Sucro Limited

Good morning, everyone, and welcome to Securo Limited's second quarter 2026 earnings conference call. Today's call is being recorded. Joining us are Jonathan Taylor, Chief Executive Officer, and Stefano D' Aniello, Chief Financial Officer. At this time, I'll turn the call over to Jonathan Taylor. Jonathan, please go ahead.

Thanks, Operator, and good morning, everyone. Before we begin, I'd like to remind listeners that management's comments today may include forward-looking statements. Please refer to our filings for a full discussion of the associated risk and uncertainties. Actual results could differ materially from those described in these forward-looking statements. In addition, this presentation refers to a number of non-IFRS financial measures. Reference should be made to our recent financial filings for the composition and calculation of these measures. Listeners should also note that all figures are in US dollars. During our last call, we described the business and the US sugar market as approaching an important inflection point. Although market conditions remained challenging during the second quarter, we believe the underlying trends are moving in the right direction, despite continued pricing pressure. Our operations delivered another quarter of significant progress. Most notably, our refineries delivered nearly 100,000 metric tons of sugar. representing another quarterly record. Our new Hamilton refinery is performing well and is expected to generate record sales and profitability through 2026. We are managing through the expected early commissioning challenges at University Park and expect significant improvements through the second half of 2026. And free cash flow saw a strong recovery to bring us back to positive year to date. Our refinery volumes are not directly comparable year over year. Since beginning in 2026, we included deliveries from University Park and the related third-party Memphis operation within our refinery results. Even after considering that change in presentation, however, the underlying growth in our refining platform remains significant and reflects the additional capacity we have developed and from which we expect to realize significant gains moving forward. More broadly, Q2 demonstrated the strategic transformation taking place across sucro. We are gradually shifting our business mix away from opportunistic lower margin wholesale activity and toward higher margin refining, specialty sugar, packaging, retail, and Caribbean operations. That evolution may result in lower headline volumes or revenue during certain periods, but it should ultimately produce a more profitable and higher value business. During the quarter, we also completed the acquisition of Tal World Corporation, a company engaged in the packaging, importing, marketing, and sale of Retail Sugar Products, which we expect will be a catalyst to expanding our position in retail sugar products. The integration is progressing as planned, and we expect this to be immediately accretive to earnings. At the same time, we are looking forward to the newer parts of Sucra's growing platform contributing to Sucra's growth and added profitability, including our joint venture in Belize and our new engineering services division. The Belize refinery is in the final stages of construction. positioning us to begin serving the Caribbean market from a strategically located regional asset. The market environment is not yet fully normalized, but the factors within our control, production volumes, product mix, procurement, logistics, cost containment, energy management, and business diversification are showing meaningful progress. With that, I'll hand it over to Stefano to walk through the financial results. Stefano.

Thanks Jonathan, and good morning everyone. Let me begin with Q2 volumes and revenue. During the quarter, we delivered approximately 198,000 metric tons of sugar, compared with approximately 287,000 metric tons in Q2 2025. This decrease was primarily driven by lower wholesale activity in Mexico and the United States. Those sales are typically more sporadic and opportunistic. and can fluctuate significantly depending on market conditions and timing. The reduction was partially offset by higher refinery deliveries, which reached approximately 100,000 metric tons. Revenue was $130.6 million compared to $231.9 million in Q2 2025. In addition to lower volumes, the decrease reflected lower average sugar prices, with the average delivery price falling to approximately $660 per metric ton from approximately $812 per metric ton in the prior year quarter. Turning to our adjusted operating results. adjusted gross profit was $12.8 million compared with $13.3 million in Q2 2025. Although total adjusted gross profit was relatively consistent, the margin improved significantly. Adjusted gross profit margin increased to 9.8% from 5.8%. Adjusted gross profit per metric ton increased to approximately $64 from approximately $46. And adjusted EBITDA margin increased to 6.3% from 4.5%. Adjusted EBITDA was $8.3 million compared with $10.4 million in the prior year quarter. It is important to provide some context around the margin improvement. During Q2, we recognized $4.9 million of approved refunds relating to the IEPA tariffs previously paid by the company in the US. Approximately $2 million of that amount was reflected in refinery results, with the balance reflected in wholesale operations. Therefore, the year-over-year margin improvement does not come entirely from recurring operating performance. While tariff refunds were a meaningful contributor, It should also be highlighted these tariffs contributed to lower margins in 2025. However, even excluding that benefit, we saw positive underlying trends. Average sugar input costs declined significantly, logistic costs improved, and increases in production, labor, and overhead expenses remained well below the growth in refinery deliveries. This indicates that our facilities are beginning to generate the operating leverage expected from additional scale. Of the $4.9 million in approved tariff refunds, approximately $1 million have been received as of today. We expect to recover the remaining approved balance and continue to pursue refunds for the full approximately $6.2 million paid by the company in 2025. Turning to refinery performance. Continuing the trend from Q1, refinery deliveries increased to approximately 100,000 metric tons, compared with approximately 59,000 metric tons in Q2 2025. As Jonathan mentioned, this comparison includes University Park and the related MENTES operation beginning in 2026, representing approximately 20,000 metric tons during the quarter and 41,000 metric tons for the six months. prior year figures were not reported on the same basis. Refinery adjusted gross profit was $8.1 million compared with $6.8 million last year, while adjusted gross profit per refinery metric ton decreased to approximately $81 from approximately $116. The lower unit margin reflected tariffs and duties into facility freight during commissioning and the timing of raw sugar inputs. In Canada, we also continue to operate both our new Hamilton Refinery and the legacy Hamilton facility during the six-month transition. We expect production and overhead costs per metric ton to improve once operations are fully consolidated into the new facility during Q3. University Park remained below its initial operating plan during Q2 due to commissioning delays and temporary processing interruptions. We expected contribution to increase as operations ramp up during the second half. Turning to our IFRS results, net income increased to $8.1 million from $2 million in the prior year quarter. This figure stands at $13.5 million for the first half of the year compared to $14 million in the first half of 2025. The improvement in reported Q2 earnings was primarily driven by unrealized mark-to-market gains on inventory. Inventory generated approximately $21.7 million of unrealized gains during the quarter, partially offset by approximately $12.1 million of unrealized losses on forward contracts. As a reminder, unrealized results can vary materially between periods, and they do not necessarily reflect the underlying operating performance or task generation of our physical server operations. For that reason, we continue to focus primarily on adjusted gross profit and adjusted EBITDA when evaluating operating performance. Turning to SG&A and interest expense. For the quarter, SG&A was $7.9 million. compared with $6.7 million in Q2 2025. The increase was primarily attributable to approximately $1 million of bad debt write-offs relating to our Mexican and world market operations. We view these items as non-recurring and as part of our continued effort to address legacy balances and strengthen the quality of the balance sheet. Excluding those write-offs, administrative expenses remained broadly consistent year over year. despite operating two new refineries and managing a transition from our legacy Hamilton facility. Interest expense increased by approximately $1.4 million to $6.6 million. This reflected two principal factors, higher short-term borrowings used to finance working capital and interest on long-term project debt that is now being expensed rather than capitalized as the new facilities become operational. Turning to cash flow liquidity and leverage, free cash flow recovered strongly during the quarter to $7.7 million compared to $6.1 million in Q2 2025. This reversed the negative free cash flow reported in Q1 and brought free cash flow for the first six months of 2026 to approximately $4.6 million. Cash flow from operations for the first half was negative $3.8 million. primarily due to increases in accounts receivable, prepaid expenses, and other working capital balances. Working capital was $90.6 million at June 30 compared with $96.3 million at year-end. Part of this decline was attributable to the reclassification of $12.7 million of long-term debt as current because of its April 2027 maturity. As part of our normal treasury activities, we are currently refinancing approximately $17.5 million of term debt maturing within the next 12 months and expect to complete the process before year-end. Our liquidity and leverage metrics remain an area of close management focus. Quarter-end adjusted net debt to capitalization was 35.1% compared with 33.6% at year-end. and adjusted leverage increased to 5.5 times from 3.8 times. The increase reflects both higher adjusted net debt and the reduction in trailing adjusted EBITDA, together with the completion and commissioning of our major capital projects. We remain in compliance with all financial covenants. Our total liabilities to tangible net worth ratio was 2.18 times compared with a maximum covenant of four times. We also ended the quarter with approximately $135 million of unused credit capacity, including committed, uncommitted and inventory repurchase facility. That figure should be considered together with the nature of parts of our financing structure, which are based on borrowing base availability. Following quarter end, We renewed our syndicate borrowing-based facility through December 2027. The renewed facility provides maximum borrowings of up to $285 million, subject to borrowing-based availability, and includes a lower applicable margin on the automated trench that applies to most of the working capital loans of the company. We also established during Q2 a new $30 million transactional trade finance facility supporting Caribbean operations. and dedicated acquisition facilities for Tile World consisting of a $5 million working capital revolver and a $1 million term loan. Our priority for the second half is to convert the additional refinery capacity into higher earnings and cash flow while reducing leverage and maintaining adequate liquidity. Turning to capital expenditures, we have revised our estimate estimated 2026 capital expenditures for the Canadian and US refinery projects from approximately $10 million to approximately $20 million. The revision reflects additional labor and materials required during the final development and commissioning stages at Hamilton and University Park, as well as the construction of a new raw sugar warehouse at our Lackawanna refinery. We expect to fund these expenses with a combination of debt financing, operating cash flows, and Cash on Hand. In addition, Sucro had invested approximately $5.1 million in the Belize joint venture as of June 30, with the project now in its final stages of completion. Although that refinery construction has not yet been finalized, we have seen significant margin improvement in volume growth in our current Caribbean operation as a result of our ability to negotiate more favorable contract terms. with further gains expected following the completion of a refinery by our JV partners in Belize. With the major construction program substantially complete, our focus is shifting from building capacity to commissioning, operating and optimizing those assets. Overall, Q2 showed another record quarter for refinery production, improved adjusted margins, although partially supported by tariff refunds, positive free cash flow, and continued progress across our strategic projects. At the same time, leverage, liquidity and the pace of the University Park ramp-up remain key areas of focus. With that, I'll pass it back to Jonathan.