Rogers Sugar Inc.

Welcome to the Roger Sugar Inc. Third Quarter Results 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. Before we begin, please be reminded that today's call may include forward-looking statements regarding our 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 we may refer to some non-IFRS measures in our call. Please refer to the forward-looking disclaimers and non-IFRS measures definitions included in our public filings 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 our press release. and an archived recording of this call will also be available on our website. I'll now turn the call over to Mike Walton, President and CEO of Rogers Sugar.

Thank you, Operator, and good morning, everyone. Welcome to our third quarter call. Today, I'll take you through the key developments in both Sugar and Maple, share an update on the LEAP project and the labor agreements we reached during the quarter, and then hand it to JS, our CFO, for the detailed financials. After JS, I'll return with our outlook for the balance of fiscal 2026 before we open the line for questions. Our investor presentation is posted on the investor section of our website if you would like to follow along. Let me start by stepping back for a moment. The operating environment we are navigating has not become simpler since we last spoke. Trade policy between Canada and the United States remains in flux. Global demand for some food products is softening, and cost pressures across our operations have not abated. We are not pretending otherwise. What we are also seeing, and what major North American grocery retailers have noted in recent weeks, is a more cautious consumer. Value-conscious shoppers in particular are pulling back on basket size and purchase frequency across prepared food categories. Food inflation is affecting purchasing behavior broadly. That is the environment our customers are navigating, and that is the environment we are managing through. More recently, we have seen some easing in input costs. Raw number 11 sugar prices have moderated from the elevated levels of recent years, and cocoa prices have also retreated from their highs. For our industrial customers in the confectionery sector, this is a welcome development. and one that may support a gradual improvement in demand over time. Within that macro and uncertain environment, our business is performing with the kind of stability that we have spent years building toward. Rogers Refined sets us up well for exactly this kind of setting. Sugar remains a fundamental ingredient in a wide range of food products. Domestic demand is steady. Our domestic franchise is intact. And on the operational side, This quarter delivered two milestones that matter well beyond fiscal 2026, which I'll speak to shortly. On to our results. For the third quarter of fiscal 2026, we reported adjusted net earnings of $16 million, compared with $17 million in the same quarter last year. On a per-sure basis, adjusted net earnings were 13 cents, consistent with the prior year. Consolidated adjusted EBITDA for the quarter was $36 million. For the first nine months of the year, adjusted EBITDA was nearly $121 million, compared with $111 million over the same period last year. That year-to-date improvement reflects the continued strength of our sugar segment through a period that has required real discipline to navigate. In the sugar segment, The underlying quarterly performance was essentially in line with last year, which, given the volume environment, is the result we are satisfied with. Sugar sales volume in the third quarter was approximately 188,000 metric tons, a decrease of approximately 3,000 metric tons compared to the same period last year. The largest driver was lower liquid volume, primarily related to the loss of a large customer that closed its facility in Western Canada. Industrial volume was modestly higher, reflecting improved demand from the confectionery sector. It is good to see this important segment of our business starting to show signs of recovery. Export volume was marginally positive, a slight recovery from the suppressed levels we saw in the first half of the year. In the maple segment, performance was in line with the same period last year, but below our expectations. Global demand for maple syrup has softened in recent months, driven by the impact of food inflation on consumer spending. We have adjusted our full year volume expectations accordingly. As you know, we are managing maple with commitment to cost discipline, and we aim to deliver top quality products and unparalleled customer service. The third quarter results reflect Rogers Refined is doing exactly what it is designed to do. The framework keeps us focused on the things we can control, providing excellent service to our customers, improving production efficiency, and managing costs prudently. Volume will move around. What we are building is a business that delivers consistently across variable market conditions. Today's results demonstrate that. I want to spend a moment on two exciting developments from the quarter. On June 11th, We reached a new five-year collective labor agreement with the main union at our Montreal facility, running through May 2031. Reaching that agreement during an active construction program while the refinery was operating took real commitment from both sides, and I want to acknowledge that. It gives us the workforce stability we need through the LEAP commissioning period and into the years when the new capacity begins contributing. Also, on June 26th, We extended the collective agreement at our Tabor sugar beet factory through March 2032. Taken together with a Vancouver agreement reached in 2024, we now have labour certainty across our production network. And we will now sharpen our focus on ensuring our operating models are efficient and effective in supporting the market. That matters as we move into fiscal 2027 and beyond. Now let me update you on the LEAP project. The project is moving into its final phase. Most major equipment is now installed at the Montreal plant, and we successfully tested the raw sugar melting process, one of the most significant operational steps we have taken to date. We have also advanced the deployment of logistics infrastructure, piping, and electrical assets. The focus now shifts to operational readiness and further commissioning activities. Our teams are working methodically through that process. with the same planning and safety discipline that has characterized this project from the start. LEAP remains within our expected total cost range of $280 to $300 million, and we continue to anticipate the incremental refining capacity starting to come online in the first half of calendar 2027. That timeline is unchanged. I want to set appropriate expectations on what LEAP will deliver in the near term. When this capacity comes into service, it will add optionality, particularly in the Ontario market. The ramp-up will be gradual. The full commercial contribution will build over time as domestic demand increases. We are building for the long term and are confident of the sustainable underlying demand for this essential product. Now I'll hand it over to JS for a review of our financial performance.

Well, thank you, Mike, and good morning, everyone. I will now take you through the financial results of the third quarter and the first nine months of fiscal 2026. For both periods, the sugar segment has exceeded our expectations, supported by domestic demand and improved margin, while the maple segment has delivered results below our expectations due to recent challenging market dynamics. Adjusted net earnings for the third quarter were $16 million, or 13 cents per share, compared to $17 million, or 13 cents per share in the same period last year. For the first nine months of 2026, adjusted net earnings were $60 million, or 47 cents per share, an improvement of $7 million, or 6 cents per share compared with the first nine months of fiscal 2025. Consolidated Adjusted EBITDA was $36 million for the quarter, compared with $37 million last year for the same period. For the first nine months of 2026, Adjusted EBITDA at $121 million was $10 million higher than the same period last year. Revenues were $294 million for the quarter compared to $320 million in the same quarter last year, a decrease of 8%, primarily driven by lower average raw number 11 prices, which have limited impact on our profitability given our hedging program. Lower volumes in both business segments also contributed to the reduction in revenues for the quarter. Our free cash flow for the trailing 12 months came in at $90 million, a slight increase from the same period last year. That improvement was driven by higher adjusted EBITDA and lower capital expenditures in our ongoing operations, excluding the LEED project, partially offset by timing of income tax payments and higher interest costs. Free cash flow is how we contribute to the financing of LEED, service our debt, and fund our dividends. The recent trend is healthy and providing us with the expected flexibility. As I'm discussing our financial results, I would like to point out that our operations and related costs have not been materially impacted thus far by the current situation in the Middle East. Our proactive hedging strategy was successful in mitigating the potential impacts on energy costs, round number 11 price variation and transportation and logistic cost increases. Going forward, we will continue to be proactive and prudent in our approach to manage the risk related to this evolving situation. I'm now turning to the individual business segments, starting with our sugar segment, which drives almost 90% of our profitability thus far this year. For this segment, adjusted EBITDA was $32 million for the quarter, compared with $33 million last year. Let me walk you through the main drivers. adjusted gross margin for the quarter was $46 million, slightly down from the same period last year. Worth noting, this segment absorbed a $3 million non-recurring non-cash pension charge for past service costs related to the collective agreement we reached in Montreal a few weeks ago. Beyond that, higher production costs and the effect of lower sales volume contributed to the lower Those unfavorable variances were largely offset by higher contribution from refining related activities reflecting a favorable pricing and mix of products sold and lower raw sugar procurement related costs. On a per unit basis, adjusted gross margin was $245 per metric ton in the third quarter compared with $243 per metric ton in the same period last year, a modest improvement reflecting the items previously discussed, including the non-recurring pension adjustment of $3 million. For the first nine months of fiscal 2026, sugar adjusted gross margin was $146 million, an increase of $17 million compared to the same period last year. The improvement reflects higher refining contribution, lower sugar procurement costs, and certain non-recurring favorable items recognized in previous quarters, partially offset by lower volume sold and the non-recurring pension charge recorded in the third quarter. Distribution costs were slightly higher in the quarter, reflecting increased shipment from Western Canada to support Eastern market demands. administration and selling expenses were lower in the third quarter by half a million dollars compared with the same period last year as prior year severance costs were partially offset by higher compensation expense related to long-term incentive which are based on our share price. Now moving on to the maple segment where challenging market dynamics have negatively impact financial results in 2026 especially in the third quarter as our results were below our expectations. Adjusted gross margin for the third quarter is a story of offsetting factors. Improved pricing and lower syrup costs held adjusted gross margin essentially flat at $5.5 million, despite lower volume and market-based increases in production costs. The adjusted gross margin percentage for the quarter was slightly higher than last year, but still below our expectations at 8.6%. Adjusted EBITDA in the maple segment for the third quarter was slightly lower than last year at approximately $4 million. For the first nine months of 2026, adjusted EBITDA was just below $17 million, a decrease of approximately $3 million from the same period last year, reflecting the challenging market conditions discussed previously. The focus for the remainder of fiscal 2026 is straightforward. Continue to manage costs carefully, protect margin and market share, and ensure we are well positioned to serve our customer and deliver quality products for both of our business segments. Turning to our balance sheet and related liquidity position. At the end of the third quarter, we had drawn $116 million on our revolving credit facility. The total face value of convertible debentures outstanding was $173 million following the January assurance of the ninth series debentures. The Leap Financing Plan is working as designed. The combination of equity raised, the IQ loans, our credit facility, and the free cash flow this business generates gives us the funding to see this project through to completion. Thus far, we have spent $207 million on the LEAP project, and as Mike mentioned previously, we are maintaining our cost forecast for the project, which is ranging between $280 and $300 million. Regarding our liquidity, I'm glad to report that we have recently extended the term of our revolving credit facility from March 2030 to July 2031. Finally, the Board has declared a quarterly common share dividend of $0.09 per share at its meeting yesterday, payable on or before October 21st. We have paid a quarterly dividend to our shareholders without interruption for over 16 years. True commodity cycle, a global pandemic, and now a period of significant trade uncertainty. That consistency is something we are proud of and committed to maintaining. With that, I will turn the call back over to Mike.

Thank you, J.S. Let me close with some thoughts on the outlook. For fiscal 2026, we expect to deliver solid overall results. The sugar segment has performed ahead of our expectations despite the straight environment, and we have modestly raised our full-year volume forecast to 745,000 metric tons. reflecting a moderate recovery in industrial and export demand in recent months. That said, the expected full year volume is still below that of our fiscal 2025, with most of the reduction attributable to lower margin export sales and lower liquid volumes. On tariffs, our working assumption continues to be that current market dynamics will prevail through the end of fiscal 2026, and that there will be no significant adverse changes to the KUSMA in the near term. The direct impact on our domestic business has been limited thus far. We are monitoring the situation closely, and we have the flexibility to adjust our commercial strategy if conditions shift. I also want to note that on July 2, the Canadian International Trade Tribunal initiated an expiry review of the 2021 trade measures on imported refined sugar. The review will determine whether continued protection is warranted and a final decision is expected by May 2027. We are engaged in that process and will keep you informed as it progresses. For the full year, in the sugar segment, we anticipate that the Montreal Refinery will continue to operate at full capacity and we will continue to leverage our Western facilities to meet customer commitments. In Tabor, the 2025 beet campaign produced approximately 103,000 metric tons, slightly above expectations. We have planted approximately 24,000 acres for the 2026 campaign, which is 1,500 acres more than last year. Production and maintenance costs are expected to increase modestly, driven by market-based cost increases and annual wage adjustments. Our multi-year energy hedging program continues to mitigate the impact of natural gas price variability. For maple, we anticipate results in fiscal 2026 will be lower than fiscal 2025, reflecting the reduction in global demand and its impact on margins and business support costs. We are managing the business carefully, and we have the syrup and supply in place to meet customer demand. In closing, the third quarter delivered on what Rogers Refined is designed to produce. Stable, margin-focused performance, even in a challenging environment, alongside meaningful operational progress, two long-term labor agreements, Elite Project entering commissioning on schedule, consistent free cash flow, a dividend we have maintained without interruption. These achievements mean we are well positioned to continue delivering steady financial performance over the quarters to come. Within this operating environment, we will increase our emphasis on the coming quarters on execution, sharpening our focus on opportunities to drive costs out of this business where possible without impacting customer experience. Before I hand back to the operator, I want to acknowledge our teams. Managing through a complex trade environment while simultaneously working on a major facility expansion takes real commitment at every level of the organization. I am proud of the work our people are doing and grateful for the continued trust of our customers and partners. With that, we are ready to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Derek Lessard with TD Cowan. Your line is now open.

Hey guys, it's Evan in for Derek.

Morning, Evan.

I had a few questions. So I guess first on the sugar business, your gross margin was quite a bit better than what I was expecting, particularly considering that it included a $3 million non-cash charge. It looks like volume mix had a lot to do with it, but I was wondering what was behind the $1.3 million of lower raw sugar procurement costs and if there was anything else in there besides a mix that helped during the quarter.

Hi, Evan. It's Jess here. The variance in raw sugar procurement is really, you know, we were able to secure some delivery from our raw sugar that was cheaper than last year. And so that explained, we had a couple of vessels in the quarter that came in and were cheaper for us. So that's not something that to me is going to be recurring. and also a lot of the, you know, when we look through the year, there was a timing of maintenance activity. So if you look at our quarter, I think we mentioned that we signed a new labor agreement. So as we were approaching, you know, when we were during negotiation, you know, we didn't do as much maintenance. We did some in the previous quarter and then we're going to do some in the fourth quarter.

Okay, great. and then you also mentioned increased demand from the confectionery sector. Is this from existing customers and should we be expecting industrial volumes to trend higher over the next three quarters because of that?

Yeah, Evan, it's Mike. We are pleased with what we're seeing is some turnaround in that important sector in our business. The demand increase we've seen is from existing customers and some of them are publicly traded. You can follow them as well and They're reporting growth for the first time in a few years in that sector, and we hope that that continues. Given lower cocoa prices and lower number 11 values, the combination of the both makes it a little easier on the consumers at retail.

Okay, great. Thanks. And then just one on maple. So the gross margin was lower than the 10.7% you had in Q2, and it was lower than what I was expecting. Can you talk a bit about what drove the drop versus Q2? I know you mentioned higher production costs year over year. So maybe you can explain, you know, what was driving that and if we should see similar pressure in Q4.

Hi, Jeff again. We had a few unexpected, we did a bit more maintenance in the quarter, which had an impact on our margins. We're still targeting to end the year at around 10%. I think that's what we've been maintaining and that's the target we've had the last few years. Now, it is becoming a very, very competitive market. As Mike mentioned during the call, we've seen demand going down a little bit. I thought going forward, I think we see a little bit of recovery and that impacts the competitiveness and the ability to get pricing out of customers. and so that would explain a little bit of the reduction in margin. We are still looking at our customer portfolio, aiming at a 10% for the year.

Okay, great. Thank you. That's it for me.

Thanks, man.

Your next question comes from Nevan Yoshim with GMO Capital Markets. Your line is now open.

Yeah, thank you. Good morning, guys. I was hoping on that you could... Good morning. Can you provide a bit more detail just on the improvement you're seeing in the export volume outlook? Is this related to underlying customer demand? And then how does ongoing Kuzma renegotiations and tariff changes play into this dynamic?

Thanks for the question. The export demand is, as you know, for us, it's always just an opportunistic volume sale for us. and it's been lumpy to put it mildly for the last 12 months with tariffs on Brazil and off on Brazil and sometimes on again so and as you know Montreal is a large Brazilian supplied refinery although we do have other origins from time to time that allows us to take advantage of lower duty to send refined sugar into the US. I want to keep you know remind folks that the The fine sugar sales directly into the U.S. is a very, very small portion of our business. It's a low margin return for us. It's less than 5% to 10% of that business on an annual basis. And so we get a little bit of opportunity. We take advantage of it if it makes sense for us economically. And then when it doesn't, it doesn't. But it's going to be lumpy through the rest of this trade environment that we're in. And as far as Kuzma goes, We'll wait and see. As we said all along, we'll focus on what we control. It's good to see folks apparently back at the table again, but until something's sorted out, we're not going to speculate on what impact it could or may not have on our business. So far, as you know, it has had very minimal impact on the sugar business directly at all, and we're optimistic that we'll continue to navigate positively through this chaotic environment. All food manufacturers in Canada are facing the same challenges. So we're all in the same basket.

Yeah, thanks, Mike. And then maybe just an update on your expectations for gross margin per metric ton in Q4. And then as we move into 2027, the PR referenced a favorable margin outlook. And I want to confirm if that suggests we should expect higher year over year margins in Q4.

I think we're more likely to expect stable margin. from where we're going, you know, considering the current environment and our current cost structure. We are focusing, you know, continue to focus on cost. And so look at the growth margin for metric done. If we remove some of the one-time items that you've seen here that we've had, I think we're pretty much looking for something stable in the fourth quarter and probably through 2027.

Got it. Thanks, JS. And then just finally on the maple segment, When you think about the competitive environment, what exactly is it that you're seeing? Is it modestly lower pricing from peers to drive volumes, or is there something more aggressive going on?

Yeah, no, it's a competitive business. We've always said that. There's some large players and some small players. Sometimes when the volumes get out of position from one packer to another, they need to move some volume because it's expensive inventory to hold. and we just see skirmishes from time to time in certain regional markets. Again, we supply maple in over 50 countries around the world. It's going to have different plays in different zones at different times. We're focused on profitable returns in this business and executing it against our strategic plan to deliver the results. We're not going to chase a volume for the sake of volume in maple, just the same approach we take in sugar.

Understood. Thanks, guys.

Thanks a lot.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Nathan Powe with National Bank Capital Markets. Your line is now open.

Good morning. Thank you for taking my question.

Good morning.

I want to touch on that increase in sugar volume guidance coming from the industrial and export business, especially given the new tariffs on Brazil and The tariffs on Canadian ingredients that could potentially be used in SCPs. Any commentary there?

Yeah, so a complicated matter, of course, with all this Kuzma and people trying to understand what's real and not real in all these announcements we see. Only the sugar itself is subject to the Brazilian tariffs if it's shipped as refined sugar, not if it's shipped as a sugar-containing product. So the transformation from sugar to another chapter eliminates the tariff on the Brazilian, in this example, raw ingredient side. So the tariffs are only on sugar on the Brazil side and not on the SCPs, as we know the world today. And as far as our outlook goes, as I said earlier, it's important to see, and we're delighted to see, The return to growth in some of our customers in the chocolate sector, and as I said, some of them are publicly traded. You can see that reporting growth for the first time in a couple of years. Again, contributing to that is the reduction in cocoa prices we've seen worldwide and a more stable outlook in that important ingredient for the chocolate sector and lower number 11 sugar prices, which has helped create a double combo of lower costs of input ingredients.

Great, thank you for the color. And on the new collective labor agreements in Montreal and Tabor, was there anything unexpected relative to what you've seen in previous collective bargaining agreements that'll affect 2027?

No, it's negotiations and bargaining as usual. We settle at at market-based rates and programs, and nothing of surprise for us in either one of those outcomes. What's good news is that we have labor stability and predictability through 2031 and 2032, which is really important as we commission LEAP and bring that important volume to market.

Great.

On the product mix benefit in sugar, I believe we saw $7.3 million worth this quarter. Can you just walk us through the relative margin profile of your various end markets? It was just a bit unexpected given that we saw the export volumes return to growth this quarter.

I think it's yes here, Nate. It depends on also customers. When we talk about product mix, it's also depending on the type of customers and the type of format that we're selling the customers. A lot of it is timing. Timing of the orders coming in. I wouldn't see that as a long-term trend happening. To me, it's just mainly punctual.

Great. I'll turn it over for now. Thank you. Thank you.

I don't know for the questions at this time. I will now turn the call over to management for closing remarks.

Thank you all for joining us this morning. As a proudly Canadian company with nearly 140 years of history serving this market, we remain focused on what we have always done, running our operations well, serving our customers, and building for the long term. We look forward to speaking to you again in the next quarter, and we'll have more information to share. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.