Rogers Sugar Inc. (RSI) Earnings Call Transcript & Summary

There is no question, Mr. Chairman.

Okay. Thank you. We will now then proceed with the vote on the ratification. Please record your vote now, remembering if you've already voted in advance and do not wish to change your vote, no further action is required. I would now propose to ask our CEO, John Holliday, to provide an overview of our corporation's business since the beginning of the last year. John, the floor is yours.

Thank you, Dallas. As everybody knows, this is our first virtual AGM. And just for reference, you should see within the platform a presentation that I will follow. And the first page of the presentation will be titled Sweet. Natural. Essential. Annual Meeting of Shareholders, February 2, 2021. So first off, I wanted to thank everybody for attending our first Annual General Meeting on a virtual platform. You will all see that the presentation that I'm going to make on this platform. To facilitate this presentation, I will prompt you to change pages as you will be in control of the document. As Dallas mentioned, we've allocated up to 15 minutes for questions. Please send your questions through the question feature that was a note -- we provided notice of earlier. For any questions we cannot get to, we will follow up with you directly after the meeting. I would ask you now to go to Page 2. Here we go. On Page 2, as is customary, you will note our disclosures and cautions on risks and assumptions associated with forward-looking statements. This presentation will be posted on our investor website. In the interest of time, I will leave it to you to read the full disclosure at your convenience. You will find the agenda on Page 3 of the presentation. As is customary, we will provide a short overview of our vision and strategic priorities, followed by business updates and consolidated fiscal 2020 financial results. On Page 4, you will find an outline of our vision and strategic focus. I would like to quote Yogi Berra, who once said, "If you don't know where you are going, you will end up somewhere else." Our vision of becoming a leading North American natural sweetener company provides the destination that helps to guide our decisions on how we will evolve from our Canadian sugar refiner heritage into a North American player in the natural sweetener space. Strategic focus: Operational excellence, market access, acquisitions and brand management are key enablers that support our vision. Page 5 outlines some of the high-level aspirational and operational objectives that underpin our 5-year journey to future success. First, we want to be, as stated, viewed as a leading North American natural sweetener supplier. We want to manage multiple natural sweetener platforms. We want to continue to generate attractive growth in adjusted EBITDA and free cash flow. We want to maintain our attractive dividend, which, over the last 10 years, has provided $383 million in payments and, at this particular point in time on last -- based on last year's average, a 7.4% dividend yield. We want to continue to reinvest in operational excellence to lower costs and improve reliability. Page 6 touches on business platforms which support our vision. Sugar is at the core and center of our natural sweetener strategy. The Maple business is our first venture into alternate natural sweeteners and has grown to be roughly 20% of our sales revenue. In fiscal 2020, we added a new capability with a natural sugar reduction solution with our technology partnership with DouxMatok. We believe sugar reduction will be a niche market opportunity, but all the same, we believe it is important to deliver a natural cane-based solution to customers who are interested in this space. If you can move to Page 8, and we'll begin to take a deeper look at the sugar business. What has surprised many is the consistent growth we are achieving in our sugar business, plus 13% over the last 5 years. We've been very pleased with these results, and despite ongoing media and health professional pressures for consumers to moderate consumption, we expect the underlying trends of moderate growth to continue into the future. Moving to Page 9. This chart shows the U.S. growth trends for sugar and high-fructose corn syrup. The replacement of high-fructose corn syrup for sugar is very clear. These trends are consistent with our Canadian experience. These trends are not being driven by price but rather by a clear consumer preference for sugar versus high-fructose corn syrup. In addition, on Page 10, the first illustration shows the growth in exports to the United States and other markets. We have seen a 35,000 metric tonne improvement in export volumes over the past 5 years. We continue to have a positive outlook, believing the benefit of the additional 10,000 metric tonne TRQ negotiated in the last CUMSA agreement will offer ongoing support for U.S. exports. The second illustration shows evidence of a 60,000 metric tonne increase in value-added exports of sugar-containing products. This segment continues to grow, benefiting from lower sugar costs in Canada, lower Canadian dollar, no tariffs, a good labor force and well-developed supply chains into the United States. It's interesting to note that this sugar demand represents roughly 40% of the total Canadian demand. On Page 11, we show a return to more positive margins following nonrecurring commissioning issues at our Vancouver operations in 2019. The results for 2020, although much improved, were tempered by the costs incurred to reconfigure our manufacturing platform to make up for the loss of 62,000 metric tonnes of planned beet sugar resulting from weather-related crop losses in the last fiscal year. Page 12 talk about some of the priorities for our legacy business, which are: leveraging overall market conditions to improve margins; secondly, operational excellence to reduce our costs and improve reliability; thirdly, unlock capacity to support profitable growth; and fourthly and lastly, the customer experience. The customer experience is core to our long-term success and as is -- as it is to any business. We are proud of what we accomplished in FY '20 and have received words of appreciation from a cross-section of key customers on our ability to respond to forecast variability brought on by COVID 2019 -- or by COVID-19. Page 13 provides some trends on capital investments in the Sugar business. The graph shows our commitment to increase investment to stay in business capital in order to improve equipment reliability and support sales growth. In addition, with the trend to improved EBITDA and positive cash flows, we have been increasing return on investment spending levels to lower costs and increase capacity. Page 14 provides a simple illustration of our view of comparing FY '20 to fiscal 2021. On an outlook basis, volumes, our view for fiscal 2021 versus 2020, we have a positive view on volumes. We expect a positive outcome relative to margin improvements with higher No. 11 values. We expect that our production costs, as we move away from the challenges we faced with the short production of -- short crop of beets in FY '20, will benefit and as will improvements that we have made to our overall operating capabilities. Our margins, we expect, will improve because of lower costs and an improved margin environment. Foreign currency, which we see a strengthening Canadian dollar, will have a slightly negative impact on overall profitability. Our distribution costs, as a consequence of higher volumes and some supply chain disruptions in the -- at the beginning of our year, are expected to be neutral to the prior year. Overall, our expectations for fiscal '21 are an improved outcome in terms of EBITDA performance versus the prior fiscal year. Moving to Page 16. I will start to provide some commentary on our Maple business. Maple sales, which are largely retail in nature, responded very positively to COVID-19. Sales revenues grew by 16%. Adjusted margins and EBITDA for the year were down, driven by competitive factors and operating costs and efficiencies relating to the relocation and commissioning of plants. The competitive landscape improved during the fiscal year, allowing for improved margin on contract renewals, which we will see in fiscal 2021. Operational efficiencies were also on a continuous improvement trajectory, and we will deliver further improvements in fiscal 2021. Page 17 shows the market growth trends for fiscal '20. Driven by COVID-19, demand at TMTC, our Maple business, export volumes grew by a very strong 23%. We expect continued growth when comparing to prior year non-COVID periods. Post-COVID, we anticipate growth will flatten, but consumers' consumption behaviors will largely remain unchanged. Page 18 provides a visual of our new built-for-purpose Granby facility. This facility, along with significant upgrades to our Degelis plant, offer best-in-class, industry-leading manufacturing capabilities and the ability to be the least-cost producer. Page 19 identifies the business priorities for our Maple business, which are: to execute on margin improvement plans; to deliver planned manufacturing improvements; to enhance business analytical capabilities from one source of true data; and to respond quickly to COVID-19 challenges and deliver a positive customer experience. Turning to Page 20. We provide a similar comparison for our Maple business comparing FY '20 to FY '21. We expect volume in FY '21 to be relatively similar or neutral versus our prior year. Margin expectations are for improved -- we have expectations for improved margins. Our syrup costs, we expect to be similar to fiscal '20. Our production costs, we expect will be improved versus our prior fiscal year. Foreign exchange, again, with a stronger Canadian dollar, will have a negative effect on our business. Distribution costs, we expect to be neutral. And overall, we expect our fiscal '21 results to exceed our FY 2020 reported outcomes. Moving to Page 22. I will now share some comparisons of consolidated adjusted EBITDA for the last 3 years. The 5% improvement in FY '20 when considering the loss of 62,000 metric tonnes of manufacturing capacity due to the Taber crop loss and the challenges and costs, so cost of operating in a COVID environment, was a very positive overall outcome. Volume growth was also strong for sugar and maple, a trend we believe will continue for both businesses into FY '21. Page 23 provides a comparison of the prior 3-year cash flow and dividend payouts. After a challenging fiscal '19, positive cash flow returned in fiscal '20. Excluding the discretionary share buyback of $6.5 million, our fiscal '20 dividend payout ratio would have been approximately 80%. Subject to affordability, the business will continue to invest in operational excellence and plant reliability projects to support anticipated market and business -- market growth and business reliability objectives. Free cash will be used to pay down debt. Moving to Page 23. I will now summarize our results and priorities and thoughts for the future. In summary, product demand is positive for both sugar and maple. Market conditions in fiscal '20 were extraordinary. Crop losses, COVID-19, supply chain disruptions, all had an impact on our business. Sugar and Maple operated very well under these difficult conditions. Sugar margins are improving, lower operating costs and favorable market conditions. Maple growth in fiscal '20 was exceptional at plus 23%. New manufacturing platform responded to the growth and demonstrated continuous improvement in efficiencies. Maple manufacturing footprint transformation was completed, and we're ready to support new growth. Competitive environment in the Maple allowing for modest margins improvements on the contract renewals was achieved in fiscal 2020 and should continue into fiscal 2021. Continued focus on operational excellence and maintain a continuous improvement in our business with a focus on improving our customer -- continuous improvement of our customer experience. That concludes my update. Again, I wanted to thank you for your time and investment in our business. I will now pass the call back to Dallas.

Thank you, John. There being no -- we're back to the more formal part of the meeting for a moment. There being no further matters to vote upon, we'll proceed with announcing the results of the meeting. Mr. Secretary, do you have the preliminary results of the voting?

Yes, Mr. Chair. I have received confirmation from the scrutineer that each of the motions passed, including the election of each of the nominees for directors.

Thank you, Mr. Secretary. I declare each of the resolutions considered at today's meeting carried, therefore. The exact number of votes cast in respect of each matter will be filed on SEDAR and press released in due course. Are there any questions? If you have questions, please send your questions now on the platform. We'll take a 1-minute break to receive any questions that might come in.

Mr. Chair, there are no questions.

Okay. None at all. Thank you. With no questions coming in, I think that concludes the formal business agenda of the meeting, and I declare the meeting terminated. Thank you for your attention and attendance today.

This concludes the meeting. You may now disconnect.