Rogers Sugar Inc.

Good afternoon, ladies and gentlemen, and welcome to the Roger Sugar, Inc. Analyst Call, May 9th Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 9th, 2024. I would now like to turn the conference over to Mike Walton, President and CEO. Please go ahead.

Thank you, operator. Thank you all for joining us today. I'll start today with the highlights of our Q2 2024 results and then provide some background on the industry and why we think the sugar business in Canada is a good place to be. Then I will discuss how we are positioning Rogers Sugar for success within the industry and introduce a new framework for assessing our progress before turning it over to JS for a deeper review of our financial results. I'll conclude by discussing our outlook for fiscal 2024 adjusted EBITDA. Starting with the quarter, this was a busy Q2 here at Rogers Sugar. We reported a new record adjusted EBITDA for the quarter of $38.1 million, surpassing our previous record of $33.5 million. This is the result of favorable sugar market conditions combined with the persistent focus on execution and profitability in both of our sugar and maple business segments. Demand for sugar is healthy and we continue to sign new agreements on terms that are consistent with a favorable market economic supporting better margins. We announced the conclusion of the strike of our Vancouver refinery and a new five year agreement with the public and private workers of Canada, Local 8. That gives us more certainty on production capacity. We are pleased that the refinery is back to full production and serving our Western customers in the domestic and export markets. We made progress on our expansion project, which we refer to internally as LEAP. As a reminder, when completed, LEAP will add 100,000 metric tons to our sugar production capacity while improving logistics and efficiency throughout our Eastern operations. Finally, As part of the financing plan for LEAP, we raised $112.5 million through concurrent public and private equity offerings. All these initiatives are evidence of our focus on executing and optimizing the business to produce consistent, profitable, and sustainable growth over the long term by harnessing the very favorable market trends for sugar in Canada. So let me take a step back and give you some color on that market. Globally, the demand trend for manufactured food products is very healthy, driven by population growth and industrialization. North America is one of the largest sugar markets worldwide. Within North America, the two largest consuming countries, the United States and Mexico, are in deficit. They consume more sugar than they produce within the country. That puts Canada in a great position to fill that gap in supply. Canada offers many benefits. including a favorable exchange rate, stable government and trade policy framework, reliable sugar production infrastructure, proximity to U.S. population centers, and favorable trade links. That is why customers benefit from locating their production facilities close to our operations, taking advantage of the favorable dynamics of the Canadian sugar industry. You can't have food processing without sugar. Sugar is a key functional ingredient in almost every manufactured fruit product. We've seen a number of food manufacturers announce plans to expand in Canada as part of that long-term trend. So, while we are focused on the domestic market, the reality is what drives that domestic market is food manufacturing exports to a very large and growing U.S. market. The macro trends in North American sugar demand are in our favor. The success we have enjoyed in the past few years has been the result of our efforts to take advantage of these global macro trends with a disciplined and sustainable approach. Our efforts are paying off, as evidenced by our record financial results in 2022, 2023, and the first half of 2024. Similarly, our maple segment has some great attributes. Canada is the global leader with over 80% of worldwide maple syrup production. Maple syrup products are produced in Canada and enjoyed around the world as a natural alternative sweetener. We are proud to be the largest branded and private label syrup bottling distribution company in the world. As you may have noticed, something has changed at Roger Sugar, as evidenced by our recent successes at increasing profitability in both segments over the past couple of years. We have been working on a number of fronts over over that time, and we have a plan to continue to drive consistent, profitable, sustainable growth in our operations going forward. We call this plan Rogers Refined, and we will be discussing more about Rogers Refined in the quarters ahead. For now, let me introduce you to the four pillars of our plan to drive value for investors under the Rogers Refined program. The first pillar is optimizing our production operations in sugar. including expanding and modernizing our facilities. A big contributor is the LEAP project that will see us add capacity and efficiency in our eastern operations. As of the end of the quarter, we are well through the demolition schedule at our Montreal site and setting up for the construction phase to begin this summer. This is consistent with where we expect it to be. This pillar is not just about investing in plant and equipment. It's also about ensuring that our labor agreements support our ambitions. The new five-year agreement at the Vancouver Refinery gives us much better visibility and predictability of production growth in the years to come. This includes the hiring of additional workers in that facility, which is already underway. The second pillar is driving profitability in our maple segment. We are already seeing the benefits of our earlier optimization and efficiency initiatives in this segment, including investments in automation, and processes, and we believe there's opportunity to do even more. Notably, the maple crop was healthy this year, allowing us to meet our strong order book. This year's crop is also allowing producers to rebuild reserves that have been depleted by some weaker crops in the last few years. We are pleased with the contribution of both the sugar and maple segments to our record quarterly adjusted EBITDA. You will hear more about this from JS later in the call. The third pillar is maintaining a strong balance sheet, which includes balancing our different sources of funding prudently between equity and debt instruments. The fourth pillar is advancing our ESG program, which will make us a better company and a better investment. We recognize that our organizational impact reaches multiple stakeholder groups, including employees, debt and equity investors, customers, suppliers, and members of the communities in which we operate. We are working to establish the key metrics that are relevant to each of those groups and to initiate regular reporting of our progress on those metrics. This year, we have implemented policies to address diversity and say and pay and have advanced our oversight of responsible sourcing. The outcome of our Rogers Refined Plan will be consistent growth in adjusted EBITDA and free cash flow from operations. This allows us to fund our capital programs and growth ambitions while maintaining the quality of our balance sheet and making regular distributions to shareholders. We believe that these four pillars will drive long-term investment value. By focusing our resources in those key areas and emphasizing execution, we're ensuring that we have the right infrastructure and the right business model to take advantage of the supportive dynamics in our market and drive consistent, profitable, sustainable long-term growth. Now I'll turn the call over to JS.

Well, thank you, Mike. Consolidated revenues for the second quarter were just over $300 million, a 10% increase over the same period last year, including growth in both of our sugar and maple segments. Consolidated adjusted EBITDA for the second quarter was just over $38 million, an increase of over 50% over the same period last year, once again reflecting the favorable market conditions and the operational efficiencies we have been driving in both segments. For the first half of fiscal 2024, consolidated adjusted EBITDA of $69 million is more than $10 million higher than the same period last year. We believe it is worth noting that our strong financial results were achieved despite the unfavorable impact of the labor disruption at our Vancouver facility during the first two quarters of the year. We estimate that the full impact of the strike on adjusted EBITDA was approximately $5.5 million, of which $2.5 million was recorded in the second quarter. Consolidated adjusted net earnings were $19 million, or $0.17 per share, as compared to $9 million, or $0.09 per share for the same period last year. For the first half of fiscal 2024, adjusted net earnings were $31.5 million, or $0.29 per share, compared to $24.5 million, or $0.23 per share, in the first six months of 2023. Our strong financial performance has increased our free cash flow over the last 12 months by $5 million to $56.5 million. Our liquidity and cash generation continue to support our stable dividend distribution to our shareholders, which we are continuing this quarter with a dividend of $0.09 per share. Now let's look at the individual business segments, starting with our sugar segment, which generated 87% of our adjusted EBITDA in the second quarter. Adjusted EBITDA for the sugar segment at $33 million was approximately 50% higher than the same period last year, driven mainly by higher margins generated from our sugar refining activities and favorable product mix, partially upset by the lingering impact of the labor disruption of our Vancouver refinery. Revenues at $243 million for the second quarter increased by 13% over the comparable period, driven by higher market price for World Raw No. 11 sugar and market-based price increases on sugar refining-related activities. The increase in revenues was achieved despite lower sales volumes mainly attributable to the labor disruption at our Vancouver refineries. we have estimated the overall impact of the strike on sales volume at approximately 23,500 metric tons, of which approximately 13,500 metric tons impacted the second quarter. Adjusted gross margin in the quarter was $45 million, or $249 per metric ton, an increase of $74 per metric ton, or approximately 40% from the same quarter last year. This is due to higher selling prices partially upset by higher production costs arising from lower volumes for the reasons we touched on earlier. Administration and selling expenses were in line with the levels seen last year, while distribution costs increased slightly with the movement of sugar between facilities to support our Western customers during the labor disruption. Now moving on to the maple segment, where we posted strong financial results for the third consecutive quarter. Adjusted EBITDA for the maple segment at just under $5 million has more than doubled compared to last year and reflects the operational changes we have implemented over the past year. Maple revenues of $58 million for the quarter were 2% higher than the same period last year due to improved average selling prices on recently negotiated agreements. Adjusted growth margin at approximately 11% was consistent with the last two quarters and well above last year's adjusted growth margin of approximately 7%, reflecting improved pricing and the savings realized on recently implemented continuous improvement and automation initiatives. As we mentioned earlier, we are quite busy investing in our sugar and maple plants to meet the current and future needs of our customers. We expect to spend about $27 million on normal capital expenditures in our sugar and maple segments during the year, of which about $10 million has already been spent over the first six months of 2024. This is in line with our capital spending level in regular operation from the last few years. In addition, as Mike mentioned, our LEAP project is advancing as expected. Site preparation and permitting are currently in their final stages at the main construction site in Montreal, and detailed planning is moving ahead for the Toronto portion of the project. Thus far, we have spent just over 30 million on the LEED project, of which 20 million was spent in fiscal 2024. At this time, we are still anticipating completion of the project in the first half of fiscal 2026. During the second quarter, We secured the equity portion of our lead project financing plan with the issuance of common shares of Roger Sugar through private and public concurrent offerings. The net proceeds related to the transaction amounted to $112.5 million from the issuance of approximately 23 million shares. We were pleased that the non-brokered portion of the offering was well oversubscribed. We are also pleased with the participation of Felcorp, a longtime shareholder, and welcome Le Fonds de Solidarité des Travailleurs du Québec, a respected institutional investor, as a new shareholder of the company. With this financing and the support of the Quebec government through business loans totaling 65 million, announced in August of last year, we have now secured the key components of the financing plan for our LEAP project. We intend to fund the difference using a combination of cash from operations and our existing credit facilities. The equity portion of our financing plan is aligned with our strategy to present a strong balance sheet, which is one of the pillars of our Rogers Refined strategy. Over the next few months, we will review our options to address the upcoming maturities of our convertible debentures, including the maturity of the sixth series in December of 2024. With that, I will turn the call back over to Mike to provide a summary and an outlook for the balance of the year.