Rogers Sugar Reports Second Quarter 2023 Results; Continued Strong Performance Driven by Higher Profitability in Sugar
VANCOUVER, British Columbia, May 10, 2023 (GLOBE NEWSWIRE) -- Rogers Sugar Inc. (“our,” “we”, “us” or “Rogers”) (TSX: RSI) today reported second quarter fiscal 2023 results with consolidated adjusted EBITDA of $25.0 million and $58.5 million for the current quarter and the first six months of the year, respectively.
“Canada’s favourable sugar dynamics and continued strong demand for sugar containing products drove increased profitability in the second quarter of fiscal 2023,” said Mike Walton, President and Chief Executive Officer of Rogers and Lantic Inc. “We are confident that these trends will continue throughout 2023 and despite lower sugar production from our Taber operations, we expect to deliver strong and stable financial results this year. In our maple business, the impact of improved pricing, automation projects and improving economic conditions helps mitigate an otherwise challenging business environment.”
*Second Quarter 2023 Consolidated Highlights*
(unaudited) *Q2 2023* Q2 2022 *YTD 2023* YTD 2022
*Financials ($000s)*
Revenues *272,949* 253,341 *534,392* 484,096
Gross margin *41,658* 33,899 *82,849* 77,385
Adjusted gross margin^(1) *38,233* 35,887 *80,226* 71,687
Results from operating activities *21,856* 15,499 *48,140* 42,836
EBITDA^(1) *28,445* 22,029 *61,158* 55,777
Adjusted EBITDA^(1) *25,020* 24,017 *58,535* 50,079
Net earnings *11,062* 8,570 *25,736* 25,796
per share (basic) *0.11* 0.08 *0.25* 0.25
per share (diluted) *0.10* 0.08 *0.23* 0.24
Adjusted net earnings^(1) *9,115* 9,122 *24,462* 20,079
Adjusted net earnings per share (basic)^(1) *0.09* 0.09 *0.23* 0.19
Trailing twelve months free cash flow^(1) *51,807* 46,560 *51,807* 46,560
Dividends per share *0.09* 0.09 *0.18* 0.18
*Volumes*
Sugar (metric tonnes) *195,547* 196,570 *388,396* 376,613
Maple Syrup (thousand pounds) *12,059* 12,912 *23,878* 25,198
(1) See “Cautionary statement on Non-GAAP Measures” section of this press release for definition and reconciliation to GAAP measures.
· Consolidated adjusted EBITDA for the second quarter and the first six months of fiscal 2023 was $25.0 million and $58.5 million respectively, up $1.0 million, and $8.4 million from the same periods last year. The increase in consolidated adjusted EBITDA for both periods was related to higher adjusted EBITDA in the Sugar segment, partially offset by lower adjusted EBITDA in the Maple segment;
· Adjusted EBITDA in the Sugar segment was $22.6 million in the second quarter of fiscal 2023, up $1.2 million compared to the same period last year, largely due to higher adjusted gross margin, partially offset by higher administrative and selling expenses;
· Sales volumes in the Sugar segment decreased slightly in the second quarter to 195,547 metric tonnes, from 196,570 metric tonnes for the same period last year;
· Adjusted gross margin in the Sugar segment improved by $15.51 per metric tonne in the second quarter of 2023 compared to the same period last year due to improved average pricing;
· Adjusted EBITDA in the Maple segment was $2.4 million in the second quarter, a decrease of $0.3 million from the same quarter last year, largely as a result of lower adjusted gross margin;
· The volume sold in the Maple segment decreased by 853,000 pounds to 12,059,000 pounds in the quarter, driven largely by lower demand and unfavourable market dynamics;
· We are maintaining our fiscal 2023 sugar sales volume outlook at approximately 805,000 metric tonnes, reflecting the continued strong demand in the Canadian industrial sugar market;
· Free cash flow for the trailing 12 months ended April 1, 2023 was $51.8 million, an increase of $5.2 million from the same period last year;
· In the second quarter of fiscal 2023, we distributed $0.09 per share to our shareholders for a total amount of $9.4 million;
· On May 10, 2023, the Board of Directors declared a quarterly dividend of $0.09 per share, payable on or before July 13, 2023; and
· We continue to work on the design and planning of the prospective expansion project announced in August 2022. The expansion project would increase sugar supply by approximately 100,000 metric tonnes in eastern Canada within the next two to three years. We are expecting to complete the design and planning stage in the third quarter of fiscal 2023.
*
Sugar *
*Second Quarter 2023 Sugar Highlights*
(unaudited) *Q2 2023* Q2 2022 *YTD 2023* YTD 2022
*Financials ($000s)* * * * *
Revenues *216,135* 195,875 *421,423* 371,782
Gross margin *37,075* 29,030 *73,113* 67,836
Adjusted gross margin^(1) *34,145* 31,277 *71,806* 62,649
Per metric tonne ($/ mt)^ (1) *174.62* 159.11 *184.88* 166.35
Administration and selling expenses *11,101* 9,415 *17,736* 18,527
Distribution costs *5,340* 5,328 *10,402* 9,672
Results from operating activities *20,634* 14,287 *44,975* 39,637
EBITDA^(1) *25,512* 19,117 *54,566* 49,168
Adjusted EBITDA^(1) *22,582* 21,364 *53,259* 43,981 * *
*Volumes (metric tonnes)* * *
Total volume *195,547* 196,570 *388,396* 376,613
(1) See “Cautionary statement on Non-GAAP Measures” section of this press release for definition and reconciliation to GAAP measures.
In the second quarter, revenue increased by $20.3 million, compared to the same periods last year, driven mainly by higher prices paid for #11 world raw sugar and higher average pricing for refining related activities.
Overall, sugar volume was stable in the second quarter of 2023 compared to the same quarter last year, as strong industrial volumes were offset by lower volumes in our consumer and export categories.
Gross margin was $37.1 million for the second quarter and include a gain of $2.9 million for the mark-to-market of derivative financial instruments. For the same periods last year, gross margin was $29.0 million with a mark-to-market loss of $2.2 million.
Adjusted gross margin increased by $2.9 million in the second quarter compared to the same period last year mainly as a result of higher sugar sales margin from improved average pricing on sugar refining related activities. This positive variance was partially offset by higher production costs mainly driven by market-based inflationary pressures on operating costs and higher storage costs for raw sugar as we increased the storage capacity of our Montreal plant to support the growing demand for refined sugar in eastern Canada. On a per unit basis, adjusted gross margin for the second quarter was at $174.62 per metric tonne, higher than last year by $15.51 per metric tonne. The favourable variance was mainly due to the increase in overall margin from improved selling prices, partially offset by higher production cost, as compared to last year.
Results from operating activities for the second quarter of 2023 was $20.6 million, an increase of $6.3 million as compared to the same period last year. These results include gains and losses from the mark-to-market of derivative financial instruments.
EBITDA for the second quarter was $25.5 million, an increase of $6.4 million as compared to same period last year. These results include gains and losses from the mark-to-market of derivative financial instruments.
Adjusted EBITDA for the second quarter increased by $1.2 million compared to the same period last year, largely as a result of higher adjusted gross margin, partially offset by higher administration and selling expenses.
*Maple Products *
*Second Quarter 2023 Maple Highlights*
(unaudited) *Q2 2023* Q2 2022 *YTD 2023* YTD 2022
*Financials ($000s)*
Revenues *56,814* 57,466 *112,969* 112,314
Gross margin *4,583* 4,869 *9,736* 9,549
Adjusted gross margin^(1) *4,088* 4,610 *8,420* 9,038
As a percentage of revenues (%) ^ (1) *7.2**%* 8.0% *7.5**%* 8.0%
Administration and selling expenses *2,865* 2,705 *5,527* 5,079
Distribution costs *496* 952 *1,044* 1,271
Results from operating activities *1,222* 1,212 *3,165* 3,199
EBITDA^(1) *2,933* 2,912 *6,592* 6,609
Adjusted EBITDA^(1) *2,438* 2,653 *5,276* 6,098 * *
*Volumes (thousand pounds)* * *
Total volume *12,059* 12,912 *23,878* 25,198
(1) See “Cautionary statement on Non-GAAP Measures” section of this press release for definition and reconciliation to GAAP measures.
Revenues for the second quarter were $0.7 million lower than the same period last year due to lower volume, partially offset by higher average selling price.
Gross margin was $4.6 million for the second quarter of 2023 and includes a gain of $0.5 million for the mark-to-market of derivative financial instruments. For the same period last year, gross margin was $4.9 million with a mark-to-market gain of $0.3 million.
Adjusted gross margin for the second quarter was $4.1 million, a decrease of $0.5 million as compared to the same period last year. The unfavourable variance was mainly due to lower volume as a result of lower demand and unfavourable market dynamics.
Adjusted gross margin percentage for the current quarter decreased by 80 basis point to 7.2% compared to the same period last year. This variance was mainly related to market-based production cost increases and the timing of passing these increases to our customers.
Results from operating activities for the second quarter of 2022 and 2023 amounted to $1.2 million. These results include gains and losses from the mark-to-market of derivative financial instruments.
EBITDA for the second quarter of 2022 and 2023 amounted to $2.9 million. These results include gains and losses from the mark-to-market of derivative financial instruments.
Adjusted EBITDA for the second quarter of fiscal 2022 decreased by $0.2 million compared to the same quarter last year, largely driven by lower adjusted gross margin, as mentioned above.
*OUTLOOK*
Following a solid performance in the second quarter of 2023, we expect to continue to deliver strong and stable financial results in 2023. Strong sugar demand and pricing is expected to continue and provide improved results, despite ongoing inflationary pressures. We expect our Maple segment will continue to face a challenging business environment in the second half of 2023, as the unfavourable market and economic conditions encountered over the last year remain. We intend to mitigate these unfavourable market conditions with recently negotiated price increases, and newly implemented production automation initiatives.
*Sugar *
We continue to expect the sugar segment to perform well in fiscal 2023. Underlying North American demand remains strong across all customer segments supported by favourable market dynamics. We expect that improvements in pricing implemented over the last few quarters will continue to support our financial results positively, allowing us to mitigate the current impact of inflationary pressures on costs.
In Taber, the harvest season delivered the expected volume of sugar beets, and the processing campaign was completed in early February. The expected sugar production from the crop is 105,000 metric tonnes, lower than the prior year production by 15,000 metric tonnes. The lower-than-expected production is attributable to unfavourable weather conditions encountered in the later stage of the current year growing period, which negatively impacted the sugar content of the sugar beets.
We have increased the production plans of our Montreal and Vancouver cane sugar facilities to mitigate the production shortfall of our Taber facility and ensure we can support the growing needs of our customers.
In April 2023, we have concluded a new two-year agreement with the Alberta Sugar Beet Growers for the supply of sugar beets to the Taber beet plant, for which the crop harvested in the fall of 2023 will be the first year of the agreed contract.
We are maintaining our fiscal 2023 sales volume expectations of approximately 805,000 metric tonnes. This represents an increase of 1.3% over 2022. This increase is based on the continued strong demand of the Canadian domestic industrial sugar market. Overall, we expect the following year-over-year volume variances for our customer segments:
· Industrial, our largest segment, is expected to increase by 3%, as a result of the continuous strong demand supported by favourable market dynamics;
· Liquid volume is expected to grow by 4% driven by continued demand from existing customers;
· Consumer volume is expected to remain stable; and
· A planned 15% reduction in sales to the export markets for 2023, due to the growing demand and strong economics of the domestic market. We will consider potential supplemental export sales if favourable production opportunities arise.
Production costs and maintenance programs for our three production facilities are expected to be moderately impacted by the current inflationary pressures, and we continue to focus on cost control initiatives throughout our operations.
We expect a slight increase in distribution costs in 2023 as we foresee that recent increases for logistics and our supply chain costs will remain in the second half of 2023.
Administration and selling expenses are expected to be stable in 2023.
We have been able to lower the impact of recent increases in interest rates and energy costs through our multi-year hedging strategy. We do not anticipate these increases to have a material impact on our financial results in the near future, as we expect our hedging strategy will continue to mitigate most of our exposure to such risks.
Spending on regular business capital projects is also expected to remain stable for fiscal 2023. We anticipate spending approximately $25 million on various initiatives. This capital spending estimate excludes expenditures relating to the expected capacity expansion of our Montreal sugar refinery and Toronto distribution centre.
*Maple Products*
We continue to expect the Maple business segment to be negatively impacted by high inflation, resulting in lower demand from retail customers, for the remainder of 2023. We anticipate the unfavourable impact related to the reduction in retail demand and the related increased competitiveness of the market will be mitigated by recently negotiated price increases with key customers, lower production costs driven by newly implemented automation projects and favourable recently negotiated supply agreements for packaging material.
We plan to spend between $1 million and $2 million on capital projects in 2023, which is consistent with recent years. The main driver for the Maple segment projects is to improve productivity and profitability through automation.
See “Cautionary Statement Regarding Forward Looking Information” section below.
A full copy of Rogers second quarter 2023, including management’s discussion and analysis and unaudited condensed consolidated interim financial statements, can be found at www.LanticRogers.com.
*Cautionary Statement Regarding Non-GAAP Measures*
In analyzing results, we supplement the use of financial measures that are calculated and presented in accordance with IFRS with a number of non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that excludes (includes) amounts or is subject to adjustments that have the effect of excluding (including) amounts, that are included (excluded) in most directly comparable measures calculated and presented in accordance with IFRS. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with the non-GAAP financial measures of other companies having the same or similar businesses. We strongly encourage investors to review the audited consolidated financial statements and publicly filed reports in their entirety, and not to rely on any single financial measure.
We use these non-GAAP financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-GAAP financial measures reflect an additional way of viewing aspects of the operations that, when viewed with the IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business. Refer to “Non-GAAP measures” section at the end of the MD&A for the current quarter for additional information.
The following is a description of the non-GAAP measures we used in this press release:
· Adjusted gross margin is defined as gross margin adjusted for “the adjustment to cost of sales”, which comprises the mark-to-market gains or losses on sugar futures, foreign exchange forward contracts and embedded derivatives as shown in the notes to the consolidated financial statements and the cumulative timing differences as a result of mark-to-market gains or losses on sugar futures, foreign exchange forward contracts and embedded derivatives.
· Adjusted results from operating activities are defined as results from operating activities adjusted for the adjustment to cost of sales and goodwill impairment.
· EBITDA is defined as results from operating activities adjusted for depreciation, amortization and goodwill impairment.
· Adjusted EBITDA is defined as EBITDA adjusted for total adjustments to cost of sales.
· Adjusted net earnings is defined as net earnings adjusted for the adjustment to cost of sales, goodwill impairment, net change in fair value in interest rate swaps and the income tax impact on these adjustments.
· Adjusted gross margin rate per MT is defined as adjusted gross margin of the Sugar segment divided by the sales volume of the Sugar segment.
· Adjusted gross margin percentage is defined as the adjusted gross margin of the Maple segment divided by the revenues generated by the Maple segment.
· Adjusted net earnings per share is defined as adjusted net earnings divided by the weighted average number of shares outstanding.
· Free cash flow is defined as cash flow from operations excluding changes in non-cash working capital, mark-to-market and derivative timing adjustments, financial instruments non-cash amount, goodwill impairment and includes deferred financing charges, funds received from stock options exercised, capital and intangible assets expenditures, net of value-added capital expenditures, and payments of capital leases.
In this press release, we discuss the non-GAAP financial measures, including the reasons why we believe these measures provide useful information regarding the financial condition, results of operations, cash flows and financial position, as applicable. We also discuss, to the extent material, the additional purposes, if any, for which these measures are used. These non-GAAP measures should not be considered in isolation, or as a substitute for, analysis of our results as reported under GAAP. Reconciliations of non-GAAP financial measures to the most directly comparable IFRS financial measures are as follows:
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO IFRS FINANCIAL MEASURES
*Q2 2023**
* Q2 2022
*Consolidated results*
(In thousands of dollars) *Sugar* *Maple *
*Products* *Total* Sugar Maple
Products Total
Gross margin *37,075* *4,583* *41,658* 29,030 4,869 33,899
Total adjustment to the cost of sales^(1) *(2,930* *)* *(495* *)* *(3,425* *)* 2,247 (259 ) 1,988
Adjusted gross margin *34,145* *4,088* *38,233* 31,277 4,610 35,887
Results from operating activities *20,634* *1,222* *21,856* 14,287 1,212 15,499
Total adjustment to the cost of sales^(1) *(2,930* *)* *(495* *)* *(3,425* *)* 2,247 (259 ) 1,988
Adjusted results from operating activities *17,704* *727* *18,431* 16,534 953 17,487
Results from operating activities *20,634* *1,222* *21,856* 14,287 1,212 15,499
Depreciation of property, plant and equipment, amortization of intangible assets and right-of-use assets *4,878* *1,711* *6,589* 4,830 1,700 6,530
EBITDA^(1) *25,512* *2,933* *28,445* 19,117 2,912 22,029
EBITDA^(1) *25,512* *2,933* *28,445* 19,117 2,912 22,029
Total adjustment to the cost of sales^(1) *(2,930* *)* *(495* *)* *(3,425* *)* 2,247 (259 ) 1,988
Adjusted EBITDA *22,582* *2,438* *25,020* 21,364 2,653 24,017
Net (loss) earnings *11,062* 8,570
Total adjustment to the cost of sales^(1) *(3,425* *)* 1,988
Net change in fair value in interest rate swaps^(1) *479* (1,246 )
Income taxes on above adjustments *999* (190 )
Adjusted net earnings *9,115* 9,122
Net earnings per share (basic) *0.11* 0.08
Adjustment for the above *(0.02* *)* 0.01
Adjusted net earnings per share (basic) *0.09* 0.09
(1) See “Adjusted results” section
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO IFRS FINANCIAL MEASURES (CONTINUED)
*YTD 2023* YTD 2022
*Consolidated results*
(In thousands of dollars) * Sugar* *Maple *
*Products* *Total* Sugar Maple
Products Total
Gross margin *73,113* *9,736* *82,849* 67,836 9,549 77,385
Total adjustment to the cost of sales^(1) *(1,307* *)* *(1,316* *)* *(2,623* *)* (5,187 ) (511 ) (5,698 )
Adjusted gross margin *71,806* *8,420* *80,226* 62,649 9,038 71,687
Results from operating activities *44,975* *3,165* *48,140* 39,637 3,199 42,836
Total adjustment to the cost of sales^(1) *(1,307* *)* *(1,316* *)* *(2,623* *)* (5,187 ) (511 ) (5,698 )
Adjusted results from operating activities *43,668* *1,849* *45,517* 34,450 2,688 37,138
Results from operating activities *44,975* *3,165* *48,140* 39,637 3,199 42,836
Depreciation of property, plant and equipment, amortization of intangible assets and right-of-use assets *9,591* *3,427* *13,018* 9,531 3,410 12,941
EBITDA^(1) *54,566* *6,592* *61,158* 49,168 6,609 55,777
EBITDA^(1) *54,566* *6,592* *61,158* 49,168 6,609 55,777
Total adjustment to the cost of sales^(1) *(1,307* *)* *(1,316* *)* *(2,623* *)* (5,187 ) (511 ) (5,698 )
Adjusted EBITDA^(1) *53,259* *5,276* *58,535* 43,981 6,098 50,079
Net (loss) earnings *25,736* 25,796
Total adjustment to the cost of sales^(1) *(2,623* *)* (5,698 )
Net change in fair value in interest rate swaps^(1) *525* (1,840 )
Income taxes on above adjustments *824* 1,821
Adjusted net earnings *24,462* 20,079
Net earnings per share (basic) *0.25* 0.25
Adjustment for the above *(0.02* *)* (0.06 )
Adjusted net earnings per share (basic) *0.23* 0.19
(1) See “Adjusted results” section
*Conference Call and Webcast *
We will host a conference call to discuss our second quarter of fiscal 2023 results on May 10, 2023 starting at 17:30 ET. To participate, please dial 1-888-886-7786. A recording of the conference call will be accessible shortly after the conference, by dialing 1-877-674- 7070, access code 401529#. This recording will be available until May 24, 2023. A live audio webcast of the conference call will also be available via www.LanticRogers.com.
*About Rogers Sugar*
Rogers is a corporation established under the laws of Canada. The Corporation holds all of the common shares of Lantic and its administrative office is in Montréal, Québec. Lantic operates cane sugar refineries in Montreal, Québec and Vancouver, British Columbia, as well as the only Canadian sugar beet processing facility in Taber, Alberta. Lantic also operate a custom blending and packaging operation and distribution center in Toronto, Ontario. Lantic’s sugar products are marketed under the “Lantic” trademark in Eastern Canada, and the “Rogers” trademark in Western Canada and include granulated, icing, cube, yellow and brown sugars, liquid sugars and specialty syrups. Lantic owns all of the common shares of TMTC and its head office is headquartered in Montréal, Québec. TMTC operates bottling plants in Granby, Dégelis and in St-Honore-de-Shenley, Québec and in Websterville, Vermont. TMTC’s products include maple syrup and derived maple syrup products supplied under retail private label brands in over fifty countries and also sold under various brand names, such as TMTC, Uncle Luke’s, Great Northern, Decacer and Highland Sugarworks.
For more information about Rogers please visit our website at www.LanticRogers.com.
*Cautionary Statement Regarding Forward-Looking Information*
This report contains statements or information that are or may be “forward-looking statements” or “forward-looking information” within the meaning of applicable Canadian Securities laws. Forward-looking statements may include, without limitation, statements and information which reflect our current expectations with respect to future events and performance. Wherever used, the words “may,” “will,” “should,” “anticipate,” “intend,” “assume,” “expect,” “plan,” “believe,” “estimate,” and similar expressions and the negative of such expressions, identify forward-looking statements. Although this is not an exhaustive list, we caution investors that statements concerning the following subjects are, or are likely to be, forward-looking statements:
· Future demand for refined sugar and maple syrup;
· our intention to increase sugar refining capacity and the related eastern Canada distribution network;
· future prices of raw sugar;
· expected inflationary pressures on costs;
· natural gas costs;
· beet production forecasts;
· growth of the maple syrup industry and the refined sugar industry;
· the status of labour contracts and negotiations;
· the level of future dividends;
· the status of government regulations and investigations; and
· the impact of the COVID-19 pandemic on our operations.
Forward-looking statements are based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Actual performance or results could differ materially from those reflected in the forward-looking statements, historical results, or current expectations.
Readers should also refer to the section “Risks and Uncertainties” in this current quarter MD&A and the 2022 fourth quarter MD&A for additional information on risk factors and other events that are not within our control. These risks are also referred to in our Annual Information Form in the “Risk Factors” section. Although we believe that the expectations and assumptions on which forward-looking information is based are reasonable under the current circumstances, readers are cautioned not to rely unduly on this forward-looking information as no assurance can be given that it will prove to be correct. Forward-looking information contained herein is made as at the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information, whether a result of events or circumstances occurring after the date hereof, unless so required by law
*Financial Report Q**2 2023*
This Management’s Discussion and Analysis (“MD&A”) of Rogers Sugar Inc. (“Rogers”, “RSI” or “our,” “we”, “us”) dated May 10, 2023 should be read in conjunction with the unaudited condensed consolidated interim financial statements and related notes for the three- and six-month periods ended April 1, 2023, as well as the audited consolidated financial statements and MD&A for the year ended October 1, 2022. The quarterly unaudited condensed consolidated interim financial statements and any amounts shown in this MD&A were not reviewed nor audited by our external independent auditors. This MD&A refers to Rogers, Lantic Inc. (“Lantic”) (Rogers and Lantic together referred as the “Sugar segment”), The Maple Treat Corporation (“Maple Treat”) and Highland Sugarworks Inc. (“Highland”) (the latter two companies together referred to as “TMTC” or the “Maple segment”).
Management is responsible for preparing the MD&A. This MD&A has been reviewed and approved by the Audit Committee of Rogers and its Board of Directors.
*OUR BUSINESS *
Rogers has a long history of providing high quality sugar products to the Canadian market and has been operating since 1888.
Lantic, Rogers wholly owned subsidiary, operates cane sugar refineries in Montréal, Québec and Vancouver, British Columbia, as well as the only Canadian sugar beet processing facility in Taber, Alberta. Lantic’s sugar products are marketed under the “Lantic” trademark in Eastern Canada, and the “Rogers” trademark in Western Canada and include granulated, icing, cube, yellow and brown sugars, liquid sugars and specialty syrups. We also operate a distribution center in Toronto, Ontario.
Maple Treat operates bottling plants in Granby, Dégelis and St-Honoré-de-Shenley, Québec and in Websterville, Vermont. Maple Treat’s products include maple syrup and derived maple syrup products supplied under retail private label brands in over fifty countries and are sold under various brand names, such as TMTC, Uncle Luke’s, Great Northern, Decacer and Highland Sugarworks.
Our business has two distinct segments - Sugar – which includes refined sugar and by-products and Maple – which includes maple syrup and maple derived products.
*BUSINESS HIGHLIGHTS*
· Consolidated adjusted EBITDA for the second quarter and the first six months of fiscal 2023 was $25.0 million and $58.5 million respectively, up $1.0 million, and $8.4 million from the same periods last year. The increase in consolidated adjusted EBITDA for both periods was related to higher adjusted EBITDA in the Sugar segment, partially offset by lower adjusted EBITDA in the Maple segment;
· Adjusted EBITDA in the Sugar segment was $22.6 million in the second quarter of fiscal 2023, up $1.2 million compared to the same period last year, largely due to higher adjusted gross margin, partially offset by higher administrative and selling expenses;
· Sales volumes in the Sugar segment decreased slightly in the second quarter to 195,547 metric tonnes, from 196,570 metric tonnes for the same period last year;
· Adjusted gross margin in the Sugar segment improved by $15.51 per metric tonne in the second quarter of 2023 compared to the same period last year due to improved average pricing;
· Adjusted EBITDA in the Maple segment was $2.4 million in the second quarter, a decrease of $0.3 million from the same quarter last year, largely as a result of lower adjusted gross margin;
· The volume sold in the Maple segment decreased by 853,000 pounds to 12,059,000 pounds in the quarter, driven largely by lower demand and unfavourable market dynamics;
· We are maintaining our fiscal 2023 sugar sales volume outlook at approximately 805,000 metric tonnes, reflecting the continued strong demand in the Canadian industrial sugar market;
· Free cash flow for the trailing 12 months ended April 1, 2023 was $51.8 million, an increase of $5.2 million from the same period last year;
· In the second quarter of fiscal 2023, we distributed $0.09 per share to our shareholders for a total amount of $9.4 million;
· On May 10, 2023, the Board of Directors declared a quarterly dividend of $0.09 per share, payable on July 13, 2023; and
· We continue to work on the design and planning of the prospective expansion project announced in August 2022. The expansion project would increase sugar supply by approximately 100,000 metric tonnes in eastern Canada within the next two to three years. We are expecting to complete the design and planning stage in the third quarter of fiscal 2023.
*SELECTED FINANCIAL DATA AND HIGHLIGHTS*
(unaudited)
(In thousands of dollars, except volume and per share information) *Q2 2023* Q2 2022 *YTD 2023* YTD 2022
Sugar (metric tonnes) * 195,547 * 196,570 * 388,396 * 376,613
Maple syrup (000 pounds) * 12,059 * 12,912 * 23,878 * 25,198
Total revenues * 272,949 * 253,341 * 534,392 * 484,096
Gross margin * 41,658 * 33,899 * 82,849 * 77,385
Adjustment to cost of sale^(^1) * 3,425* (1,988 ) * 2,623* 5,698
Adjusted gross margin^(^1) * 38,233 * 35,887 * 80,226 * 71,687
Results from operating activities * 21,856 * 15,499 * 48,140 * 42,836
Adjusted results from operating activities^(^1) * 18,431 * 17,487 * 45,517 * 37,138
EBITDA^(^1) * 28,445 * 22,029 * 61,158 * 55,777
Adjusted EBITDA^(^1) * 25,020 * 24,017 * 58,535 * 50,079
Net earnings * 11,062 * 8,570 * 25,736 * 25,796
per share (basic) * 0.11 * 0.08 * 0.25 * 0.25
per share (diluted) * 0.10 * 0.08 * 0.23 * 0.24
Adjusted net earnings^(^1)^(2) * 9,115 * 9,122 * 24,462 * 20,079
Adjusted net earnings per share (basic)^(^1)^(2) * 0.09 * 0.09 * 0.23 * 0.19
Trailing twelve months free cash flow^(^1) * 51,807 * 46,560 * 51,807 * 46,560
Dividends per share * 0.09 * 0.09 * 0.18 * 0.18
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
Revenues and Adjusted EBITDA: https://www.globenewswire.com/NewsRoom/AttachmentNg/fc082d81-3f85-4835-8a48-3b27ff6e6184
Adjusted Net Earnings and Free Cash Flow TTM: https://www.globenewswire.com/NewsRoom/AttachmentNg/2fdd388e-ac03-4f16-a197-238d45af246d
Adjusted results
In the normal course of business, we use derivative financial instruments consisting of sugar futures, foreign exchange forward contracts, natural gas futures and interest rate swaps. We have designated our natural gas futures and our interest rate swap agreements entered into in order to protect us against natural gas prices and interest rate fluctuations as cash flow hedges. Derivative financial instruments pertaining to sugar futures and foreign exchange forward contracts are marked-to-market at each reporting date and are charged to the condensed consolidated interim statement of earnings. The unrealized gains/losses related to natural gas futures and interest rate swaps that qualify under hedged accounting are accounted for in other comprehensive income. The unrealized gain/losses related to interest rate swaps that do not qualify under hedged accounting are accounted in the condensed consolidated interim statement of earnings. The amount recognized in other comprehensive income is removed and included in net earnings under the same line item in the condensed consolidated interim statement of earnings and comprehensive income as the hedged item, in the same period that the hedged cash flows affect net earnings, reducing earnings volatility related to the movements of the valuation of these derivatives hedging instruments.
We believe that our financial results are more meaningful to management, investors, analysts, and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments. These adjusted financial results provide a more complete understanding of factors and trends affecting our business. This measurement is a non-GAAP measurement. See “Non-GAAP measures” section.
We use the non-GAAP adjusted results of the operating company to measure and to evaluate the performance of the business through our adjusted gross margin, adjusted results from operating activities, adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and trailing twelve months free cash flow. In addition, we believe that these measures are important to our investors and parties evaluating our performance and comparing such performance to past results. We also use adjusted gross margin, adjusted EBITDA, adjusted results from operating activities, adjusted net earnings, adjusted net earning per share and trailing twelve months free cash flow when discussing results with the Board of Directors, analysts, investors, banks, and other interested parties. See “Non-GAAP measures” section.
OUR RESULTS ARE ADJUSTED AS FOLLOWS:
*Income (loss)*
(In thousands of dollars) *Q2 2023* Q2 2022 * Sugar* *Maple *
*Products* *Total* Sugar Maple
Products Total
Mark-to-market on:
Sugar futures contracts * 4,925* * - * * 4,925* 2,187 - 2,187
Foreign exchange forward contracts * 296 * * (160* *)* * 136* 418 268 686
Total mark-to-market adjustment on derivatives * 5,221* * (160* *)* * 5,061* 2,605 268 2,873
Cumulative timing differences * (2,291* *)* * 655* * (1,636* *)* (4,852 ) (9 ) (4,861 )
Total adjustment to costs of sales * 2,930* * 495* * 3,425* (2,247 ) 259 (1,988 )
*Income (loss)*
(In thousands of dollars) *YTD 2023* YTD 2022 * Sugar* *Maple *
*Products* *Total* Sugar Maple
Products Total
Mark-to-market on:
Sugar futures contracts * 3,717 * * - * * 3,717 * 2,310 - 2,310
Foreign exchange forward contracts * 569 * * (357* *)* * 212 * 76 404 480
Total mark-to-market adjustment on derivatives * 4,286 * * (357* *)* * 3,929 * 2,386 404 2,790
Cumulative timing differences * (2,979* *)* * 1,673* * (1,306* *)* 2,801 107 2,908
Total adjustment to costs of sales * 1,307* * 1,316* * 2,623* 5,187 511 5,698
Fluctuations in the mark-to-market adjustment on derivatives are due to the price movements in Raw #11 sugar and foreign exchange variations.
We recognize cumulative timing differences, as a result of mark-to-market gains or losses, only when sugar is sold to a customer. The gains or losses on sugar and related foreign exchange paper transactions are largely offset by corresponding gains or losses from the physical transactions, namely sale and purchase contracts with customers and suppliers.
The above-described adjustments are added to or deducted from the mark-to-market results to arrive at the total adjustment to cost of sales. For the second quarter of the current fiscal year, the total cost of sales adjustment is a gain of $3.4 million to be deducted from the consolidated results versus a loss of $2.0 million to be added to the consolidated results for the comparable period last year. For the first six months of fiscal 2023, the total cost of sales adjustment is a gain of $2.6 million to be deducted from the consolidated results compared to a gain of $5.7 million to be deducted from the consolidated results for the same period last year.
See the “Non-GAAP measures” section for more information on these adjustments.
*SEGMENTED INFORMATION*
*Segmented Results*
(In thousands of dollars) *Q2 2023* Q2 2022 * Sugar* *Maple *
*Products* *Total* Sugar Maple
Products Total
Revenues * 216,135 * * 56,814 * *272,949 * 195,875 57,466 253,341
Gross margin *37,075 * *4,583 * *41,658 * 29,030 4,869 33,899
Administration and selling expenses *11,101 * *2,865 * *13,966 * 9,415 2,705 12,120
Distribution costs *5,340 * *496* *5,836 * 5,328 952 6,280
Results from operating activities * 20,634 * * 1,222 * *21,856 * 14,287 1,212 15,499
Adjustment to cost of sales^(^2^) *(2,930* *)* *(495 * *)* *(3,425* *)* 2,247 (259 ) 1,988
Adjusted Gross margin^(^1) *34,145* * 4,088 * * 38,233 * 31,277 4,610 35,887
Adjusted results from operating activities^(^1) * 17,704 * *727 * *18,431* 16,534 953 17,487
EBITDA^(^1) *25,512* *2,933* *28,445* 19,117 2,912 22,029
Adjusted EBITDA^(^1) *22,582 * *2,438* * 25,020 * 21,364 2,653 24,017
Additional information:
Additions to property, plant and equipment and intangible assets, net of disposals * 6,514 * * 275 * * 6,789 * 3,100 136 3,236
Additions to right-of-use assets * 948 * * - * * 948 * (129 ) - (129 )
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
(2) See “Adjusted results” section
*Segmented Results*
(In thousands of dollars) *YTD 2023* YTD 2022 * Sugar* *Maple *
*Products* *Total* Sugar Maple
Products Total
Revenues *421,423 * * 112,969 * *534,392 * 371,782 112,314 484,096
Gross margin * 73,113* * 9,736 * * 82,849 * 67,836 9,549 77,385
Administration and selling expenses * 17,736 * * 5,527 * * 23,263 * 18,527 5,079 23,606
Distribution costs * 10,402 * * 1,044 * *11,446* 9,672 1,271 10,943
Results from operating activities *44,975 * * 3,165 * *48,140* 39,637 3,199 42,836
Adjustment to cost of sales^(^2^) *(1,307 * *)* *(1,316 * *)* *(2,623 * *)* (5,187 ) (511 ) (5,698 )
Adjusted Gross margin^(^1) *71,806 * *8,420 * *80,226 * 62,649 9,038 71,687
Adjusted results from operating activities^(^1^) *43,668 * *1,849 * *45,517 * 34,450 2,688 37,138
EBITDA^(^1) *54,566* *6,592* *61,158* 49,168 6,609 55,777
Adjusted EBITDA^(^1) *53,259 * *5,276 * *58,535 * 43,981 6,098 50,079
Additional information:
Additions to property, plant and equipment and intangible assets, net of disposals *14,966 * * 369* * 15,335 * 7,093 355 7,448
Additions to right-of-use assets * 966 * *45* * 1,011 * 8,083 - 8,038
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
(2) See “Adjusted results” section
Sugar
REVENUES
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars) *216,135* 195,875 20,260 * 421,423 * 371,782 49,641
Sugar Volume Variance and Sugar Volumes: https://www.globenewswire.com/NewsRoom/AttachmentNg/1c5b792d-11ef-4ffa-9e9b-d1de8c43f9a2
In the second quarter and first six months of fiscal 2023, revenue increased by $20.3 million and $49.6 million respectively, compared to the same periods last year, driven mainly by higher prices paid for #11 world raw sugar and higher average pricing for refining related activities. The average prices for #11 world raw sugar increased by US 2.3 cent per pound to US 20.7 cent per pound during the current quarter and by US 1.2 cent per pound to US 20.0 cent per pound for the first half of the current fiscal year, when compared to the same periods last year.
Overall, sugar volume was stable in the second quarter of 2023 when compared to the same quarter last year, as lower consumer and exports volumes were offset by strong industrial volumes.
· Industrial volume increased by 5,194 metric tonnes or 4.7% compared to the same period last year, as a result of continued strong demand in the domestic market.
· Consumer volume decreased by 1,411 metric tonnes or 5.9% compared to the same quarter last year, mainly due to timing of orders from customers.
· Liquid volume increased by 846 metric tonnes or 2.0% compared to the same period last year mainly due to additional sales from existing customers.
· Export volume decreased by 5,652 metric tonnes or 28.4% compared to the same period last year, as we focused our sales efforts on serving the domestic market.
Sugar Volume Variance and Sugar Volumes: https://www.globenewswire.com/NewsRoom/AttachmentNg/79edad6c-4715-4c2d-9621-d415e3df396f
In the first half of fiscal 2023, sugar volume totaled 388,396 metric tonnes, an increase of approximately 3.1% or 11,783 metric tonnes compared to the same period last year.
· Industrial volume increased by 17,062 metric tonnes or 8.2% compared to the same period last year, as a result of the continued strong demand in the domestic market as seen over the last three quarters.
· Consumer volume remained largely unchanged from the same period last year.
· Liquid volume increased by 1,114 metric tonnes or 1.3% compared to last year as a result of higher demand from existing customers.
· Export volume decreased by 6,181 metric tonnes or 18.0% compared to last year, as we continue to focus our sales efforts on serving the domestic market.
GROSS MARGIN
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars, except per metric tonne information)
Gross margin * 37,075 * 29,030 8,045 * 73,113 * 67,836 5,277
Total adjustment to cost of sales^(^2^) * (2,930 * *)* 2,247 (5,177) *(1,307 * *)* (5,187 ) 3,880
Adjusted gross margin^(^1^) *34,145 * 31,277 2,868 * 71,806* 62,649 9,157
Adjusted gross margin per metric tonne^(^1^) *174.62 * 159.11 15.51 * 184.88 * 166.35 18.53
Included in gross margin:
Depreciation of property, plant and equipment and right-of-use assets * 3,372 * 4,201 (829) * 7,496 * 8,273 (777)
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
(2) See “Adjusted results” section
Gross margin was $37.1 million and $73.1 million for the second quarter and the first six months of fiscal 2023, and includes a gain of $2.9 million and $1.3 million, respectively, for the mark-to-market of derivative financial instruments. For the same periods last year, gross margin was $29.0 million and $67.9 million, respectively, with a mark-to-market loss of $2.2 million and a gain of $5.2 million respectively.
Adjusted gross margin was $34.1 million and $71.8 million for the second quarter and for the first six months of fiscal 2023, respectively, as compared to $31.3 million and $62.6 million in the same periods last year.
Adjusted gross margin increased by $2.9 million in the second quarter compared to the same period last year mainly as a result of higher sugar sales margin from improved average pricing on sugar refining related activities. This positive variance was partially offset by higher production costs mainly driven by market-based inflationary pressures on operating costs and higher storage costs for raw sugar as we increased the storage capacity of our Montreal plant to support the growing demand for refined sugar in eastern Canada.
On a per-unit basis, adjusted gross margin for the second quarter was $174.62 per metric tonne, higher than last year by $15.51 per metric tonne. The favourable variance was mainly due to the increase in overall margin from improved selling prices, partially offset by higher production costs, as compared to last year.
Adjusted gross margin for the first six months of fiscal 2023 was $9.2 million higher than the comparable period last year, mainly due to higher volume and improved average pricing on sugar refining related activities. This favourable variance was partially offset by higher production costs mainly driven by market-based inflationary pressures on operating costs, including higher energy prices, and higher storage costs for raw sugar, as explained above.
On a per-unit basis, for the first six months of fiscal 2023, adjusted gross margin amounted to $184.88 per metric tonne compared to $166.35 per metric tonne for the same period last year. The favourable variance of $18.53 per metric tonne was mainly due to higher volume sold to customers, improved average pricing, partially offset by higher production costs as explained above.
Adjusted Gross Margin: https://www.globenewswire.com/NewsRoom/AttachmentNg/80f1efd2-205e-4419-9e95-e9ccc09a93b2
OTHER EXPENSES
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars, except per metric tonne information)
Administration and selling expenses * 11,101 * 9,415 1,686 * 17,737 * 18,527 (790)
Distribution costs * 5,340 * 5,328 12 * 10,402 * 9,672 730
Included in Administration and selling expenses:
Depreciation of property, plant and equipment and right-of-use assets * 318 * 213 105 *539 * 424 115
Included in Distribution costs:
Depreciation of right-of-use assets * 1,188 * 417 771 * 1,555 * 835 720
In the second quarter of fiscal 2023, administration and selling expenses were higher by $1.7 million compared to the same quarter last year. The variance was mainly due to a non-cash increase in share-based compensation expense driven by an increase in the share price in the current quarter, higher compensation costs and related employee benefits. Distribution costs remained stable compared to the same quarter last year.
For the first six months of fiscal 2023, administration and selling expenses were $0.8 million lower than the comparable period last year. The variance was mainly due to a non-cash decrease in share-based compensation expense driven by a decrease, in the current year, of the average share price used to value the share-based compensation expense. This variance was partially offset by higher compensation costs and related benefits. Distribution costs for the first six months of fiscal 2023 increased by $0.7 million compared to the same period last year, largely driven by market-based increase in freight costs and additional logistical costs incurred in the first quarter of fiscal 2023 to support the strong demand in eastern Canada.
RESULTS FROM OPERATING ACTIVITIES AND ADJUSTED EBITDA
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars)
Results from operating activities * 20,634 * 14,287 6,347 * 44,975 * 39,637 5,338
Total adjustment to cost of sales ^(2) * (2,930 * *)* 2,247 (5,177) *(1,307 * *)* (5,187 ) 3,880
Adjusted results from operating activities^(^1) * 17,704 * 16,534 1,170 * 43,668 * 34,450 9,218
Depreciation of property, plant and equipment, right-of-use assets, and amortization of intangible assets * 4,878 * 4,830 48 * 9,591 * 9,531 60
EBITDA^(^1) *25,512* 19,117 6,395 *54,566* 49,168 5,398
Adjusted EBITDA^(^1) *22,582 * 21,364 1,218 * 53,259 * 43,981 9,278
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
(2) See “Adjusted results” section
Results from operating activities for the second quarter and the first six months of fiscal 2023 year were $20.6 million and $45.0 million, respectively, an increase of $6.3 million and $5.3 million respectively, as compared to same periods last year. These results include gains and losses from the mark-to-market of derivative financial instruments.
Adjusted results from operating activities in the second quarter were $1.2 million higher than the same period last year, mainly due to higher adjusted gross margin, partially offset by higher administration and selling expenses. Adjusted results from operating activities for the first six months of fiscal 2023 were $9.2 million higher than the same period last year as a result of higher adjusted gross margin, lower administration and selling expenses, partially offset by higher distribution costs.
EBITDA for the second quarter and the first six months of fiscal 2023 were $25.5 million and $54.6 million, respectively, an increase of $6.4 million and $5.4 million respectively, as compared to same periods last year. These results include gains and losses from the mark-to-market of derivative financial instruments.
Adjusted EBITDA for the second quarter increased by $1.2 million compared to the same period last year, largely as a result of higher adjusted gross margin, partially offset by higher administration and selling expenses. Adjusted EBITDA for the six months of fiscal 2023 increased by $9.3 million largely due to higher adjusted gross margin, lower administration and selling expenses, partially offset by higher distribution costs, as mentioned above.
Maple
REVENUES
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars, except volume)
Volume (000 pounds) *12,059 * 12,912 (853) *23,878 * 25,198 (1,320)
Revenues * 56,814 * 57,466 (652) * 112,969 * 112,314 655
Maple Volumes and Adjusted Gross Margin:https://www.globenewswire.com/NewsRoom/AttachmentNg/3ec0e92d-c93d-49b3-9294-7d4d18118022
Revenues for the second quarter were $0.7 million lower than the same period last year due to lower volume, partially offset by higher average selling price. For the first six months of fiscal 2023, revenues were $0.7 million higher than the same period last year due to higher average selling price, partially offset by lower volume.
GROSS MARGIN
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars, except adjusted gross margin rate information)
Gross margin *4,583 * 4,869 (286) * 9,736 * 9,549 187
Total adjustment to cost of sales ^(1)^(^2^) * (495* *)* (259 ) (236) * (1,316 * *)* (511 ) (805)
Adjusted gross margin ^(1) *4,088 * 4,610 (522) * 8,420 * 9,038 (618)
Adjusted gross margin percentage ^(1) *7.2* *%* 8.0 % (0.8%) *7.5* *%* 8.0 % (0.5%)
Included in Gross margin:
Depreciation of property, plant and equipment and right-of-use assets * 833 * 827 6 * 1,672 * 1,666 6
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
(2) See “Adjusted results” section
Gross margin was $4.6 million and $9.7 million for the second quarter and the first six months of fiscal 2023 and includes a gain of $0.5 million and $1.3 million respectively, for the mark-to-market of derivative financial instruments. For the same periods last year, gross margin was $4.9 million and $9.5 million, respectively, with a mark-to-market gain of $0.3 million and $0.5 million respectively.
Adjusted gross margin for the second quarter and the first six months of fiscal 2023 were $4.1 million and $8.4 million, respectively, a decrease of $0.5 million and $0.6 million respectively, as compared to the same periods last year. The unfavourable variance was mainly due to lower volume as a result of reduced demand and unfavourable market dynamics.
Adjusted gross margin percentage for the second quarter and the first six months of fiscal 2023 were 7.2% and 7.5% respectively, as compared to 8.0% for both periods last year. The variance was mainly related to market-based production cost increases and the timing of passing these increases to our customers.
OTHER EXPENSES
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars)
Administration and selling expenses * 2,865 * 2,705 160 *5,526 * 5,079 447
Distribution costs * 496 * 952 (456) * 1,044 * 1,271 (227)
Included in Administration and selling expenses:
Amortization of intangible assets * 878 * 872 6 * 1,756 * 1,743 13
Administration and selling expenses for the second quarter and for the first six months of fiscal 2023 were $0.2 million and $0.4 million higher than the comparable periods last year. These variances were largely due to an increase in compensation related expenses.
Distribution costs for the second quarter and for the first six months of fiscal 2023 were lower by $0.5 million and $0.2 million respectively compared to the same period last year, mainly due to lower sales volume and lower freight costs.
RESULTS FROM OPERATING ACTIVITIES AND ADJUSTED EBITDA
*Q2 2023* Q2 2022 ∆ *YTD 2023* YTD 2022 ∆
(In thousands of dollars)
Results from operating activities *1,222 * 1,212 10 *3,165 * 3,199 (34)
Total adjustment to cost of sales ^(1) *(495 * *)* (259 ) (236) *(1,316 * *)* (511 ) (805)
Adjusted results from operating activities ^(1) *727 * 953 (226) *1,849 * 2,688 (839)
Depreciation and amortization * 1,711 * 1,700 11 * 3,427 * 3,410 17
EBITDA ^(1) *2,933* 2,912 21 *6,592* 6,609 (17)
Adjusted EBITDA ^(1) * 2,438 * 2,653 (215) * 5,276 * 6,098 (822)
(1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures
(2) See “Adjusted results” section
Results from operating activities for the second quarter and the first six months of fiscal 2022 and fiscal 2023 amounted to $1.2 million and $3.2 million respectively. These results include gains and losses from the mark-to-market of derivative financial instruments.
Adjusted results from operating activities for the second quarter and the first six months of fiscal 2023 were respectively $0.2 million and $0.8 million lower than the comparable period last year, due mainly to lower adjusted gross margin, higher administration and selling expenses, partially offset by lower distribution costs.
EBITDA for the second quarter and the first six months of 2022 and 2023 amounted to $2.9 million and $6.6 million respectively. These results include gains and losses from the mark-to-market of derivative financial instruments.
Adjusted EBITDA for the second quarter of fiscal 2023 decreased by $0.2 million compared to the same period last year, due to lower adjusted gross margin as explained above. Adjusted EBITDA for the first six months of fiscal 2023 decreased by $0.8 million, compared to the same period last year, largely driven by lower adjusted gross margins and higher administration and selling expenses, partially offset by lower distribution costs as explained above.
*OUTLOOK*
Following a solid performance in the second quarter of 2023, we expect to continue to deliver strong and stable financial results in 2023. Strong sugar demand and pricing is expected to continue and provide improved results, despite ongoing inflationary pressures. We expect our Maple segment will continue to face a challenging business environment in the second half of 2023, as the unfavourable market and economic conditions encountered over the last year remain. We intend to mitigate these unfavourable market conditions with recently negotiated price increases, and newly implemented production automation initiatives.
Sugar
We continue to expect the sugar segment to perform well in fiscal 2023. Underlying North American demand remains strong across all customer segments supported by favourable market dynamics. We expect that improvements in pricing implemented over the last few quarters will continue to support our financial results positively, allowing us to mitigate the current impact of inflationary pressures on costs.
In Taber, the harvest season delivered the expected volume of sugar beets, and the processing campaign was completed in early February. The expected sugar production from the crop is 105,000 metric tonnes, lower than the prior year production by 15,000 metric tonnes. The lower-than-expected production is attributable to unfavourable weather conditions encountered in the later stage of the current year growing period, which negatively impacted the sugar content of the sugar beets.
We have increased the production plans of our Montreal and Vancouver cane sugar facilities to mitigate the production shortfall of our Taber facility and ensure we can support the growing needs of our customers.
In April 2023, we have concluded a new two-year agreement with the Alberta Sugar Beet Growers for the supply of sugar beets to the Taber beet plant, for which the crop harvested in the fall of 2023 will be the first year of the agreed contract.
We are maintaining our fiscal 2023 sales volume expectations of approximately 805,000 metric tonnes. This represents an increase of 1.3% over 2022. This increase is based on the continued strong demand of the Canadian domestic industrial sugar market. Overall, we expect the following year-over-year volume variances for our customer segments:
· Industrial, our largest segment, is expected to increase by 3%, as a result of the continuous strong demand supported by favourable market dynamics;
· Liquid volume is expected to grow by 4% driven by continued demand from existing customers;
· Consumer volume is expected to remain stable; and
· A planned 15% reduction in sales to the export markets for 2023, due to the growing demand and strong economics of the domestic market. We will consider potential supplemental export sales if favourable production opportunities arise.
Production costs and maintenance programs for our three production facilities are expected to be moderately impacted by the current inflationary pressures, and we continue to focus on cost control initiatives throughout our operations.
We expect a slight increase in distribution costs in 2023 as we foresee that recent increases for logistics and our supply chain costs will remain in the second half of 2023.
Administration and selling expenses are expected to be stable in 2023.
We have been able to lower the impact of recent increases in interest rates and energy costs through our multi-year hedging strategy. We do not anticipate these increases to have a material impact on our financial results in the near future, as we expect our hedging strategy will continue to mitigate most of our exposure to such risks.
Spending on regular business capital projects is also expected to remain stable for fiscal 2023. We anticipate spending approximately $25 million on various initiatives. This capital spending estimate excludes expenditures relating to the expected capacity expansion of our Montreal sugar refinery and Toronto distribution centre.
Maple
We continue to expect the Maple business segment to be negatively impacted by high inflation, resulting in lower demand from retail customers, for the remainder of 2023. We anticipate the unfavourable impact related to the reduction in retail demand and the related increased competitiveness of the market will be mitigated by recently negotiated price increases with key customers, lower production costs driven by newly implemented automation projects and favourable recently negotiated supply agreements for packaging material.
We plan to spend between $1 million and $2 million on capital projects in 2023, which is consistent with recent years. The main driver for the Maple segment projects is to improve productivity and profitability through automation.
See “Forward Looking Statements” section and “Risks and Uncertainties” section.
*CONSOLIDATED RESULTS AND SELECTED FINANCIAL INFORMATION*
*Q2 2023* Q2 2022 *YTD 2023* YTD 2022
(unaudited)
(In thousands of dollars, except volume and per share information)
Sugar (metric tonnes) * 195,547 * 196,570 * 388,396 * 376,613
Maple syrup (000 pounds) * 12,059 * 12,912 * 23,878 * 25,198
Total revenues * 272,949 * 253,341 * 534,392 * 484,096
Gross margin * 41,658 * 33,899 * 82,849 * 77,385
Adjusted gross margin^(^1) * 38,233 * 35,887 * 80,226 * 71,687
Results from operating activities *21,856* 15,499 * 48,140 * 42,836
Adjusted results from operat