Q4 2019 Earnings Call
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Oh, no I hand, the conference over your speaker today, Mr. Rob door.
<unk> Investor Relations and Trevor. Thank you. Please go ahead Sir.
Thank you Daniel Good morning, everyone and welcome to Superior <unk>. This conference call and webcast to review, our 2019th annual and fourth quarter results.
Joining me today at this stage.
<unk> CEO that summers executive VP, and CFO and they're in Rebars senior VP and Chief Legal officer, today's call is being webcast and we encourage listeners to follow along with the supported presentation, which is also available on our website.
This morning's call.
Well begin with their prepared remarks.
Open up the call for questions.
Before I turn the call David I'd like to remind you that some of the comments made today maybe forward looking in nature and are based on superior to current expectations estimates judgments production and reserves.
Further some of the information provided refers to non-GAAP measures. Please refer to superior annual Mdna posted on PR and superior website yesterday for further details on forward looking information and non-GAAP measures.
Encourage listeners to review the M.B. anyway, and that includes more detail on the financial information for 2019, and the fourth quarter as we won't be going over each financial metric on today's call. This will allow us to move more quickly into the question and answer.
I'll now turn the call real movement.
Well, thank you, Rob and good morning, everyone.
Overall, I'm pleased with important quarter and full year resolved fourth quarter and full year 2019 that strong results driven primarily by our U.S. I mean propane distribution businesses.
The fourth quarter, I guess to get no before our S 165.7 million or their recovery Ford partner for superior and 8% harder than the prior year quarter.
Full year 2019, adjusted EBITDA was 485.7 billion, which was also record here for superior and 30% higher than the 2018.
The 29 during full year adjusted EBITDA like Who's our Arteris was 524.5 million, which was near the top and we're just because our garden bar, which was born out our 30 gardens.
Support border because in the U.S. propane distribution result, we're hard at compared to last year or whether you do today improve wholesale propane market fundamentals.
They need to capitalize on those benefits, including effective price management, and the lower price environment realized synergy NGL and contribution from the park is completed and 20 my team.
Based on peak I mean, it's only been talking corporation in the fourth quarter were modestly higher.
They do you can't talk hard pharmacy seen an increase or don't get resolved upside and part party degrees and current commodity resolved.
And the fourth quarter, we go with three different retail propane acquisition, we don't break in the North Carolina, New Brunswick, Delaware, Maryland.
Oh wait here and we acquired the propane December should that sets of appropriate distributor in southern California, which was our second retail propane acquisition indefinitely.
From April 2019 to January 2020 would make six retail propane distribution acquisition or don't consideration of 97.7 million.
We made this acquisition using cash flow promote ratio, while also reducing or secured debt. Because this is Phil ticket, that's all leverage or 4.2 at December 31st when they do a 3.7 at December 31st 20 like the.
We continue to see a large number requisition aboard T.D.C. more than ever ranging in size and the eastern U.S. and in California. So we have a good pipeline of girl, who acquisition as well. So we got me growth and the capital available to execute that these opportunities.
Restated or drip says well, which provides additional funding for more worried about apart black of acquisition, which was very wrong way.
And what do you 90, or your west propane business achieved record EBIT dollar couple of operation over 200 that 9 million, surpassing or can they propane business had been corporation for the first part or no bigger in the state.
We expect the majority of our growth in the coming here to come from U.S. business, given the opportunity to grow through acquisition and the highly fragmented market and we anticipate organic growth opportunities.
<unk>. This is also expected grew organically in central and Eastern Canada, What we continue to face had to win in Western Canada due to a broader economic conditions.
In the fourth quarter, we made excellent progress under 2019 realized synergy goal related to energy I would position we've achieved a run rate synergy of U.S. 20 billion exiting 2019.
Still expect to exit 2020, with U.S. 24 million that brought great synergies.
Are you Westbrae team has done an incredible job on our integration of NGL, which allow us to achieve our internal 2020 goal for run rate synergies one year earlier.
20 magazine.
On January 28, we announced the completion of a strategic review process and the potential sale up or specialty chemicals I left.
The decision not to sell at this time was a difficult one what's the right decision for all stakeholders and return.
<unk> superior.
We see higher God, you are going to war shareholders and continuing to run specialty chemical business. It would make revisit the sale and the future.
But for now we're going to focus on a pre need to business makes it could make our plan for 20 points.
The fourth quarter, we faced some industry hasn't waiting until I got my business and it relates to the demand and pricing for caustic soda and indoor classic outside that's it.
And those market fundamentals have come to new and to the 2020 that is wire and forecasts and 2020 is nice and 2019 as of the World Company.
We do however expect positive momentum to return a big sold out probably by mid year 2020.
Certain industry reports are forecasting North America caustic soda markets.
Doing their own due to incremental demand in North America as long as the recent announcement are proposing about large producer apply them do with during a 2020 or.
Now I'll turn to call over to back to discuss the financial results and our 2020 garden.
Hello, Good morning, everyone, the fourth quarter adjusted EBITDA, including the impact if I have for 16 was 176.7 billion, which was 23.7 million higher than the prior year quarter, primarily due to increased EBITDA from operations, partially offset by increasing corporate costs related to Oh.
The full year 2019, adjusted EBITDA, including I first 16 was 524.5 million, which was 150.2 million higher they 2018, primarily due to increased even up from operations, partially offset by increased corporate costs and realized losses on four.
In currency hedging contracts.
The adoption of I correct, 16 had an 11 million impact on our fourth quarter result, and 38.8 million impact on or 29 team full year results.
Fourth quarter adjusted operating cash flows before transaction and other cost per share with 83 cents per share, which was seven cents higher than the prior year quarter due to increased adjusted EBITDA, partially offset by increased interest expense in cash taxes as well as the impact of increased average.
Shares outstanding.
Interest expense increased due to the higher average debt levels related to financing tuck in acquisition completed in 2019, using the credit facility.
Weighted average shares outstanding increased due to the NGL acquisition financing in place 18 [noise].
AOCF before transaction and other cost per share for 29 team.
With $2.32 per share 41 cents higher than the prior year due to an increase in adjusted EBITDA, partially offset by an increase in interest expense cash taxes and the weighted average shares outstanding.
From a debt leverage perspective senior debt credit facility, even though I think December 31st twice the 19 with 3.7 times.
Which which was near the lower end of the 3.6 times to four times guidance range and 0.5 times lower than the leverage as at December 31st 20 team.
Turning now to the individual business results.
Canadian propane distribution EBITDA from operation for the fourth quarter was 75.6 million, a 17.8 million increase primarily due to higher gross profit and be impacted by for 16. This is partially offset by modestly higher operating expenses.
Gross profit increased compared to the prior year quarter, primarily due to the wholesale propane market fundamentals and superiors ability to capitalize on those benefits.
Wholesale propane market fundamentals, primarily benefiting from the differential between the pricing at Conway compared to the Edmonton hosted Craig.
Average unit margins were 18.1 cents per liter compared to 15.2 cents to linger in the prior year quarter, primarily due to the root wholesale propane market fundamentals and market merging management initiative.
Canadian propane distribution EBIT up from operations for 2019, with 200.8 million 38.3 million higher than 2018, primarily due to an increasing gross profit partially offset by modestly higher operating expenses.
Gross profit increased 43.3 million, primarily due to the impact a wholesale propane market fundamentals and higher wholesale volumes related to contributions from U.P.E.
Operating expenses were modestly higher.
Due to the incremental expenses from U.P., partially offset by realized synergies from Canada, and a reduction in costs related to sales volume decline in Western Canada.
Canadian propane distribution EBITDA from operations for Twentytwenty is anticipated to be lower than 2019, primarily due to the and expected decrease in average margin sales volume.
Average margins are expected to decrease at wholesale propane market fundamentals are not expected to be as strong as they were in 2019.
Sales volumes are expected to decreased primarily due to competitive pressures in western Canada, and the assumption of normal weather for Twentytwenty.
As well as anticipated weaker economic conditions in Western Canada.
Average weather for Canada as measured by degree days for 2019 with 4% colder than the five year average.
You X propane distribution, even up from operation for the fourth quarter was 78.2 million, an increase of 7 million compared to the prior year quarter, primarily due to higher average unit margins, partially offset by modestly higher operating expenses.
Average unit margins were 38.9 cents per liter compared to 34 cents per leader in the prior year quarter, primarily due to lower wholesale propane prices and effective management of pricing in a low commodity price environment.
Operating expenses were modestly higher due to the impact from tuck in acquisition, partially offset by realizing synergies.
You are probably ended up from operations reported he 19 with 209.4 million 106.7 million higher than 2018, primarily due to the incremental contribution from NGL and the tuck in acquisitions completed in Twentys teen and early Twentys 19, and lower hole.
They'll propane prices as well as realize synergies related to the NGL acquisition.
You bet propane EBITDA from operations for Twentytwenty is anticipated to be higher than 2019, primarily due to the incremental contribution from the tuck in acquisitions completed in 2019, an incremental synergies related to the NGL acquisition.
Turning now to specialty chemicals.
Even up from operations for the fourth quarter with 34 million, a modest increase compared to the prior year quarter, driven primarily by the impacted by for 16.
Excluding the impact of Biothrax 16, even up from operations with 26.7 million a decrease of 7.3 million compared to the prior year quarter.
This was primarily due to lower chlor alkali gross profit and higher operating expenses, partially offset by higher sodium chlorate gross profit.
Specialty chemicals 2019, EBITDA from operation was 151.9 million, which was 14.3 million higher than 28 gene primarily due to the impact of adopting I have for 16 and increased sodium chlorate selling prices and sales volumes. This was partially offset by.
Lower Chlor alkali result.
Specialty chemicals, even up from operations for Twentytwenty is anticipated to be lower than 2019.
Due to an expected significant increase in Chlor alkali gross profit a modest decrease in sodium chlorate gross profit and a modest increase in operating expenses.
Chlor alkali gross profit is anticipated to be lower than 2019 due to the continued weakness in hydrochloric acid pricing driven by reduced oil and gas demand a decrease in caustic potash sales volumes and pricing related customer mix and weakness in caustic soda pricing related to supply and demand.
Fundamental entering Twentytwenty and the North American market.
Sodium chlorate gross profit is anticipated to be modestly lower than 2019 as modest improvements in sales prices are expected to be more than offset by modestly lower sales volume and the impact of a weaker U.S. dollar compared to 29 team.
Lastly, the corporate resulted in adjusted EBITDA and leverage guidance.
Corporate costs were 2.2 million higher than the prior year.
Primarily due to an increase in l. tip expense related to the share price appreciation.
Interest expense of 25.7 million 2.1 million higher than the prior year quarter duty increased average debt and effective interest rate as well as the impact from I have for 16 debt was higher primarily due to the tuck in acquisitions completed in 2019.
In the fourth quarter Superior had cash income tax expenses of 6 million compared to a recovery of 3.3 million in the prior year quarter due to income tax true up and higher earnings in 2019.
We're introducing our twentytwenty adjusted EBITDA guidance range of 475 million to 550 million, which implies a midpoint of 495 million.
Based on the Midpoints of our Twentytwenty guidance. This represents a 6% decrease compared to where 2019 full year results.
We're facing weaker chlor alkali markets in Twentytwenty, especially in the hydrochloric acid in caustic soda segments of her business and headwinds in our Canadian propane distribution business in western Canada related to competitive pressures and slower activity.
In addition, our 2019 full year results benefited from the strong wholesale propane fundamentals, which aren't expected to be a strong and twentytwenty.
The low end up the range accounts for warmer than normal weather reduced economic activity in Western Canada further weakness in North American caustic soda and hydrochloric acid market and any impact on our operations related to the seeing real blockade.
The high end of the range count for colder than normal weather wholesale propane market fundamentals similar to 2019 increased drilling activity in Western Canada, and improved North American caustic soda and hydrochloric acid markets.
We're also introducing our total debt to adjusted EBITDA leverage range for December 31st 20, 23.4 times to 3.8 times.
Leverage could trend to the higher end up the range, if wholesale propane prices increased significantly and we complete more tuck in acquisitions before yearend.
Superior businesses generate significant cash flows that can be used for capital expenditures acquisitions or to repay debt.
During the year superior generated 406.2 million in AOCF before transaction and other cost.
And actually another cost were 29.9 million for 2019.
After lease prepayments and maintenance capital.
Capital Superior at 273.5 million available for dividend non recurring capital expenditures acquisition and that production.
After dividends and non recurring capital expenditures superior had 8.1 million available for debt reduction and acquisition.
During 2019 superior acquired 69.2 billion in retail propane distribution assets.
Using the cash available after capital expenditures lease repayment and dividends.
With that I'd like to turn the call overt for QNX.
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Our first question comes from David Neumann with Jordan.
Your line is now open.
Good morning folks.
Good morning.
Just looking at your your guidance for the entire year with the 15 million I guess on the tail end above the range on both sides is it a we think about this should the U.S. sort of whitewash the Canadian downside such that the net impact is frankly, just related to caustic soda and hydrochloric.
Got it.
You're like you're right all right on target.
Okay, and and have you guys contemplated any sort of a second half recovery at all in caustic or are you. Just what are you assuming I guess in your and your caustic and hydrochloric acid assumptions, some improvement that third and fourth quarter for caustic price [noise].
Okay.
And how to Clark answer Luka, just to reiterate there.
No no no no no worry about that well year, we don't call.
Okay and then if you if you do the acquisitions you did last year, you spent 69 and got the Californian early dish. This year a is that baked into your your guidance on what was what would be the year over year EBITDA impact from the acquisitions that you've executed or the past year and did you include California.
No we've been killed what was done before the year.
What we are starting to be done for taxes Q acquisition that will give during 2020 as our pipeline that hasn't been that big locate the.
For two count.
California, then there look then or whatever California, rough yet or is that fair, but okay and and on the on the balance sheet, probably more bad but different participation rate that you're anticipating on the drip does it kind of in around 30% or what are you thinking yeah, our our view would be 30%.
So with historic participation right yeah.
Okay, and then we've had a really warm start this year. Yeah. Obviously has been generally if everyone I think from fairly warm the basis differentials that you enjoyed being between comedy in Edmonton, We do see that that has shrunk a little bit but do you think you could see or replication of what you saw in.
For Q that if you saw volume softness obviously watching Canada's another's no story, but that you could skied on side because the margin do would be fairly decent in Canada, and the U.S. did very well as well.
I think from an overall margin perspective, you do sometimes I'm see some offset I think you know from a weather perspective warm weather will have an impact certainly when you look at January February just because there's such such a big months from a volume perspective yeah.
If you a bit of the sense in the U.S. in the markets, where we are where we were roughly 18% higher or warmer than the five year average and that's roughly 19% warmer than 29 team I'm, Canada is it's not quite as much overall nationally is roughly 3% warmer.
But that 11% warmer in the east in roughly 3% colder in the west.
So I think from a differential perspective, there could potentially be some offset there we entered the year with stronger differential than the average, but they have narrowed.
So I think going forward and what we build in our forecast is a is it average a five year average similar to whether on a differential performing so that's what would be built in our forecast.
Okay, and if you look in the U.S., obviously, you must count your blessings that you that you acquired NGL a given the retail in the stickiness and the pricing can you tell us what the dynamics are going on down there I know I realized she had lower propane prices and you guys about effective margin management on Dod maintain your your your.
Prices, but my understanding is that you were able to take take price increases on the retail side I such that consumers Bill would be kind of the same I on the back to hazmat fees, maybe just talk or the dynamics are going down on down down down in the U.S. on the retail pricing side.
Yeah, No reason to your work so it's bigger than ever we have more acquisition of course, you need to buying up we've.
Realizing the 20 million and you know we went up to 20 425 million synergy we realize once we took over the enterprise.
We could think crease price I'm not lose business works, we have lost several business from the acquisition usually the first here is a bit I assume that's regard very positive we're putting in place our marketing and so the programs that we and the life here that we haven't even though we're getting a material growth in Canada oversight yours.
Western.
Oh Baby and every segment.
And then the awareness is going to L. Hoffman and on to regard going forward.
So we're not making it an additional acquisitions up to some degree the your they will and Oh I can see two or three years from now are very.
Great position the stage, we are really sure now more and more.
Earlier.
Business model, we take over a good sales and marketing approach more modern the efficiency logistic and we gained 25%.
Everything we bar, that's going to come to do so of course.
Couple of this years, when you're pointing more related like you said.
To do it can make old world, which I know, but.
Then expect a one quarter Forest park to happen, we realized Oh boy.
We go from.
From a very good business. If you look at good two or three years, it's going to be on there will be a but there's certainly person independent and we're really the main acquired that those thing and we're going to grow grow going because I agreed business totally okay.
Last one I got you guys know I'll give up the line lift as this does your success in the in the United U.S. does that prompt you to kind of because the retail if so sticky to really kind of you know quicken the pace on implementing sensors down there and things like that yes, we're starting.
We already have this.
Somewhere but more to come and we've been doesn't develop and do that takes websites or and this actually logistic of the weather true. When you gave effects bicycle just like we're doing isn't that though and the next year or two two of execution to another level, though game.
Of course watch we haven't we acquire a best practice everywhere in North America.
Its a.
We're fortunate we have a great business model that giving us. We're not finished we have more data showing formation now that we can have a digital point connection with customer and operating efficiency, we haven't talked to a level no gain coming in the next to your open.
Excellent thanks folks [laughter].
Thank you. Our next question comes from Jacob bout with RBC. Your line is now.
Good morning.
Right.
What are your thoughts on time.
Caustic.
So I know you just you know you're expecting kind of.
Second half things, you're going to improve there isn't anything moving parts here, but just kind of which one of your competitors talking about.
Our northeast Asia spot, possibly being up $50, a time I know the U.S. goals.
It's sort of U.S. gold producers are looking at recent contract price maternity doors in time.
Are you feeling it sounds from <unk> optimism here and maybe had been you know one bit too cautious.
Oh, well [noise].
Although obviously quarters in 10 years, we didn't make or result, but you can.
Probably not too many important were true so I think we're.
Realistic when we started the year, but we never over.
For a problem as we go up like that way, we have a good reputation of saying it the way it is.
So we see opportunities either already so busy this person injuries grape nuts and the actual increase been executed. So we don't count on it we're watching it everyday and we hope so big time, but nothing is baked them year that.
So do we know we're we're realistic I, we've always been no best if anything else comes to one I'm. The only thing that I would add Jay could just to give you a bit of a sense. When we look at our overall average forecasted pricing in 2020 versus 2019, it's roughly 10% lower.
[laughter] did they give you a sense overall and as Lou mentioned earlier, we would expect caustic to improve in the back half a year or that was what our expectation wasn't it happens earlier that great, but even with that improvement. Our view is still a year over year, there would be a price decline of roughly 10%.
And then moving over to the.
The rail disruptions.
I guess to fund.
But also on that.
Side I guess.
There's been some boil advisories coming out because.
Just maybe just talk a bit about that.
I can then.
We should be thinking about [noise].
Yeah, well or.
So.
Well the warm and there's no doubt we're ensuring additional cox.
Oh the transportation.
I don't you remember with the less.
Yeah.
The national wireless inspiration, who were able and probably the only company in the Houston.
I mean, we disagree that smaller customers nobody right now same thing is open interest we have to scale up those are big wholesale business outdoor logistic and we have to the south East where were big mowing, we can move product in southeast too.
No Qubec and American we're doing that as we speak. So we're still is a good position to service customer two weeks from now probably is.
And then just covering up more and more towards corporation more there just because.
Same thing with chemical that we're able to continue to service their customer who is a wishful thinking.
Sure.
So for us.
No doubt there is a short caused.
Wanted to be clear that much.
Are you jump back I'm less concerned new smoker.
The Clark, allowing the real impact here.
And after that when it comes to reality.
So far the will of course, a couple ammonia.
And more ultimately goes away so when it gets resolved.
And then from the virus, we don't see exactly we don't think.
It's affecting business.
Well, we don't go to that level of.
They can come up and that's the most common doesn't come on profitability.
Okay and then maybe my last question here just on the.
Yes.
Business.
How should we be thinking about same store sales basis and versus <unk>.
What type of thing.
For kind of going to same store sales.
No it's being equal.
Yeah, mark or marketing or.
And sales group.
There's a lot and that's been developed before your promotions and things.
Good day, Angie I went to position to make sure everybody gets it.
However, pricing until the agenda central armed with a marketing approach with reduced attrition and and grows with the sale for both.
Seven for example, we've done that for every kind of no more than that.
In different segments of oil field.
We're putting that in place.
And.
Acquisition.
No no well, let's say six to eight and you never know which quarter, we're trying to Bob.
Pipeline is never been.
Big because it is right well.
So I think internal grilled chicken thrust upon us we will have to 2% in print. Although you have the investment marketing and sales in place to make that happen it's happening.
[noise], Okay. Thank you I'll leave it there.
Yes.
[noise]. Thank you. Our next question comes from these Jansen with Raymond James Your line is now.
Yeah. Good morning, guys, just a very quickly if I made the follow on the M&A a concept glue can you, perhaps just talk about you keep describing how flush the pipeline is I think thats well understood. What im trying understand is where your priorities are really going to lie if you've got such a broad set of opportunities you know you've got roughly 100 million.
Of capital to deploy per year, if last year's any indication.
Where are you going to really try and focus that to get better value for that money.
Yeah, I think I mean, how we will typically look at it we obviously have the markets, which from a strategic perspective, we like the most where there are higher margins returns and frankly, where we got higher synergies. So do you think of where footprint is that would be the northeast.
And those market, but fundamentally will approach some there a lot of opportunities, but again the timing of those opportunities is it's always predictable. So we will look at dawn and will basically look at the returns and we'll make the acquisitions, where the returns look the greatest layered in when you no longer term.
Where we want to build go. One example of that would be California synergies aren't as high on acquisitions in California, because we're building up that footprint, but the great acquisitions, and we've got our wholesale footprint in California. So now we're building out that retail and then we'll start getting this higher level of synergies going forward after.
That footprint gets built up a little bit more.
Okay. That's helpful and just a follow up with me I think your comment earlier Luke was did you do see if you have roughly two weeks of avail flexibility still in your supply chain to manage through the current blockades and if it's beyond that then that's when you'll start to feel more significant impact is that what I heard.
Yeah, there will be.
One to two weeks I would think.
And but it doesn't mean up to that its a.
After that's what Dr. Luiz we've got those tortured tail.
Got you start to drugs that no.
Not to been fillings filling everything fold, who just.
Great to a level than you do more customers.
Well have a major.
Major work of let's just stick to do to make sure customers overall now, but you don't feel the same rates you riegelwood.
You too.
No not filling up the tank totaling so the filling it up so that's not that falls off a cliff 30 days or them. It just gets twice a different gold and more logistic to make sure. It go somewhere don't grow though yeah. It's similar to the same activity with with the strike where there is an allocation.
You know where there is non critical volume.
You know, making sure that critical and heating load et cetera, but didn't lose saying again, we you know you don't necessarily fill the tanks you did partial Phil so there are ways to manage through it but it becomes much more difficult to manage you know the next one to two weeks on the propane but.
No I understood. Thanks with luck, we'll get some political fortitude here and get these issues dealt with it sooner or later thanks, that's it for me.
Thanks.
Thank you. Our next question comes from Patrick Kennedy with National Bank Financial Your line is now.
Yeah. Good morning, Luke I appreciate the guidance for 2020, but no now that the chemical sales process is complete just.
Curious when you'll be unveiling or next a four year plan.
And you know not not trying to be facetious here, but given the stock is down by just 10% now over the past three years just [noise].
Wondering you know what you would change if you could go back to late 2016, when you chemo with.
Pollution 2020.
Yes, what what might you think about implementing differently within your next for your plan.
Oh, so it's good points and there are things that would do differently.
Things are energy, probably not because we really from a business model from opportunity for growth U.S.. So time that will bring to the team is going to that's gonna get better by having.
The NGL I'm guessing cycling over 20 million Americans are U.S. and build victory agreement before I'm. Good business all available we got so much energy everything that we're in par.
Probably would have sold chemicals to your.
I go back to my career and them done.
Plus big getting around like this one.
Yeah, I often say a.
When you look at the changing something you're often take three six months too long to get everybody is going to decide to move onto the just using your got.
Doug three six months.
I would go back and do it a bit earlier.
We did anything different.
Larry change.
He was reasonably good we didn't expect a big change like that this November December and now.
Moving into 2020.
Taken by surprise Oh in their midyear 2019, we did see is when we put the company and the marketing we didn't know what is coming.
Doing are probably wouldn't visit with and do it earlier.
[laughter] got it and I guess looking back at the CPD process. I mean, you know clearly that that worked out no hanging onto that business and then coming back to market kinda.
18 months later, so what do we need to see I guess on the chemicals front either from a macro or.
For an asset specific basis, just in order for you to.
I don't think about putting the business back on the block.
Okay. Just two fold first we're confident or coty groups. So we are people who can make all that.
Rigor we.
We know what's coming back we know that the this what we're going through 2020, we could see 20 years of every five years as a disconnect up that's a good lots of 40 or so we're going to discuss where.
You could have a buyer that said I get it that's my career by hard for them International and no. Other bother them. So it's not about time to give us the call them. There's another.
But we would sell out that's for the deals and happen.
And I think it's one of its all the business will come back one year, two well, though but when that factory and then you have more back.
Getting caught them the at the moment of the sale was pretty well done a good like CPG and then to be there was their friend for no changes a bar changes by indices, so forecast last summer.
But the timing and.
But the business is good I was just little it's well work out I think we're the best in the car rate from a cost and I will go to market. The mix Board, we do a best job.
All right.
We're small player with its evolving process or total there because oh.
Chemicals I Didnt is high repeat what did batteries goes up you gained 20 plus million when it goes down you lose that.
But timing so on this there is there are people there I'm just kind of business.
And there are strategic and then we could do from that I've. Just said, that's been saying I guess I would that be compared with an average five years, it's kind of okay. What do you have one year over five years of brings you down and then you go well probably higher than average home over time during I've talked here.
So that's a good kind of flowing to sell to business for the great boxes position and flow rate.
It's people that gift system will come back we're not putting it back on the market for wildly.
I'm often enough sort of work in newer stuff, but call it could come in that.
And if there was intelligent cauldrons hard and its values. Okay, we'll go back and selling it but we wanted to make sure reverse.
It would be somebody very serious the base are right price if not we'll wait for that one two years period.
Good thanks for those comments Luca I'll leave it there.
Thank you. Our next question comes from reveal a song with Canaccord. Your line is no.
Hi, good morning, guys.
So I'll start off with some questions regarding your EBITDA sensitivity.
Can you give us a give us some sense of the U.S. wholesale pricing environment, a decline how did that impact your EBITDA for the propane division and also the wholesale market fundamentals for the Canadian environment. If you could just put that in perspective into Ctwenty nine <unk>.
I think somebody from a U.S. perspective on what the commodity environment allowed us to do.
Well, it's fundamentally retain some higher margins than you would and rising propane cost environment.
You know from our perspective, we would have been the U.S. been at that 35 cents average. So you know our view would be it was roughly three to four cents between underlying you know wholesale market fundamentals in the lower commodity price.
So that the U.S. from the Canadian perspective, the wholesale market fundamentals, allowing for that robots differential EBITDA positive EBITDA impact that's way to think of that is it's roughly once to that.
Perfect. Thank you and then if you could tell me what your sensitivity is to 1% colder weather.
For the propane division again.
Oh, 1% I know like whichever way you want to describe it fight, but what were you want to describe it.
[noise] typically typically the way that we would describe it is a little bit more overall and when you think about it from an annual perspective, because we obviously forecast based on the five year average and as he would be aware off.
That's what you need to think of it in the warmer than average weather or frankly colder than average weather could have an impact plus or minus between 10 to 20 million.
Perfect. Thank you.
And then just finding look going back to the point that you made previously is it did I understand this correctly that the potential buyers.
For the specialty chemicals division they wouldn't look basic devaluation based on the good macro environment, but not the average macro environment Oh, you know over a longer time period is that the way to think about it.
If I understand your question correctly.
There was a.
The fire was look a five year average, but then that five year average.
When 2020 Blinked when do you 19, 2020 art ouch shows up.
You saw a decline in which we were aspire and about it.
The decline in price of those two product and kind of figure Oh boy.
What's going on to your there were another.
Hi, good knowledgeable about each brought our chemical business. So they got a bit barbarism, we told him what it means that we told them wanting to being towards when it's why didn't you know we're right on.
And.
There were a bit service and.
I was not prepared to take lower value to their search and well because it'll come back and I'll get done diving.
Makes a lot of sense. Thank you so much that's one for me.
[noise]. Thank you. Our next question comes from Chelsea Dray Huh.
Hey Securities Your line is no.
[noise] are you on.
Wondering topia if you're on mute.
Oh, Hi, forgive me.
Hi, Mike on your [laughter] Garden, So [laughter].
Good morning, Yeah. So you mentioned back though lower range of guidance is impacted by.
So how should we look at that you did optimism for 2020 in regard to that like how much of your business. Do you think is gonna be impacted if it throughout 2020 or should I look at it on a quarter by quarter Pizza.
If you learn it in for I just missed the first part of your question and what and how it impacts were within the weather.
I just wasn't sure what variable you're asking.
Sorry, Yeah, just you mentioned that the lower range of your guidance is impacted by the rail issues. So I just wanted to know how it should look at that optimism for 2020 and yeah. We identified but yeah. We identified that is something that can impact the range clearly because if it extends it can have that.
Larger negative impact on transportation, but yes, it would be something the impact our expectation would be it would be a Q1 type item.
And as a result of that you wouldn't expect to see that later in the year that impact could be seen earlier I'd be made absent a larger impact on the Canadian economy, depending on how long it continues.
And how much do you expect this has been impacted.
Anyone it's little too early right now from our perspective to reasonably quantify it we just know that pension headwind right. Now we don't you added material, but that being said it very tricky and it's going to be duration specific to the level or the impact that we feel from it.
So your guidance you gave us.
Yes, the lower end is just.
Neither of them for that yeah, the Laura I mean, the lower end of the range. When you think about it there's a lot of factors that can provide headwind forget you towards the lower end and there's a lot of factors that can be tailwinds that get you toward that you know you're going to have some one direction in some the other direction. So it's a little bit of anticipating not everything is going.
To move the same direction, but what we feel is a reasonable varied variation and are afraid thing for the various.
Items that could change through the year from expectation currently.
Perfect and my last question in terms of the guidance does that include any more tuck ins or 2020 or.
No. It doesn't include any more tuck in that would be on net positive depending on when they currently are.
Perfect. Thank you at <unk>.
Sure.
Thank you Sir our next question comes from Nelson.
RBC capital markets your line.
Great. Thanks, Good morning, everyone I'm, just a quick clarification on the the rail impact you mentioned your propane side is okay for another one or two weeks before you have to kinda implement some or kind of mitigating the activities could you comment a bit on the chemical side is that also a one to two week a range.
Well.
Yeah at this point in time, because of where customers are versus the current positioning of the various blockade we haven't been strongly negatively impacted so from our perspective.
Where you know we don't have issues right now started the rail down the Buffalo and around it's possible and that's how we've been doing redirect. So currently on the chemical side, we've got effective work around but I always caution with that because there could be some point in time when you get.
It more congestion points on the work around because more and more people have to start creating work around just because of the you know this draft that you stress on the overall system, but currently we don't have I'm a forward forecast to why don't we become more challenging than the chemicals side. It some propane is more time.
Sensitive at this point in time.
Okay. That's great and then second question relates to I think Luke mentioned that there's a pretty large pipeline of tuck ins idcs.
Should we be assuming about 100 million is the minimum amount of tuck ins. We just see this year and I just want to.
So you what the ceiling could be like where are you would start to kind of limit the a number of tuck ins like whats yeah, what's the range.
Yes.
Well, we're Oh pardon me I Don.
Oh, good cash flow business.
And we have to drift now so and we have alignment pipeline is real and better than I've seen since we started falling asleep.
So.
From an eventual yeah, yeah, I think from our perspective on what we've seen in the final under <unk>, we like the targeted expectation about 100 million from a tuck in perspective, if there are more opportunity certainly we consider them I mean, I think at that point in time, as we look to our longer term leverage targets et cetera, we would obviously.
Look at various alternatives from a capital market perspective, but certainly if there are accretive transactions that make sense to what we'd look to prudently financed both where they make sense.
Okay. That's good.
And then another question on the chemical businesses.
Could you give some color.
In terms of the EBIT Doug.
Contribution mix in 2019 from Chlor alkali versus chlorine.
Hi, good does the Chlor alkali contributed roughly 40% and are expected to see a lower contribution and 2020 is that you should think about it yeah Nelson <unk>, maybe the best way to think about it is we're looking at it because you know the bulk of the headwinds are in Chlor alkali and 29 team.
Chlor alkali you'd be roughly 30% of EBITDA, So think of it in a 30% range in 2020, and then you know from their Corey where in 2019 would be 57 sort of that 60 to 65 range and the remainder inquiry.
Okay got it.
[laughter].
Yeah that those are all my questions. Thanks, a lot Oh, sorry, one last one I did I missed.
In terms of expanding the Buckingham and Veltassa facilities. So what do you roughly have budgeted as it as the capex spend for for 2020.
Its roughly for all the growth Capex and URCO 16.9 million.
Okay. Thanks, that's all for me.
Right.
Thank you our next question Joel Jackson with BMO capital markets. Your line is high.
Hi, good morning.
Well I mean, two questions Alaskan order first I'm not AOCF would we expect would you expect it will see after two declined 6% in 2020 or can you maybe go through some of the puts and takes that might make AOCF five better or worse in the 6% EBITDA decline.
I think from and the AOCF perspective.
You could consider castle like I'm, just trying to think about the different impact. So if I look at it from an adjusted EBITDA perspective, you have your midpoint come up with AOCF interest expense would be similar to 2019, and then cash taxes bank of being you know somewhere between 15 to 20 million they will be higher on.
A year over year basis, so from that perspective, I think when you look at some higher.
Weighted average shares outstanding from direct you probably have a slightly higher decline then 6%.
If you factor that in the 30% Dread on a weighted average shares and those increases I think it'll work as a little over it'll be somewhere in that 5% to 10%.
That's helpful. Thank you very much my other question is.
Luke So I understand that you know late in the protest the commodity outlook look worse than to the buyers got some cold feet on the multiples you hope to achieve.
Actually time.
Considering that you are very passionate for years, how much value you can add to acquired and talking propane businesses, 25% better earnings.
You know isn't it why why wasn't the right twice to take a lower multiple swallow it a little bit there five get the get the proceeds get the propane M&A strategy to where do you want to be to really be able to execute on what you think is your core competency in super topics.
Yeah, I think good.
Look what we think it's what we've accomplished for 10 years. So it's reality.
So good question, because where do you saw.
The decline in the chemical that you see in are you work on.
Big enough that it's you don't get even including no decline you won't get the value of American Rouge, we didn't anyway with this particular barter.
So.
To me its although short or mid term always says every decision we make here for the different stakeholders.
[noise] customers, which were drawing with very little girls.
Yeah getting good service.
Andrew Smith.
For employees.
Good time, working here and winning company that's building.
During this phase of course.
Ritchie and their shareholders were really worked hard to get them good value there.
And for the 20 that's funded.
But there was going up because that's what we've done for so long.
And then you get to a point you say okay.
I do which was lower than what makes sense flawed and.
And when a crazy so it was 5 million with swallow with door, maybe time, but when you get to a point, where they've been Doug what does that.
It's here is when the 20, so much about people about too much.
Maybe up to think of Mr.
There was no way this business is not something back there's no way the 20 30 million coming back and mid and long term. It takes two three years.
Older they're here for three months from for them fear for three years through two three years.
We will end up doing a better about.
So do you think this year you wouldn't be great to have sold it to me, Bob Oh, where we're trying to reason.
Do we take it.
[noise], except what.
What is when he is bringing to us because of whats weekend with that and then two years, we've got a Rob I think we'll be go up.
Well Jeff.
During the time.
Then we'll end up would there be the same mid long term strategy and role can department. So you think your big in the here.
Sure so.
Moving to a point when you have all the factor. We are you make a decision the best the management team that looks at it.
And I can understand from an upside this area. So that maybe bars move on you know such a great opportunity.
Opportunity.
Well, we don't like to take money for certain level more than what's your older.
Thank you.
[noise]. Thank you I'm not showing any further questions at this time I would not look to turn the call back over to loop.
President and CEO for any closing remarks.
Yes. Thank you were certainly all hands on Dec movement looking ahead.
We don't some other times.
Enjoying what we did last year, because it's all about next year as the year after but I wanted to take the second to think all the employees by their trends superior.
Not spending year. This week. The we're sure older. If you can think more than 2020 were below us here, we don't like that.
Sure and it puts a mid altered.
Although the rather do big Scott.
Thank you all for participation.
Ladies and gentlemen, this concludes todays conference call.
Dissipating you may now disconnect.
[music].