TSX: SPF.UN
CALGARY, July 10 /CNW/ - On April 24, 2006 Superior Plus Income Fund (the
"Fund") and Superior Plus Inc. ("Superior") announced the initiation of a
strategic review. The process was undertaken in response to the weak first
quarter results of Superior Propane predominantly caused by record warm
weather this winter, anticipated weakness in the operating results of ERCO
Worldwide over the medium term due to the impact of the rapid rise in the
Canadian dollar and significant increases in electricity prices on ERCO's
operations and customers, as well as the reduction of the Fund's monthly
distribution and the weakness of the unit price. The Board had formed a
Strategic Review Committee to identify the best possible alternatives to
maximize unitholder value. This work has now been completed and consisted of a
comprehensive review of each business and the overall structure of the Fund
with the assistance of legal and financial advisors.
The Strategic Review considered a wide range of alternatives including:
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- the appropriateness of Superior's individual businesses for the
income trust model,
- the sale of the Fund,
- the sale of individual businesses,
- the recapitalization of the Fund,
- taxation of United States sourced income,
- debt levels and debt structure,
- cash distribution and payout levels,
- management of the Fund, and
- other factors identified by our advisors.
Our strategy has been developed to maximize unitholder value and provide a
road map for achieving long-term goals. Our plans for the Fund include the
following:
- We will continue as a diversified income trust with a focus on
stability of distributions with value growth driven from our existing
businesses.
- We see good opportunities to grow our businesses for value over the
medium to long term and do not intend to expand into new businesses.
- We will dispose of our investment in JW Aluminum and use the proceeds
to reduce debt levels and focus on our Canadian based businesses.
- We will provide enhanced visibility, transparency and accountability
of our businesses to our investors.
- We will lower our average senior debt levels to 1.5 to 2.0 times
EBITDA and average total debt levels to 2.5 to 3.0 times EBITDA.
- We will reduce our target payout ratio such that distributions will
be between 85% and 90% of distributable cash flow.
- We will refocus our corporate office on the execution of each
business unit's strategic plan.
With respect to ERCO, we will:
- Close the Bruderheim sodium chlorate facility removing 80,000 tonnes
of capacity from the North American market;
- Secure a new electricity contract for the Valdosta sodium chlorate
facility that is economic or, in the alternative, reduce production
from this facility;
- Continue to evaluate the economic feasibility of the conversion of
the Port Edwards chloralkali facility to membrane technology; and
- Evaluate other operational and strategic opportunities to maximize
the value of our investment in ERCO.
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The Board of Directors has appointed Grant Billing as Chairman and Chief
Executive Officer, effective immediately, replacing Geoff Mackey as President
and Chief Executive Officer. As well, Mark Schweitzer, Executive
Vice-President and Chief Financial Officer will be leaving Superior on
November 1, 2006, following a recruitment process for his replacement. Geoff
and Mark have made significant contributions to the growth of the Fund and the
Board thanks them for their contribution. The Board is of the opinion that
this change will facilitate the execution of the new strategy for the Fund.
The sale of JW Aluminum is expected to reduce our average senior debt
levels to approximately 1.7 times EBITDA and average total debt to 3.0 times
EBITDA. Following the sale of JWA and given our current outlook for the
remaining businesses, we expect to continue to maintain our current
distribution level of $0.13 per month, or $1.56 annualized, which is expected
to place our payout ratio for 2007 for the remaining businesses at
approximately 90% of distributable cash flow.
We have entered into an underwriting agreement with two of our bank
lenders to restructure some of our debt facilities to enhance debt flexibility
and increase liquidity during the implementation of the strategic plan.
Specifically, Superior has entered into a $150 million credit facility
agreement and expects that the Fund will enter into a $100 million facility
agreement. The $150 million facility together with existing committed credit
facilities will be used to retire the $200 million Medium Term Notes issued in
early 2006 in order to provide enhanced debt repayment flexibility.
We have reviewed the capital expenditure plans of each of our businesses
and have prioritized these expenditures with the result that we are deferring
the majority of planned growth expenditures in 2006-2007. All planned
maintenance capital expenditures will be undertaken and the deferred growth
expenditures will be subject to ongoing review.
The Fund is proposing a reorganization pursuant to which its business
operations will be conducted through a partnership and related subsidiaries of
the partnership rather than through Superior and related subsidiaries. This
"trust over partnership" structure, which has been adopted by a number of
other income trusts, will achieve tax efficiencies and maximize the cash
available for distribution. Implementation of the reorganization will require
unitholder approval at a Special Meeting of Unitholders proposed to be held in
September 2006. The reorganization will be conditional upon receipt of a
satisfactory tax ruling from the Canada Revenue Agency, which ruling has been
applied for by the Fund, as well as consents from third parties and other
regulatory approvals, which the Fund expects to receive in due course.
Business Update
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Superior Propane continues to implement its plan for cost reductions,
revenue improvement and customer service enhancement with good progress in the
second quarter. These initiatives, along with a return to a normal winter
weather pattern, are expected to improve results for 2007 with operating
distributable cash flow generated, after maintenance capital expenditures, in
the range of $95 million to $100 million compared to between $90 million and
$95 million for 2006.
ERCO Worldwide's review of North America's sodium chlorate supply and
demand indicates a small over supply of sodium chlorate through 2007.
Accordingly, ERCO is now planning to close its Bruderheim facility in late
2006, which will remove 80,000 tonnes of capacity from the market. ERCO
continues to negotiate a new power contract for the Valdosta facility to take
effect January 1, 2007. Based on current negotiations, this plant will run as
a swing plant when power prices are low or be mothballed until US sodium
chlorate prices improve. ERCO plans to satisfy its customers' requirements
with supply from its five other North American sodium chlorate facilities,
increasing the overall efficiency of the ERCO system and enhancing
profitability. We expect to reduce the carrying value of our ERCO investment
to reflect the Bruderheim and Valdosta initiatives. We will be actively
evaluating other opportunities identified during the strategic review process
to strengthen ERCO's sodium chlorate business as well as identified growth
opportunities in the chloralkali markets. Chloralkali operations continue to
perform above historical levels with a return to more balanced conditions
expected going forward. Overall in 2006, we expect ERCO's operating
distributable cash flow generated, after maintenance capital expenditures to
be between $70 million and $75 million and for 2007, between $60 million and
$65 million.
Winroc's strong position in the commercial, renovation and housing
construction markets is expected to continue to provide solid operating
results. Organic growth and consolidation opportunities are present in this
highly fragmented market. The softening of new housing construction in some
markets is expected to be offset by the strong commercial and renovation
markets, which comprise over 50% of its business. Winroc's extensive
geographic diversification has also mitigated this slow down. We expect
operating distributable cash flow generated, after maintenance capital
expenditures to be between $30 million and $35 million for 2006 and 2007,
assuming no new acquisitions.
Superior Energy Management continues to experience very strong growth in
the residential and commercial markets with improved margins. We see this
growth continuing and expect operating distributable cash flow generated for
2006 of between $10 million to $12 million and for 2007 between $12 million to
$15 million.
JWAluminum's performance continues to improve from the first quarter
results, as the business is fully utilizing the capacity added by the
Russellville Phase I expansion and is running at expected high capacity
levels. Markets remain robust for their products and planning for the
expansion in 2007 at Russellville continues. While this business is planned to
be sold in late 2006, we expect operating distributable cash flow generated,
after maintenance capital expenditures, of between $39 million and $41 million
for full year 2006.
About the Fund
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The Fund holds 100% of Superior Plus Inc., which has five operating
divisions: Superior Propane is Canada's largest distributor of propane,
related products and services; ERCO Worldwide is a leading supplier of
chemicals and technology to the pulp and paper industries, a regional Midwest
supplier of chloralkali products and the third largest producer of potassium
products in North America; JW Aluminum is a leading manufacturer of specialty,
flat-rolled aluminum products in the United States; Winroc is the seventh
largest distributor of walls and ceilings construction products in North
America; and Superior Energy Management provides fixed price natural gas
supply services in Ontario and Quebec.
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The Fund's trust units and convertible debentures trade on the Toronto
Stock Exchange as follows:
Trading Symbol Security Issued and Outstanding
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SPF.un Trust Units 85.5 million
SPF.db 8% Debentures, Series 1 $ 8.1 million principal amount
SPF.db.a 8% Debentures, Series 2 $ 59.0 million principal amount
SPF.db.b 5.75% Debentures $174.9 million principal amount
SPF.db.c 5.85% Debentures $ 75.0 million principal amount
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Analyst Conference Call: Superior Plus will be conducting a conference
call and webcast for investors, analysts, brokers and media representatives to
discuss this news release at 11:00 a.m. EST (9:00 a.m. MST) on Tuesday, July
11, 2006. To participate in the call, dial: 1-800-814-4861. A recording of the
call will be available for replay until midnight, July 18, 2006 by dialing:
1-877-289-8525 and entering the access code: 21195820 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.
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Forward Looking Statements: Certain information included herein is
forward-looking. Forward-looking statements include, without limitation,
statements regarding the future financial position, business strategy,
budgets, projected costs, capital expenditures, financial results, taxes and
plans and objectives of or involving the Fund and Superior. Many of these
statements can be identified by looking for words such as "believe",
"expects", "expected", "will", "intends", "projects", "anticipates",
"estimates", "continues", or similar words. The Fund and Superior believe the
expectations reflected in such forward-looking statements 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 statements are not guarantees of future performance and
involve a number of risks and uncertainties some of which are described in the
Fund's annual report, renewal annual information form and other continuous
disclosure documents. Such forward-looking statements necessarily involve
known and unknown risks and uncertainties, which may cause the Fund's or
Superior'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 statements. Any forward-looking
statements are made as of the date hereof and neither the Fund nor Superior
undertakes any obligation, except as required under applicable law, to
publicly update or revise such statements to reflect new information,
subsequent or otherwise.
Non-GAAP Measures
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Distributable cash flow of the Fund available for distribution to
Unitholders, is equal to cash generated from operations before natural gas
customer acquisition costs and changes in net working capital, less
amortization of natural gas customer acquisition costs and maintenance capital
expenditures. Maintenance capital expenditures are equal to capital
expenditures incurred to sustain the ongoing 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. See Note 1 to the
Consolidated Financial Statements for the calculation of distributable cash
flow. 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, maintenance
capital expenditures and growth capital are not defined performance measures
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 expenditures 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.
EBITDA represents earnings before interest, taxes, depreciation and
amortization calculated on a 12 month trailing basis giving pro forma effect
to acquisition and divestitures and is used by Superior to calculate its debt
covenants and other credit information. Superior's calculation of EBITDA may
differ from similar calculations used by comparable entities
