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TSX: SPF.UN
CALGARY, May 6 /CNW/ -
Highlights
- The Fund's operating distributable cash flow of $66.7 million for the
first quarter of 2008 was down from the record high quarter of
$76.3 million in 2007. The decrease in cash flow resulted in
distributable cash flow per trust unit of $0.61 compared to $0.73.
- These lower results were mainly attributable to the timing of certain
cash flow items totaling $7.3 million compared to the prior year
quarter.
- Propane had a $2.0 million swing in maintenance capital with
$1.3 million in the first quarter of 2008 compared to a
$0.7 million recovery in the first quarter of 2007. We expect
total maintenance capital of $4 to $5 million for the year.
- Propane's wholesale and related gross profits were reduced by
$2.6 million compared to the prior year quarter, which should be
earned over the remainder of the year.
- ERCO received a one time royalty payment of $1.3 million in the
first quarter of 2007 which will not be repeated this year.
- SEM had $0.6 million in electricity administration start-up costs
as we begin to penetrate the Ontario electricity market as well as
the absence of foreign exchange translation gains in the prior
year of $0.8 million.
- Given the timing of these items, the Fund expects a more normal
distribution of cash flow weighted to the last half of the year in
2008.
- Management's estimates of annual distributable cash flow per trust
unit of $1.90-$2.10 are unchanged from our prior estimates. The
Fund's annual payout ratio for 2008 is forecasted to be 80% based on
the mid-point of guidance.
- The Senior Debt and Total Debt to EBITDA ratios for 2008 are expected
to be 1.9x and 2.9x, which includes funding of approximately
$80 million of growth capital expenditures including Port Edwards
capital of $38 million.
- The Fund's US denominated cash flows are currently hedged 90%
for 2008 and 51% for 2009.
- On April 30, 2008, Winroc entered into an acquisition agreement (the
"Acquisition") for approximately $23 million anticipated to close in
the second quarter of 2008.
Financial Summary
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Three Months Ended March 31
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(millions of dollars, except per trust
unit amounts) 2008 2007
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Financial
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Operating distributable cash flow
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Superior Propane 36.6 42.3
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ERCO Worldwide ("ERCO") 23.5 24.8
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Winroc 4.6 6.2
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Superior Energy Management ("SEM") 2.0 3.0
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66.7 76.3
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Interest (9.8) (11.1)
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Corporate costs (3.5) (2.9)
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Distributable cash flow 53.4 62.3
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Distributable cash flow per trust unit,
basic and diluted $0.61 $0.73
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Average number of trust units outstanding (millions) 88.1 85.7
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Distributions paid per trust unit $0.395 $0.39
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Corporate Growth Strategy
- Superior Propane expects to complete the final phase of its
reorganization of the business into six regional centres in the
second quarter while continuing to focus on customer service and
retention. The implementation of enhanced asset management, on-board
truck computing and GPS technology projects are proceeding as
scheduled for 2008.
- ERCO continues to invest in efficiency improvement projects reducing
its manufacturing costs and expanding facility capacity. The Port
Edwards USD$95 million conversion project is on-budget and on-
schedule for completion in the last half of 2009.
- Winroc continues to identify and execute on acquisition and expansion
opportunities as part of its North American growth platform with the
latest purchase agreement executed on April 30, 2008.
- Superior Energy Management continues to penetrate the British
Columbia and Ontario natural gas and Ontario electricity markets.
Propane Distribution
- Operating distributable cash flow was $36.6 million, a $5.7 million
decrease from the prior year quarter mainly due to the timing of
maintenance capital and wholesale business profit generation.
- Retail propane and delivery gross profit of $80.7 million was the
same as the prior year quarter with a 1.7% reduction in volumes being
offset by improved profitability.
- Temperatures across Canada were colder than the five year average,
but the 30% increase in the cost of wholesale propane created some
customer conservation and was compounded by higher costs resulting
from adverse weather conditions.
- Wholesale marketing gross profit was $2.6 million lower than
the prior year quarter due to the timing of the recognition of
profits. It is anticipated on a full year basis that wholesale
marketing related gross profits will be consistent with the prior
year.
- Maintenance capital was $2.0 million higher than the prior year
quarter, primarily due to timing of capital expenditures and the
continued investment in infrastructure enhancements as part of the
business transformation project.
- We have reduced our 2008 and 2009 guidance by 2% to reflect the
possible impact of customer conservation due to the increased
wholesale cost of propane. Our revised operating distributable cash
flow guidance is in the range of $98 - $103 million for 2008,
increasing in 2009 to $103 - $108 million. (The guidance assumptions
are located on pages 7-8 of the release and in Management's
Discussion and Analysis of the 2008 First Quarter Results).
Specialty Chemicals
- Operating distributable cash flow was $23.5 million, a decrease of
$1.3 million from the prior year quarter primarily as a result of
lower technology project activity in 2008 and the timing of
maintenance capital projects.
- Pulp prices were high throughout the quarter supporting a stable
sodium chlorate demand profile.
- Gross profit was strong at $52.5 million due to strong pricing
received on sodium chlorate and chloralkali/potassium products
partially offset by lower technology gross profit.
- Technology gross profit was $1.4 million lower than the prior year
quarter due to a one-time royalty payment received in the prior year
quarter.
- Maintenance capital expenditures were $0.4 million higher than the
prior year quarter due to timing of scheduled maintenance.
- Operating distributable cash flow guidance is expected to be in the
range of $78 - $83 million for 2008, increasing in 2009 to
$80 - $85 million. The increase in guidance range of $3 million in
2008 and $2 million for 2009 is primarily as a result of an increase
in ERCO's forecasted chemical prices. (The guidance assumptions are
located on pages 7-8 of the release and in Management's Discussion
and Analysis of the 2008 First Quarter Results).
Construction Products Distribution
- Operating distributable cash flow was $4.6 million, a decrease of
$1.6 million from the prior year quarter due to lower gross profit
and higher operating expenses partially offset by reduced maintenance
capital.
- Drywall sales volumes have decreased 11% compared to the prior year
quarter due primarily to weakness in United States and softness in
Eastern Canada as a result of the continued decline in new
residential housing starts.
- Cash operating and administration costs were $1.5 million higher than
the prior year quarter primarily due to increased fuel costs,
additional branches, and the implementation of the master truck lease
program.
- Winroc continued to implement its master truck lease program
throughout the first quarter resulting in a $0.4 million reduction in
maintenance capital compared to the prior year quarter.
- Winroc continues to evaluate tuck-in acquisitions as part of its
North American diversification strategy. Current economic conditions
are expected to provide additional expansion opportunities at
attractive valuation multiples in the United States and Canada.
- Operating distributable cash flow guidance is expected to remain in
the $32 - $37 million range for 2008, increasing by $2 million in
2009 to $34 - $39 million. The increase in guidance for 2009
reflects the full year cash flow from the Acquisition. (The guidance
assumptions are located on pages 7-8 of the release and in
Management's Discussion and Analysis of the 2008 First Quarter
Results).
Fixed-Price Energy Services
- Operating distributable cash flow was $2.0 million, a decrease of
$1.0 million from the prior year quarter primarily due to start-up
related costs to enter the Ontario electricity market and increased
amortization of customer contracts.
- SEM continues to focus on growing its high-margin residential and
small commercial customer base.
- The floating price for natural gas and electricity has been low over
the past year with minimal volatility in system prices resulting in
reduced interest by customers to lock-in future natural gas and
electricity prices.
- Acquisition of new customers has been difficult due to confusion
created by prescribed changes to the Ontario energy rules creating
increased customer mobility and the resulting turnover in sales
agents.
- Higher sales activity is forecast in the last half of 2008 due to
increased natural gas prices, additions to our sales agent program
and greater customer interest in fixed-price services.
- Operating distributable cash flow is expected to be $10 - $13 million
in 2008, increasing to $13 - $18 million in 2009. The decrease in
guidance range of $5 million in 2008 and 2009 reflects the slower
than anticipated entry into the Ontario electricity market and
reduced natural gas customer growth due to lower system prices and
agent retention. (The guidance assumptions are located on pages 7-8
of the release and in Management's Discussion and Analysis of the
2008 First Quarter Results).
Key Quarterly Corporate Items
- Corporate costs for the first quarter were $3.5 million, compared to
$2.9 million in the prior year quarter.
- Excluding the impact of long-term incentive plan costs, corporate
costs were consistent with the prior year quarter.
- Total interest expense of $9.8 million in the first quarter decreased
by $1.3 million compared to the prior year quarter due to lower debt
levels and the early repayment of $59.2 million Series II, 8%
Debentures.
- Superior Plus has total credit facilities of $670 million with
undrawn credit capacity of $330 million (excluding its securitization
program) as at March 31, 2008.
- As of March 31, 2008, the Fund had undrawn capacity of $125 million
available under its securitization program. The Fund's securitization
program is currently unutilized with a maturity date of June 30,
2008.
Consolidated Outlook
- While the Fund has updated the segment guidance, the consolidated
distributable cash flow per trust unit and payout guidance for 2008
and 2009 remains unchanged from the 2007 Fourth Quarter release on
February 28, 2008 reflecting the Fund's diversified asset base.
- The projected Senior Debt to EBITDA and Total Debt to EBITDA ratios
of 1.9x and 2.9x for 2008 and 1.9x and 2.8x for 2009 includes our
announced Acquisition in Q2 2008 and a total of USD$95 million
investment in the Port Edwards conversion completed in the last half
of 2009.
- We believe the diversification of our four growth-orientated
businesses, our improved financial flexibility, and our disciplined
approach to capital allocation will result in long-term
stability of distributions and high total returns for our
Unitholders.
Financial Outlook
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(millions of dollars,
except per trust unit 2008 2008 2009 2009
amounts) Prior(4) Current Prior(4) Current
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Operating distributable
cash flow
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Superior Propane 100-105 98-103 105-110 103-108
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ERCO 75-80 78-83 78-83 80-85
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Winroc 32-37 32-37 32-37 34-39
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SEM 15-18 10-13 18-23 13-18
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Distributable cash per
trust unit 1.90-2.10 1.90-2.10 2.05-2.25 2.05-2.25
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Payout ratio (below 90%) 80%(1) 80%(1) 75%(1) 75%(1)
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Average Senior Debt/EBITDA
(target of 1.5 to 2.0x) 1.7x(2) 1.9x(3) 1.6x(2) 1.9x(3)
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Average Total Debt/EBITDA
(target of 2.5 to 3.0x) 2.8x(2) 2.9x(3) 2.7x(2) 2.8x(3)
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(1) Based on mid-point of the distributable cash flow per unit range.
(2) Superior's debt ratios take into account the impact of the off-
balance sheet receivable sales program amounts, cash on hand,
the suspension of the DRIP program, and the Port Edwards conversion '
project.
(3) Superior's debt ratios take into account the impact of the off-
balance sheet receivable sales program amounts, cash on hand,
the suspension of the DRIP program, the Port Edwards conversion
project, and the Acquisition.
(4) As provided in the 2007 Fourth Quarter Financial Outlook.
(5) The assumptions and definitions relating to the Financial Outlook are
included on pages 6-8 of the press release and are discussed in
Management's Discussion and Analysis of the 2008 First Quarter
Results.
First Quarter Results
The Fund's financial statements for the period ended March 31, 2008, including its Management's Discussion and Analysis, are available on Superior's website at: www.superiorplus.com under investor information section and at www.sedar.com.
Conference Call
Superior Plus will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2008 First Quarter Results 9:30 a.m. EST (7:30 a.m. MST) on Wednesday, May 7, 2008. To participate in the call, dial: 1-800-732-6179. An archived recording of the call will be available for replay until midnight, June 7, 2008. To access the recording, dial: 1-877-289-8525 and enter pass code 21268794 followed by the pound key. Internet users can listen to the call live, or as an archived call, on Superior's website at: www.superiorplus.com under the Events and Presentations section.
Forward Looking Information
Certain information included or incorporated by reference herein is forward-looking, within the meeting of applicable Canadian securities laws. Forward-looking information includes, without limitation, statements regarding the future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, distributable cash flow, taxes and plans and objectives of or involving Superior Plus Income Fund (the Fund) or Superior Plus LP (Superior LP or the Partnership). Much of this information can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words. Forward-looking information in this Press Release includes but is not limited to, outlooks, capital expenditures, business strategy and objectives. The Fund and Superior LP believe the expectations reflected in such forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties some of which are described herein. Such forward-looking information necessarily involves known and unknown risks and uncertainties, which may cause the Fund's or Superior LP's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking information. These risks and uncertainties include but are not limited to the risks identified in the Fund's 2007 Annual Information Form under the heading "Risk Factors". Any forward-looking information is made as of the date hereof and, except as required by law, neither the Fund nor Superior LP undertakes any obligation to publicly update or revise such information to reflect new information, subsequent or otherwise.
Non-GAAP Financial Measures
Distributable Cash Flow
Distributable cash flow of the Fund available for distribution to Unitholders, is equal to cash generated from operations, adjusted for changes in non-cash working capital and natural gas and electricity customer acquisition costs, less maintenance capital expenditures. Maintenance capital expenditures are equal to capital expenditures incurred to maintain the capacity of Superior's operations and are deducted from the calculation of distributable cash flow. Acquisitions and other capital expenditures incurred to expand the capacity of Superior's operations or to increase its profitability (growth capital), are excluded from the calculation of distributable cash flow. The Fund may deduct or include additional items to its calculation of distributable cash flow; these items would generally, but not necessarily, be items of a non-recurring nature. Distributable cash flow is the main performance measure used by management and investors to evaluate the performance of the Fund and its businesses. Readers are cautioned that distributable cash flow is not a defined performance measure under Canadian generally accepted accounting principles (GAAP), and that distributable cash flow cannot be assured. The Fund's calculation of distributable cash flow, maintenance capital and growth capital may differ from similar calculations used by comparable entities. Operating distributable cash flow is distributable cash flow before corporate and interest expenses. It is also a non-GAAP measure and is used by management to assess the performance of the operating divisions.
Standardized Distributable Cash Flow
During 2007, the CICA published an interpretive release, Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure, in order to provide its recommendations related to the measurement and disclosure of cash available for distributions. The guidance was issued in an effort to improve the consistency, comparability, and transparency of the reporting of the measure commonly referred to as distributable cash flow. Superior's calculation of standardized distributable cash flow is, in all material respects, in accordance with the recommendations provided by the CICA.
Superior views the CICA recommendations as a positive step in providing stakeholders with meaningful information, but consistent with the guidance provided by the CICA, Superior has determined, that due to the nature of Superior's businesses, certain adjustments to standardized distributable cash flow are required to better reflect the cash flow available to be distributed to Unitholders. Superior's adjusted standardized distributable cash flow is referred to as distributable cash flow, and is unchanged from Superior's previous definition or measurement of distributable cash flow. Superior's distribution policy is based on distributable cash flow on an annualized basis, accordingly, the seasonality of Superior's individual quarterly results must be assessed in the context of annualized distributable cash flow. Adjustments recorded by Superior as part of its calculation of distributable cash flow include, but are not limited to, the impact of the seasonality of Superior's businesses, principally Superior Propane, 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 expense, which can from quarter to quarter differ significantly. Superior's calculation also distinguishes between capital expenditures that are maintenance related and those that are growth related, in addition to allowing for the proceeds received on the sale of certain capital items. Adjustments are also made to reclassify the cash flows related to natural gas and electricity customer acquisition costs in a manner consistent with the income statement recognition of these costs.
EBITDA
EBITDA represents earnings before interest, taxes, depreciation and amortization calculated on a 12 month trailing basis giving pro forma effect to acquisitions and divestitures and is used by Superior to calculate its debt covenants and other credit information, and is not a defined performance measure under GAAP. Superior's calculation of EBITDA may differ from similar calculations used by comparable entities.
FINANCIAL OUTLOOK ASSUMPTIONS
Superior Propane's significant assumptions underlying its current outlook
are:
- Superior Propane forecasts average temperatures across Canada to be
consistent with the most recent five year average;
- Superior Propane expects that wholesale propane prices will not
further impact demand for propane and related propane services;
- Total gross profit for Superior Propane is projected to increase due
to the on-going implementation of customer service programs and an
increase in propane volumes; and
- Market opportunities for Superior Propane's wholesale trading
division are expected to be consistent with the prior years.
In addition to Superior Propane's significant assumptions detailed above,
refer to the Fund's 2007 Annual Information Form for a detailed review of
Superior Propane's operations and its significant business risks.
ERCO's significant assumptions underlying its current outlook are:
- Current supply and demand fundamentals for both sodium chlorate and
potassium/chloralkali products will remain stable, resulting in no
significant changes to the total assumed chemical sales prices and
sales volumes;
- ERCO's average plant utilization is expected to be greater than 90%;
- The foreign currency exchange rate between the Canadian and United
States dollar is expected to be par on all unhedged foreign currency
transactions; and
- ERCO's conversion of its Port Edwards, Wisconsin chloralkali facility
from mercury based technology to membrane technology for
US $95 million is expected to be completed on budget in the second
half of 2009.
In addition to ERCO Worldwide's significant assumptions detailed above,
refer to the Fund's 2007 Annual Information Form for a detailed review of ERCO
Worldwide's operations and its significant business risks.
Winroc's significant assumptions underlying its current outlook are:
- The current economic conditions in Canada and the United States are
expected to prevail in 2008 with slight improvement in 2009;
- Gross profit is expected to be stable as, strong demand in Western
Canada for residential and commercial sales volumes, continues to
offset weakness in Ontario and United States residential sales
volumes; and
- The Acquisition in the second quarter of 2008 is completed.
In addition to Winroc's significant assumptions detailed above, refer to
the Fund's 2007 Annual Information Form for a detailed review of Winroc's
operations and its significant business risks.
SEM's significant assumptions underlying its current outlook are:
- SEM is able to access sales channel agents on acceptable contract
terms;
- Natural gas markets in Ontario and British Columbia will continue to
provide significant growth opportunities for SEM; and
- The electricity market in Ontario is expected to provide an
additional growth opportunity for SEM.
In addition to SEM's significant assumptions detailed above, refer to the
Fund's 2007 Annual Information Form for a detailed review of SEM's operations
and its significant business risks.
Significant assumptions underlying the Fund's current 2008 and 2009
outlook are:
- The Fund expects current economic conditions in Canada and the United
States to prevail for 2008 with an improved outlook for 2009;
- The Fund continues to attract capital and obtain financing on
acceptable terms;
- The foreign currency exchange rate between the Canadian and United
States dollar is expected to be par on all unhedged foreign currency
transactions;
- Superior's average interest rate on floating rate debt is expected to
remain stable to marginally lower throughout 2008, increasing
modestly in 2009;
- Financial and physical counterparties continue to fulfill their
obligations with Superior; and
- Regulatory authorities do not impose any new regulations impacting
the Fund.
In addition to the Fund's significant assumptions detailed above, refer to the Fund's 2007 Annual Information Form for a detailed review of the Fund's operations and its significant business risks.