a reduced capacity, we saw a reduction of volume of approximately 10,000 tons and a lower adjusted EBITDA. Even so, we delivered significant growth in revenue and higher adjusted gross margin per ton as we benefited from stronger demand due to the underlying health of the sugar market. In maple, we generated higher revenue driven by higher prices. Our recent investments in automation and business process improvements also continue to pay off in lower production costs that drive better gross margin. Our maple order book remains strong, and our overall execution against our strategy continues to show improved performance. The maple business remains a competitive space for all participants. I'll now turn to an update on what we are doing to prepare the company for a more sustainable and successful future by optimizing the business to capture the upside from those encouraging demand trends that we see in sugar. Our Eastern Canada expansion project is progressing as planned. Major equipment has been ordered. The site work is well underway in Montreal and we will soon begin in Toronto. If you drive by our site in Montreal, you will see the construction trailer village that has been established. After many months of planning, it is great to see the site work taking place. Recall that we announced the expansion in response to our assessment that we would need a substantial increase in production capacity to meet the growth and demand for our products from food manufacturers in the years to come. We have seen our view validated as other producers have followed our lead with their own announcements of capacity increases. As a reminder, our expansion project will increase our refining capacity by approximately 20% in Eastern Canada. We expect the new capacity will begin to come on stream in the first half of fiscal 2026, and we anticipate no issues in finding a home for the sugar we produce. The market is hungry for these products. By expanding refining and logistics capacity close to our customer base in Eastern Canada and the U.S., we will reduce our reliance on transporting sugar from our Vancouver plant. This will reduce freight costs and improve margins. It will also leave our western capacity available to support our growth opportunities in local domestic and export markets. That's a good segue into the big news, which is that we've reached an agreement with the Public and Private Workers of Canada Local 8 in Vancouver. That agreement was ratified last week. As we said throughout, We wanted a deal that worked for both the company and for employees and allowed us to serve customer needs and meet growing customer demand. We were also committed to finding a deal that provided fair wages, benefits, and working conditions. We believe we've done that. You'll recall that our objective was to be able to run Vancouver in a manner that better enables us to meet the long-term volume needs of the market. This five-year agreement puts us in a better position to accomplish that. We reached an agreement that gives us multiple levers to pull to raise production. While we have not moved to fully continuous operation, this is a meaningful step in that direction and enables us to better support rising demand. We anticipate we'll be ramping up production over the next few days and be back to full production late next week, which is excellent news for our customers. We are mindful that the strike was difficult for some of our customers. We acknowledge that and we apologize for that. On behalf of the entire organization, I want to thank each and every one of our team members across Canada who came through for our customers during the disruption. And I'd like to recognize the effort of management team members who put in time and effort to get the sugar out the door when it was needed. Just as importantly, we look forward to welcoming our hourly employees in Vancouver back to the site as we ramp up operations as quickly and safely as possible. Looking ahead, as I said, we anticipate another year of growth. Following a strong performance in 2023, including our highest sugar volume, consolidated revenue, and adjusted EBITDA results to date, we expect this positive trend to continue. We anticipate delivering higher consolidated revenue and adjusted EBITDA in 2024. We expect a continued strength in demand for sugars to support organic growth for our sugar business segment throughout 2024. We'll have Vancouver back online and Montreal and Tabor are running well. Considering the recently ended labor strike in Vancouver and its impact on the volume delivered to customers, we expect our initial outlook to decrease by 10,000 metric tons to 790,000 metric tons for the year. In terms of Tabor, we are further along in the processing of sugar beets than when we last spoke. We anticipate the crop will deliver a volume of beet sugar commensurate with our expectations. In maple, we continue to expect improved results in 2024, thanks to stronger pricing and cost reductions flowing from the automation and business processes we've introduced. But we need a good maple crop to replenish the industry stockpiles that have been drawn down. We'll know more in April about how this year's maple crop looks once we see what Mother Nature has in store for us this spring. So we'll have more to say about that on our Q2 call. The takeaway is that the outlook for our business in the near term and the long term is strong. We continue to benefit from the favorable market conditions that drove us to record-adjusted EBITDA in each of the last two years. Our focus on harnessing those market conditions, making improvements to our business, and supporting our customers is delivering the consistent, profitable growth that we strive for. And with that, I'll turn it over to KS.

Well, thank you, Mike, and good morning, everyone. Consolidated revenues for the first quarter were $289 million, a 10% increase from the same period last year. Revenues in sugar were up 12% despite lower volume caused from the labor disruption in Vancouver. The favorable variance was due to the increase in raw number 11 sugar commodity price and higher contribution from sugar refining activities from recently negotiated agreements. Revenues in maple were up 5%, mainly from higher pricing, reflecting the recently negotiated price increases associated with the inflationary pressures we have seen over the last few quarters. Consolidated adjusted EBITDA for the first quarter was 30.7 million, down 2.8 million or 8% from the prior year quarter. The sugar segment adjusted EBITDA was 4.7 million lower than prior year and reflects the unfavorable impact of the Vancouver labor disruption, estimated at $3 million for the quarter. The maple segment adjusted EBITDA was higher than last year by 1.9 million, reflecting the improved contribution margin from higher pricing and continuous improvement initiatives. Consolidated adjusted net earnings were 12.6 million or 12 cents per share as compared to 15.4 million or 15 cents per share in the first quarter of last year. Free cash flow for the trailing 12 months was 44.3 million, lower than the same period last year as we saw the effect of higher borrowing costs and higher plant-related capital expenditure. Our liquidity and cash generation continue to support our dividend distribution policy aimed at providing a stable return to our shareholders. In connection with the solid results of the first quarter, the Board of Directors approved the payment of a dividend of $0.09 per share, representing a payout ratio of 75%. This is consistent with the level of quarterly dividends paid for the last several years. Let's now review the financial highlights of the sugar segment. Sales volume was down by approximately 5% in the quarter, mainly due to the disruption in Vancouver. The reduction in volume produced out of our Vancouver facility was partially offset by the support of our Tabor and Montreal facilities. Overall, the volume reduction related to the labor disruption was estimated at 10,000 metric tons. Adjusted gross margin decreased by 1.4 million in the quarter, mainly from the lower volume sold. However, on a per unit basis, Adjusted gross margin increased by approximately $4 per metric ton to $199 per metric ton as a result of higher margin on recently negotiated agreements. This reflects the strong market dynamics of the sugar segment. Distribution costs increased by $1 million from the prior year period as we move more sugar between facilities to support customers across Canada. administration and selling expenses were up by 2.7 million compared to the same period last year. This is mainly due to the fact that in the first quarter of 2023, we saw a non-recurring and non-cash reduction in share-based compensation expense related to the price of performance share units for senior management. Adjusted EBITDA in the sugar segment was 26 million, down by 4.7 million from the same quarter last year. the unfavorable variance was mainly due to lower adjusted growth margin, higher administration and selling expenses, and higher distribution costs. As we mentioned earlier, our first quarter results include the net impact of the strike, estimated at $3 million. These results also reflect the increase of $2.7 million in administrative costs from the non-recurring and non-fast impact of the PSU's accrual variation. If we normalize for those two items, our financial results for the sugar segment compare favorably to last year. We believe our strong first quarter financial results are a good reflection of the positive outlook we have for the sugar segment for the remainder of 2024. Now let's turn our attention to the financial results of the maple segment. Building on a strong 2023 finish, the first quarter provided for improved adjusted EBITDA as compared to the same period last year for maple. Adjusted EBITDA at 4.7 million was higher by 1.9 million. The incremental profitability of the maple segment was directly related to recent actions taken to improve the gross margin as sales remained stable at around 12 million pounds for the quarter. The positive pricing trend continued in the first quarter as overall pricing improved by 5%, reflecting the recent inflationary pressures seen on the market. Operating costs have decreased from recently implemented automation and continuous improvement initiatives. For the first quarter, the adjusted gross margin was 10.7% compared to 7.7% from the same quarter last year. We believe this level of gross margin is sustainable for the rest of 2024 and should support the recovery of our maple business segment going forward. That being said, we remain cautious as the global maple sector remains volatile and subject to external challenges, such as inflationary pressures impacting purchasing habits from customers and availability of supply. The PPAC reserve is at its lowest level in many years, and the maple syrup production of the upcoming crop will likely play a key role in the overall performance of the maple market. Before I conclude, I would like to make a few comments on the financing of our expansion project in Eastern Canada and our available liquidity. As mentioned previously, the construction of our project has begun and is moving forward as planned. Our financing plan still includes a combination of debt and equity or equity-like instruments, including the support of 65 million in loans from the Quebec government. In November, we also increased the availability amount under our revolving credit facility by $75 million to $340 million, building more flexibility to accommodate increases in working capital and for the Eastern Canada expansion project. At the end of the first quarter, the amount outstanding under our credit facility was $165 million, aligned with the balance outstanding at the same period last year. The revolving credit facility has been used to finance the early stage of the expansion project. Thus far, approximately 20 million has been spent in connection with the project. As the project advances, we will continue to evaluate our financing options and assess the opportune time to access the capital market and complete our financing plan. What's important is that we are in no rush and that we are well positioned to access the market at the opportune time. We will provide updates as things evolve. In conclusion, I want to emphasize that we are very satisfied with our first quarter financial results and are confident in the ability of our business to continue to show consistent profitable growth. Our sugar segment performed well despite the strike in Vancouver, and we believe with the labor disruption now behind us, we will be able to fully benefit from the strength of the Canadian sugar market going forward. Our maple segment financial results have improved significantly over the last two quarters, showing that Maple is on a positive path. Overall, we anticipate delivering higher revenues and higher adjusted EBITDA for both of our business segments in 2024 as compared to 2023, supporting our business strategy to serve our customers and create value for our shareholders. With that, I would like to turn the call back over to the operator for questions.