Superior Plus Announces 2021 Annual & 4th Quarter Results

Source: www.gulfoilandgas.com 2/17/2022, Location: North America

Superior Plus Corp. announced its financial and operating results for the year and fourth quarter ended December 31, 2021.

• Full-year 2021 Adjusted EBITDA1 was $398.4 million, a 5% increase compared to 2020
• Full-year net earnings from continuing operations of $17.2 million
• Superior is introducing its 2022 Adjusted EBITDA guidance range of $410 million to $450 million
• Superior’s 2022 Adjusted EBITDA guidance assumes the Kamps Propane acquisition closes in the second quarter, which excludes approximately $17-20 million of estimated Adjusted EBITDA based on historical first quarter results of that business
• Superior also expects to complete additional acquisitions in the range of $200 million to $300 million in 2022 which have not been included in the 2022 Adjusted EBITDA guidance
• Superior is updating its targeted Leverage ratio2 to 3.5x to 4.0x while it is executing its accelerated acquisition program

“In 2021, we achieved a 5% increase in Adjusted EBITDA compared to 2020 despite the operational and logistical challenges we faced from warmer weather in the U.S. Northeast and Eastern Canada in the fourth quarter and continued public health restrictions impacting commercial demand,” said Luc Desjardins, President & CEO. “I am proud of our team for their ability to persevere and deliver solid results considering the obstacles we faced. We also completed two acquisitions in Michigan and North Carolina at the end of the fourth quarter, continuing our growth through acquisition strategy in our existing footprint.”

Luc Desjardins further added, “Following the end of the fourth quarter, we announced a partnership with the Charbone Corporation in Quebec to provide green hydrogen to commercial and industrial customers. We are excited about the opportunity to sell green energy to current and new customers and developing our strategy to offer alternative energy products, including green and low-carbon energy to our customers by leveraging our expertise in the safe and efficient delivery of mobile energy solutions”.

Financial Highlights:
• Fourth quarter Adjusted EBITDA of $142.2 million, a $1.9 million or 1% decrease compared to the prior year quarter primarily due to lower EBITDA from operations3, partially offset by lower corporate costs, and to a lesser extent, a lower realized gain on foreign currency hedging contracts.
• Fourth quarter EBITDA from operations of $143.1 million, a $2.9 million or 2% decrease compared to the prior year quarter primarily due to lower results at Canadian Propane Distribution (“Canadian Propane”).
• Net earnings from continuing operations of $13.8 million in the fourth quarter decreased $74.1 million compared to the fourth quarter of 2020 primarily due to higher selling, distribution and administrative costs (“SD&A costs”), and a loss on derivatives and foreign currency translation of borrowings compared to a gain in the prior year quarter, partially offset by higher gross profit and lower finance expense. Gross profit and SD&A costs increased primarily due to the impact of acquisitions completed in the past twelve months. Superior incurred a loss on derivatives and foreign currency translation of borrowings compared to a gain in the prior year quarter due to the impact from the stronger Canadian dollar on the translation of U.S. denominated borrowings and foreign currency forward sales contracts and changes in commodity prices relative to hedged amounts. Finance expense decreased primarily due to lower average debt levels and lower average interest rates related to Superior’s senior unsecured notes. Fourth quarter Net earnings from continuing operations per share attributable to Superior of $0.04 per share was $0.38 lower than the prior year quarter due to the reasons noted above.
• AOCF before transaction and other costs4 during the fourth quarter was $131.6 million, a $2.4 million decrease compared to the prior year quarter primarily due to a lower recovery on adjusted current income taxes, and lower Adjusted EBITDA, partially offset by lower interest costs. AOCF before transaction and other costs per share was $0.64, $0.01 lower than the prior year quarter due to a decrease in AOCF before transaction and other costs.
• Full-year 2021 Adjusted EBITDA of $398.4 million, a $19.0 million or a 5% increase from the prior year primarily due to higher EBITDA from operations and realized gains on foreign currency hedging contracts compared to a loss in the prior year, partially offset by higher corporate costs.
• Full-year 2021 EBITDA from operations of $409.9 million, an $8.0 million or a 2% increase from the prior year due to higher U.S. Propane Distribution (“U.S. Propane”) Adjusted EBITDA, partially offset by lower Canadian Propane Adjusted EBITDA.
• Full-year net earnings from continuing operations of $17.2 million decreased by $45.6 million compared to prior year primarily due to higher SD&A costs and higher finance expense, and to a lesser extent, lower gross profit, partially offset by higher gains on derivatives and foreign currency translation of borrowings and lower income tax expense. SD&A costs increased primarily due to the impact of acquisitions completed in the past twelve months. Finance expense increased primarily due to the early call premiums and non-cash financing expenses related to the redemption of the US$350 million, $400 million and $370 million senior unsecured notes, partially offset by lower interest costs related to lower average debt levels and lower interest rates. Gains on derivatives and foreign currency translation of borrowings increased primarily due to changes in market prices of commodities, timing of maturities of underlying financial instruments and changes in foreign exchange rates relative to amounts hedged. Income tax expense decreased due to the allocation of taxes to the discontinued operations and the gain on disposal of the Specialty Chemicals segment. Full-year basic and diluted Net earnings (loss) from continuing operations attributable to Superior per share was ($0.04) per share, $0.33 per share lower than the prior year due to the reasons above, and the impact of the treatment of the non-controlling interest on earnings (loss) per share.
• Full-year 2021 AOCF before transaction and other costs of $321.1 million, a $28.9 million or 10% increase over the prior year primarily due to higher Adjusted EBITDA and lower interest expense, partially offset by an adjusted current income tax expense in 2021 compared to a recovery in the prior year. Full-year AOCF before transaction and other costs per share was $1.56 per share, $0.02 higher than the prior year due to the increased AOCF before transaction and other costs, partially offset by an increase in weighted average shares outstanding. Weighted average shares outstanding, which assumes the exchange of the preferred shares into common shares, were higher than the prior comparable period due to the issuance of preferred shares to Brookfield Asset Management (the “Preferred Shares”) that are reflected on an as converted basis.
• Superior’s Leverage ratio at December 31, 2021, was 3.9x, which is within Superior’s updated target range during accelerated acquisitions of 3.5x to 4.0x. The Leverage ratio increased from 3.5x at December 31, 2020 primarily due to lower Adjusted EBITDA, partially offset by lower debt levels. Total Net Debt5 is lower as proceeds from the sale of Specialty Chemicals were used to repay debt and a decrease in lease liabilities related to the sale of Specialty Chemicals, partially offset by the impact of acquisitions completed in 2021 and the refinancing of senior unsecured notes. Adjusted EBITDA is lower due to the impact from the sale of Specialty Chemicals, partially offset by the contribution from acquisitions completed in 2021.

Division Financial Highlights
• U.S. Propane Adjusted EBITDA was $79.9 million, a decrease of $0.5 million or 0.6% compared to the prior year quarter primarily due to the impact of warm weather and the impact of the stronger Canadian dollar on the translation of U.S. denominated Adjusted EBITDA. Average weather across markets where U.S. Propane operates for the three months ended December 31, 2021, as measured by degree days, was 7% warmer than the prior year and 9% warmer than the five-year average. Warmer weather in December was particularly impactful as average weather, as measured by degree days, was 15% warmer than December 2020 and 12% warmer than the five-year average. Warmer weather was the primary driver of lower than anticipated volumes and resulted in higher proportionate operating costs, partially offset by higher adjusted gross profit. Adjusted gross profit increased $10.5 million primarily due to higher sales volumes associated with acquisitions completed in the last twelve months, and, to a lesser extent, higher average unit margins and higher other services gross profit, partially offset by the impact of the stronger Canadian dollar on the translation of U.S. denominated gross profit. Sales volumes increased 14 million litres or 4% due to the contribution from acquisitions completed in the last twelve months, partially offset by the impact of warm weather. Average unit margins increased due to sales and marketing initiatives, including focused sales growth in higher margin propane customers, partially offset by the impact of the stronger Canadian dollar on U.S. denominated gross profit. Operating costs increased by $11.0 million primarily due to the impact of acquisitions completed in the past twelve months, partially offset by cost-saving initiatives, realized synergies and the impact of the stronger Canadian dollar on the translation of U.S. denominated operating costs.
• Canadian Propane Adjusted EBITDA of $63.2 million, decreased $2.4 million or 4% from the prior year quarter primarily due to higher operating costs, partially offset by higher adjusted gross profit. Operating costs increased $11.4 million primarily due to the impact from the lower Canadian Emergency Wage Subsidy (“CEWS”) benefit recorded during the quarter compared to the prior year quarter and higher volume-related costs, partially offset by lower incentive plan costs and cost-saving initiatives. Adjusted gross profit increased $9.0 million primarily due to higher average unit margins and higher sales volumes. Average unit margins increased primarily due to the timing of sales of carbon offset credits and customer mix. Sales volumes increased primarily due to higher wholesale sales volumes in California related to increased demand as COVID restrictions were lifted. Average weather across Canada for the three months ended December 31, 2021, as measured by degree days was 2% colder than the prior year and 3% warmer than the five-year average.
• Corporate costs for the fourth quarter of 2021 were $4.6 million, a $1.2 million decrease compared to the prior year quarter primarily due to lower long-term incentive plan costs related to the decline in the share price during the fourth quarter, and to a lesser extent, timing of the expense.

Business Development and Acquisition Update
On December 21, 2021, a wholly-owned subsidiary of Superior acquired the assets of a retail propane distribution company based in North Carolina, operating under the tradename Mountain Energy Gas (“Mountain Energy”) for total consideration of US$2.0 million (CDN $2.6 million). In addition, a wholly-owned subsidiary of Superior acquired the assets of a retail propane distribution company based in Michigan, operating under the tradename Hopkins Propane (“Hopkins”) for a total consideration of US$16.2 million (CDN $20.9 million).

On January 10, 2022, Superior announced that Superior Propane and Charbone Corporation (“Charbone”) are collaborating to provide green hydrogen to commercial and industrial customers initially in Quebec, Canada. Under the terms of the letter of intent between the parties, Charbone will provide Superior with green hydrogen from its Sorel-Tracy, Quebec facility with initial deliveries expected as early as the third quarter of 2022. Superior Propane’s industry leading energy distribution business will be responsible for delivering hydrogen directly from Charbone’s facility to Superior’s customers. These customers include mining, power generation, transportation and industrial energy users. The arrangement between Superior Propane and Charbone is subject to negotiation and completion of the terms of definitive agreements and the construction of the Sorel-Tracy, Quebec facility. This collaboration will offer Canadian industries a new alternative clean energy solution.

2022 Adjusted EBITDA Guidance and Superior Way Forward Update
Superior is introducing its 2022 Adjusted EBITDA guidance range of $410 million to $450 million. Based on the midpoint of the 2022 Adjusted EBITDA guidance range, this is an 8% increase compared to the full-year 2021 Adjusted EBITDA of $398.4 million. The increase is due to the expected contribution from acquisitions completed in 2021 and assumes the acquisition of Kamps Propane Inc., High Country Propane, Inc., Pick Up Propane, Kiva Energy Inc., Competitive Capital, Inc. and Propane Construction and Meter Services (collectively, “Kamps”) closes in the second quarter of 2022. Key assumptions related to the 2022 Adjusted EBITDA guidance include:

• Adjusted EBITDA in 2022 for U.S. Propane is anticipated to be higher than 2021 primarily due to the full year contribution from acquisitions completed in 2021 and partial year contribution from the acquisition of Kamps’ retail business, increased demand related to weather expectations consistent with the five-year average, cost-saving initiatives and, to a lesser extent, a recovery in commercial demand as public health measures related to COVID-19 are lifted. Average weather in the areas where Superior operates in the U.S., as measured by degree days, is anticipated to be consistent with the five-year average.
• Adjusted EBITDA in 2022 for Canadian Propane is anticipated to decrease compared to 2021 as Superior does not expect any CEWS benefits in 2022, the impact of COVID-19 is expected to negatively impact commercial sales volumes in the early part of 2022 and commercial sales volume trends in Canada are expected to improve in the latter half of 2022, partially offset by the contribution from Kamps wholesale business and cost-savings initiatives. Average weather in Canada, as measured by degree days, is anticipated to be consistent with the five-year average. Wholesale propane market fundamentals are expected to be stronger than 2021.
• The Kamps acquisition closes in the second quarter of 2022, but otherwise does not include any incremental Adjusted EBITDA from acquisitions completed in 2022.
• There will be no significant restrictions or stay at home orders issued in North America due to a resurgence of COVID-19 in 2022.
• A foreign exchange rate of US$1 per C$1.25.
• Long-term incentive plan accruals of between $5 million and $10 million.

In 2021, Superior made great progress on the Superior Way Forward acquisition target of $1.9 billion by the end of 2026. Superior completed seven acquisitions with a total enterprise value of $326 million in 2021. Superior also announced the acquisition of Kamps for total consideration of $299 million, which is expected to close in the second quarter of 2022. Superior also expects to complete additional acquisitions for total consideration in the range of $200 million to $300 million in 2022.

Debt Management Update
Superior is focused on managing both Total Net Debt and its Leverage ratio. Superior is updating its Leverage ratio from a target range of 3.0x to 3.5x to a target range of 3.5x to 4.0x while executing an accelerated acquisition strategy.

“Now that we are a pure-play energy distribution company with less volatility in annual Adjusted EBITDA, the targeted leverage range of 3.5x to 4.0x allows us greater flexibility to execute on acquisitions while continuing to pay sustainable dividends to our shareholders,” said Beth Summers, Executive Vice President and Chief Financial Officer. “We are still firmly committed to maintaining our BB credit rating and keeping our leverage within the targeted range of 3.5x to 4.0x.”

Superior’s Leverage ratio at December 31, 2021, was 3.9x, which is within Superior’s updated target range of 3.5x to 4.0x. The Leverage ratio increased from 3.5x at December 31, 2020 primarily due to lower Adjusted EBITDA, partially offset by lower debt levels. Total Net Debt was lower as proceeds from the sale of Specialty Chemicals were used to repay debt and a decrease in lease liabilities related to the sale of Specialty Chemicals, partially offset by the impact of acquisitions completed in 2021 and the refinancing of senior unsecured notes. Adjusted EBITDA is lower due to the impact from the sale of Specialty Chemicals, partially offset by the contribution from acquisitions completed in 2021.

Cyber Security Incident Update
As previously announced, on December 12, 2021, Superior was alerted to a ransomware cyber-attack on its information technology systems. Superior temporarily disabled certain information technology systems while it investigated the incident in order to safely bring such systems back online. Superior immediately engaged third-party experts to evaluate the event, implement security counter-measures, and assist with restoration of Superior’s information technology environment. Superior was able to quickly restore operations after the cyber-attack and to continue making deliveries to customers with no material impact to operations, including customer deliveries, service or billings.

During the course of the investigation, which is ongoing, Superior determined that there was unauthorized access to certain employee personal information, and is in the process of identifying affected individuals to notify them as appropriate. Superior has already applied knowledge gathered from the investigation of the event to enhance its cyber security defenses. Superior expects the net financial impact from the incident will not exceed $1.5 million.


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