Q1 2020 Earnings Call
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[music].
[noise] decent gentlemen, thank you for standing by and welcome to the superior plus 2021st quarter results Conference.
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Now like to hand, the conference overtures speak for today.
Dorin, Vice President of Investor Relations and treasure. Thank you and please go ahead shirt.
Thank you <unk> good morning, everyone in welcome disappeared classes conference call.
After reviewer at 2021st quarter results are speakers on the call today will be <unk> I didn't see Oh and that summer is exactly Jackie M.B.B.N.C. about during the bars senior B.B.N. she'd be lost there will also be available to answer any questions. During the question unanswered period of today's call.
They just call is being web cast and we encouraged next nearest if all along with a supporting presentation, which is also available on her website.
This morning to call it that won't be getting on with their prepared remarks, and then we all went out for the call for question.
Before entering the call that I'd like to remind you that some of the comments made today may be bored looking at major I based on serious current expectation estimates judgments projections and <unk>.
Somebody information provided refers to not have got measures. Please refer superiors first order M.D.N.A. Oh is it on T.R.S. a few years website yesterday for further details on forward looking information and aren't got measures.
I would encourage listeners to review the M.D.N.A. as it includes more detail on the financial information for the first order as we won't be going over a huge financial metric on today's call 12 hours to move more quickly interesting question actually period, Oh now turned the color rude.
Oh, Thank you run Ben Good morning, everyone. Thank you for joining call like just started to call today by saying well for every 100 families are safe L.C., finding a way to manage through the <unk>, that's a better place where I'm adopted or business practice.
Over the safety of our employees or customer local communities alert first <unk>.
Or probing into submission the specialty chemicals business are considered essential and critical services and infrastructure at all in the province directories based on which we will bring in the U.S. and then try window and it should be.
I'm. So proud of this <unk>. This man, there's no more than 4004, <unk> Oh, there ever did try to sharpen your customer their local communities through all this.
Or employees are working hard to ensure customers.
<unk> are eaten and you have the appropriate to keep your your business going organization it'd be cool already as well. So we're servicing our coast I'm very very well.
Specialties ever go business, but you did provide there can be cold to make essential products, including the little surprised that can be used to come back in October.
19.
Voice any told me of course.
Some pretty soon the Hell traces those high profile and back lyrics on there'd be a the olden federal state provincial local <unk> I've always to do the dramatic measures to help control described the Celtics 19.
Businesses are resilient <unk>, but nothing you do this and they because they come in each of though slow down and I should say.
We have done so thrilled with you both business what the potential in fact, it'd be and we expect or commercial and vegetables like men I mean, we and they can eat propane distribution business, we like T.V.. The most impacted by the recession scroll down the Big company.
And also that <unk>, we shouldn't do all the p., it's been going down for years.
Overthrow says all that are related to New York, Yeah in Canada.
Specialty chemicals business also expect more demand called R., that'd, probably be a sin and sort of Joe Torre right relate to do a reduction in oil in guys really I've been doing in your wet.
Responsibly of dissipate in fact, I'd say 12 is 19 as part of our all the way toss saving initiative.
We took immediately action to protect their business and financial strength, and then referred to positions.
Do emerge from this it's ratios, even stronger and 2020 wherever Duisburg planned capital expenditure <unk> 30 million and we reduce or expands to adjust to the lower volume spatial in Canada.
<unk>, which covers all over businesses.
We are closer to 35 billion total cost reduction all over the.
We've kept are adjusted they've been done gardens ranged from system when they're range provides in February.
Expected finished 2020 of the middle trouble or add up their range due to the impact of the warm winter and eastern us.
As well as the this invaded phobic 19, and a little price world reduce it related activity just.
Just to put everything in perspective, what 17% warmer than Ortiz U.S.C.
This is the 65 and 130 years because I've worn.
<unk> rather than a business was saying tour of ordinary sweet it's been a business for 15 years.
He doesn't remember that <unk>.
It's only how's it going to find a little brother 30 years. So we're supposed to start rich, whether you're we'll come back and trying to do with 10% more armor. So it's been a major major effect.
Alright, I take a boulder word business are resilient, they're not getting thanks in large part is pulled out of the economy.
But the weather effects us for sure.
Now when you think of the if the dog.
And you think of where we started in the warm weather.
Many tens of millions of let it bizarre.
We've done some adjustment to fit into your own garden.
<unk> every business.
Super job and that that taken adjusting to the bargain letter as well, there's still down the economy. When they were superior to maintain that drug documents for 2020, and I <unk> very proud to be employee that relate to each respond quickly to one person in a situation where you can look at 2021 and that way.
<unk> I started getting adjusted to bin further to make sure that we have a good sustainable profitability profitable business I.
I like to begin with a couple of my life the first border.
What are your west probing team realized 3.9 billion additional to their g. relieved when G. <unk> <unk>.
We have no realize what we're 20 million due west of synergy and expect to finish up 20 of <unk> energy related to the energy up I mean, it was a show.
Put everything in perspective, N.G.O. was a 90 billion dollar is adopted the weight or business model without more thousands or morning, Oh wait are helping.
We can improve their babies games by 24 months.
And I'd say that many time, we can do that whatever business model that then across Canada that lived in this state and every acquisition, we're looking at and that which was blending we improve the business 25%.
We still expect to exit 2021, 24 million U.S. and Rhinebridge from their G., where they.
On January 920, 20 were quite an independent <unk>, California, or total 20 to one side of it then you're in the west.
This was word or second retail, but painted position in California, we couldn't afford to the each rule that part but.
We also have many opportunities to growth requisition, if you started your way.
We still have a robust acquisition faldo actually bigger than ever due to our leverage level and their currency to preserve liquidity, we've been likely unfortunately do less stuck in this here then we could do by I don't shop.
Well, we're all we delivered good results considering that had the when we weren't fancy relate to whether the U.S. from range that we shouldn't business and <unk> still though.
I said market specialty chemicals.
The first quarter adjusted good though was it 219 again 20.6 million by person Lord then you're probably a year corner from you do to decrease the name and Oh gracious.
Of course, with some cost reduction a bit, but they're all swimming pool, there were something here.
<unk> operation was 223.9 billion 25.4 million or 10% decrease some per year.
Probably due to the lower resulting from U.S. propane specialty chemicals are should upset by our result.
<unk> and the first quarter, <unk>, where are probably due to improve <unk>.
<unk>.
Effective right by Benjamin.
And then to the environment or price probing.
<unk> do do a reduction in common.
<unk> from operation for 2022, so to speak to be more than 2019, probably due to an expected decrease in sounds all day I bet you in his margin personally upset.
Decreasing no bringing in Spain.
Margins are holding quite well, even better and new operating costs are going to go down.
So volume are expected degrees.
I've been called it the economy's go down and reducing it'd be easy oil and gas another respect mid western Canada.
Are they to those on price or.
<unk> holiday relate to the significantly warmer weather experience in the first quarter personally upset by mean trees and average margin contribution talking acquisition and realize or G.N.G.O. propane acquisition that talking they position completed and the last 12 months.
<unk> operation for 2020, some <unk>.
<unk>.
Due to the significant warmer weather experience in the first quarter.
<unk> position complete and 2019 in January 2020.
An incremental synergy relates to N.G.O. acquisition stuck in a position.
Specialty chemicals, they've been talk a little gration. The first border was lower than last year, but much better than we plan probably due to the decrease in for like a lot of results.
Specialty chemicals, they they don't mobilization for 2028 to be lower than 2019.
You wouldn't expect it'd be three seven correct I like gross profit.
Or should be upset by mom does increase in Chicago, Puerto Rico gross profit.
And then Greece, and probably things up costing.
Yeah, <unk> also up on this degrees no breathing and.
So on that I will turning the presentation too bad.
Thank you like a good morning, everyone are consolidated first quarter adjusted operating cash flow for transaction other <unk> per share with a dollar seven per share within 14 cents lower than the prior your corner you didn't decreasing suggested even at increased interest expense and pass Packard.
Interest expense increase primarily due to the higher average got levels related to the financing cannot conditions completed in 2019 in January 2020, using <unk>.
No turning to the individual segments result.
Canadian propane even after him operations for the first quarter with 86.6 million 2.3 million increase primarily due to higher adjusted gross profit in lower operating expenses.
I think gross profit increase compared to the prior corner, primarily due to the hotel pay market fundamental and superiors ability to capitalize on that.
This is partially offset by lower sales volume.
I can't at margins were 20 cents per liter compared to 15.9 cents.
The prior your corridor, primarily doing <unk> propane market fundamental and merging management initiative.
Total sales volumes were 729 million readers <unk> I'm 193, no you're married or 21%.
We do to be a pack of warmer weather a reduction in butane sales competitive pressures and reduce demand.
Average whether across Canada as measured by degree days with 10% warmer than the prior your corner and 4% warm and then the five year average.
You like propane even out from operations for the first quarter when 103.49.
Decrease at 22 million compared to the prior your corner.
Primarily did a lower sales volume, partially offset by higher average unit margin and realized synergy.
Total sales volume decreed 67 million married or 14%, primarily get any impact of warmer weather.
That in part by incremental sales volumes from talking acquisition.
Average whether it measured by degree days across the markets, where superior operates in the Eastern you Act, which 17% warmer than the prior year corner and the find your average.
Average you know markets were 48 point at 41.8 cents per liter compared to 40.3 cents per year.
Prior your coroner, primarily due to my work wholesale propane crisis management of pricing and a low commodity prices environment.
Turned out of sexual be chemicals.
From operations for the first quarter with 33.9 now have a 5.7 million decrease compared to the prior your core primarily due to lower gross profit, partially offset by lower operating expenses.
Gross profit decreased 7.5 million data lower clarify gross profit, reflecting the headlines from oil and gas, partially offset by a higher sodium chloride gross profit.
Operating expenses decrease 2.7, no him primary get any impact I think gain on translation of U.S. denominated working capital and lower incentive plan caught.
Lastly, the corporate results and the adjusting even in leverage guidance <unk>.
Corporate color for point 6 million a decrease the 5 million compared to the prior your court is is primarily due to the decreasing outfit expense relates to the share price decline.
Interest expense with 27.1 million modestly higher than the prior to your recorder do any increased average that any impact from the weaker Canadian dollar on the translation of U.S. denominated interest costs.
That would hire primarily due to the talking acquisitions completed and 2019 in January 2020.
In the first quarter superior had cash income tax expensive 4.3 no.
This is an increase of 1.9 now.
Utilization of available tax cool any impact the weaker Canadian dollar on the translation U.S. denominated capital.
We're maintaining our 2020 adjusting even a guy in the range of 475 million to 515 million.
But we expect to finish it the lower end of the range.
Superior now expects to be at the lower end of the previously communicated guidance range, primarily due to the significantly warmer than average whether experience in the first quarter as well as the anticipated impacts from cobin 19, and the lower price of oil on her business and our customers.
Average whether as measured by degree days for the remainder of 2020 is anticipated to be consistent with a five year average for Canada and the U.S.
The low end of the range counts for warmer than normal weather for the remainder of 2020.
Reduce economic activity in Western Canada further weakness in North American caustic soda in hydrochloric acid markets unanticipated volume decline coming into combing 19, the high end of the range accounts for colder than normal weather for the rest of 2020 wholesale propane market fundamental similar to 2019.
Increased drilling activity in Western Canada, Unapproved, North American costing so in hydrochloric acid market.
From a deck will average perspective.
Total debt to adjusted EBITDA leverage ratio for the trailing 12 months as it March 31st 2020 with four times.
This compares to 3.7 time at December 31st 2019.
The increase in the language ratio from December 20, or 31st 2019 was primarily due to lower Jack to eat it up and hired that related to the impact that the weaker Canadian dollar on the translation security U.S. Menominee debt and how can I conditions completed isn't a 12 pack 12 months.
We're also updating our total that to adjust to even to leverage range at December 31st 2022 range of 3.6 times to for time.
Compared to our previously communicated range of 3.4 time for 3.8 times.
This increase due to lower result of U.S. propane, especially chemicals in the first quarter and he expected impacts from a week or Canadian dollar on the translation of U.S. denominated debt.
Superior as well within its cabinet under its credit silly agreement and and secured no dentures.
Superior senior debt credit facility, even a ratio.
Yeah.
Four times as at March 31st 2020, and cannot not exceed five times.
Superior also had available liquidity of 232 million under the credit facility as of March 31st 2020.
Either we do not have any significant debt maturities until 2024, so we're well position from a financing an liquidity perspective.
With that I'd like to turn the call over for Q. in a.
Oh.
<unk> ask a question you will need to press star one on your telephone.
Try your question press the pound key please stand by while we compiled a cue in a roster.
Our first question.
Comes from David Newman updates are day She's proceed.
The morning folks.
Good.
Good results and obviously, a one of the few to actually keep guidance. So congratulations.
A couple of questions on on propane prices emergence the basis differentials have obviously normalizing the recent highs, but my understanding is that you might have been in the throes of.
Establish year supply contract for next winter at the end of March in early April and the propane prices were fairly low at that point any potential supplied benefits that you could flag out of that especially if you're a nonresi business and and those are have fixed price term sales.
You know from from a perspective and I'll talk about the overall market fundamental first typically what you see is we have our new contract in years that start April 1st and so what you will typically see as you get a better sense of what's going to happen with differential and those market.
Rachel's going forward once you move into the new contracting year. So the differentials were strong and into one they continued through as we're looking at it going forward April looks positive, but our our initial view is that we would be back to sort of five your average type differential numbers.
Now appear question on from a lower propane price perspective, how that can impact us going forward as we discussed previously for residential customers. In particular, there is some ability <unk> capture some incremental margin as a propane prices are lower I'm. In addition.
Into that as you have fixed price type contracts and play as you can enter into contract for fixed prices going forward and they're more you do have the ability casually capture again, a little bit incremental margin in fact customer price is still declining or being maintained on a year over year basis.
So we would view I'm in the lower propane pricing environment that we do have the ability to probably keep some of that incremental market that we have experienced in the last probably year to 18 months because it propane prices have been relatively low over that period of time I did that.
That capture on your question.
It was great bathroom appreciate that and and what about the actual supply obviously, we're not getting a lot of Ah you know associated gas and N.G.L. supplies, a tightening when you when you contractor supplies for the next winter like do contracted <unk>, which the supply guarantees that you get.
We will we will buy supply and with the size of our portfolio and the variability in the volume that you. What we will typically by our pieces, where there is volume which is committed to assemble usually have something like they're minus 10% of buildings you draw if your question.
Getting out with some of the refineries production levels being lower et cetera from our perspective are you with the overall fundamentally we're comfortable we can get propane, there's no black or inability of supply. There is however potential in certain regional areas.
To have some additional challenge it so we have looked in all identify saying area like California. So in California, right now the refineries have slowed down so as a result in order to get the <unk>. Okay. We've had to rail more propane into California, just service our customers.
So they did something which we're constantly looking at and what we will do to mitigate any potential risk to make sure. We have security of supply for customers. We will look forward and you know ensure that we have I'm going to say plan to use in place Eastern Canada, New Foundling, there's been a similar.
Colleges, where again, we've trucked more propane and that we normally would because that's how refinery isn't producing the levels of procaine historically get as well so agreed so yeah no. So.
Person ever profane comes from natural Guy says you should be on a little further functions going down.
Other affecting us or capacity to get proclaim I'm going forward looking I was good this year.
New question do you have no more too with the residential making a before March and just for everybody on the phone the related to deal with that kinda, though we're both 25% there's a natural and then they they do five do 90% of the <unk>.
Yeah, No no for sure and and just on the you noted several times in their release a competitive pressures in in Canada, I can only seemed that your major competitive in western Canada, being a little bit more aggressive in nonresi.
Personal industrial and maybe even oilfield two degree anything you guys can call load in terms of what you're seeing in the competitive landscape overall.
Yep.
I think of the last few with a bit more pressure would competition in western Canada.
No so much <unk> good the role of the except the oil field every other thing then <unk>.
Same with the states, we took over in G.O. and rebuild it to the to the 24 million <unk>.
Where I mean, well alert gave a marketing and sales we put a blaze digital connection with customer is helping us a bit more now than there perhaps because people are forced to do digital and once you do digital sales, it's very hard nor computer really don't we don't have any of our.
Approach.
<unk>.
And what to today.
Efficient enough.
And you just gave customers are looking for up so far that.
So far and all the process and do all the information and the price thing in the building all digital so I think we have a a better than this.
The Gonna show better going forward and ended up with regard.
<unk> from the last three months slowed down a lot I think are computed or follow the lead to say, let's not moved too much or <unk> to switch.
I enjoyed it really doesn't make up their friends one thing to the younger now we all are obtained on somebody else <unk> guys and everything so there's a switching going on now because of the situation with it all did like thing.
Okay last one for me.
Proof of that including industry Association.
Statistics.
And we're operator and we take action so as soon as we see a slow down or difficulty ahead of us what are we doing about it.
And we're just or just.
Thank you Howard said it before that he called I think if you have to say what sort of real forward confident with the management team and ill and we change a lot of manager when we started.
Friendly their card companies as of execution.
We were good and digital that market eight itself, which is not very big in this industry, including chemical or better as marketing and sales and then we're from a timing from an execution quite a few we're just going back we're just make it happen once we have the.
Decide something we'll just do it so.
Where do you want the breakdown of the 30 million cost savings is about nine to 10 million is Canadian propane wage benefit people.
67 million, those or traveling which I think will last for labor, we're going to do things differently going forward, but one that half million.
And we did the so reduce costs also data U.S. business by about 13 million.
Wage and benefit reduce safe and there were hendi dissipation logistic business, we have a variable cost of 70% or total past the remaining remark and goes up we can scale up the marketing those that we can scale now.
Now I know most committed or don't do that but that's why we can flex our cost structure more in the distribution business being a variable cost type as.
Another they didn't chemical is out bricks and mortars of are you are basically is constantly and U.S.J. and 84% and given our clinical we've seen competitor, having double or costs of this Jamie so were not less opportunity, but then chemical.
Hurtful.
Doing better than planned by the number now that's business last year, you reduced on the by 8 million.
So you have between division there's no. It's no secret counter that doesn't get adjusts an effect and moved too.
Back to the new World and once we didn't even as we look at 18 months not the role and if we were going to see it only a 3% decline in the states from an industry from the statistics somebody history I've talked to five competitor.
We put five so for the next 18 months, we're going to have 5% less so that's not after that and Canada were worth taking seven eight let's sales over the next 18 months I.
But we put towns of the forecast that we're going to Dan I'll dig a little elected to tenant five but doesn't matter that's adjusted tenant five and therefore wrong both festival scale up.
Excellent. Thanks, the answer is a great answers are enjoying a long weekend all the banks.
Yeah.
Our next question comes from Ben Isaacson Scotiabank. Please proceed.
Thank you very much.
Can you talk about your assumptions in the specialty chemicals business to arrive.
The lower end of your EBITDA guidance range.
[noise], yet our chemical business is doing well this year versus flat, let's not nurses five here.
And your question you want to know how things are going by product.
So and they tolerate is doing well.
And we've had a hiccup with one customer big breakup class six 7000 times those all Jim and management, just when I did right away and we've got to do that did that lost so sales we're going to do it on the export because you have Oh, we are deep layer in America largest.
Alright and.
It's 57% of or if a dog really running well very if and when we can flex with exports. We had capacity without we're gonna have that we didn't expect weather forecast and on 5000, plus we exported now and pretty much the same margin.
When you look at <unk> reading I think what second thoughts a bit the on the clarity is like caustic price are going up and we talk we predicted less cost product testing price increase its happening now every time, there's a slow down theres less supply of caustic comes.
The Gulf Coast for PV see it takes a real producer like us who have a more demand than were creased bodies are happening as we speak I think we're going have a good year caustic.
And then on the <unk>.
Marina.
All right the 5% of our margins not so good oil field kinda U.S. not so good and then of the Tarin side, we bought a additionally rail or why are going to use a goal that gives us a good volume that we can ship what I think some of our industry can put everybody knows that.
Enough.
Transportation capacity, because when you make one product you end up with the others you have to be able to ship color means to make costs. They were.
We're out we were limited to a degree, but we have more a tough for patients as we bought years ago that gives us a chance to.
Play and that an upswing of their caustic world.
Yeah, no into one thing that I might add to your question I'm trying to question with the asking what was happening in chemical his question toward guiding to the lower end.
Fundamentally where we're still facing headwinds and our overall chemicals area in Italy that not inquiry, but kind of chlor alkali perspective, well, we don't provide specific times five vision I'm directionally chemicals is actually been producing better and we would still anticipate it could be.
The way better than there are Rachel assumption that being said on a year over year basis. It would still be challenged based on those headwinds on chlor alkali.
Right.
Right and that I will flybys when you're looking at that foreign exchange is also I want to be items that is resulting excellent more positive positive incentive plan doesn't like.
Thank you for that and my follow up question is given where your leverage is right. Now can you talk about your appetite for further pockets.
The U.S.
Where valuations have they started to come down is the M&A market there frozen while corporate plays out how much would be targeted for any type of this year.
Yeah, you're kind of breaking my heart with that question becomes quick kind of been lists that's bigger than ever.
No prior to the team and we're looking at buying business after synergy the top six that we're looking up 22, which.
Unfortunately will do lump lift them that this year, we don't like the idea of.
Passing four times and no debt, we see if I was a private business wouldn't bother me at all to see the sustainability of their business and tough times.
So but it is what it is so we don't want to go higher than four and because of that will slow down a little bit position. It why that were acquisition, we looking up.
On average of all the top six well.
26% to 27% year are in two days I would say, 25% back to you know week.
Okay, the lowest sex hormone many many years to come.
So we're we're really kind of by asking right price and we can integrate them or we have the platform. This system to people in place to.
It was tox within the year to get the them to our business model.
And I don't know Fortunately, we're going to slow down.
Thank you.
[noise] [noise] next question comes from Jacob.
Oh, I see Ibcs [laughter].
Hi, good morning.
On engineering.
The question here on the the sustainability of margins in the energy services in particular, what we saw in Canada in the quarter can this be maintained and I know you're talking a bit about some margin management.
What are you doing differently right now.
I'll start with the end market and then bed come to cover the a supply base.
Which is the run under her leadership.
The end market. If you go back to nine years every year, we tweaking margin of it's like Oh. This is also lived feel it to best you own the pain and if you don't play around that increased price when the 5%.
Customers, though going anywhere were really really have from top service, we do certainly with our customer and their employees and where the top carved out of every over support reports, we get from a customer and we're getting your E mailed out from employee and customer at Oh, We even went up during this crisis.
Both to read both survey we did recently it was going up vigorous court, because we're communicating and when the game and so we're we're in the good acquisition from those.
Margin and when you add the service and the connection in the digital that I've alluded to earlier.
And this value grabbing glued to the customer.
So I won't name big customer name, but we're doing it to every customer like if you had a penny here if any there.
Nobody does hurt and very hard once you into a business model like us that has all of those services surrounding.
The end markets always say, we don't sell the commodities here.
When I started without your selling from I forgot prepays in Oregon spot. It's all are serviced in connection with customers are quick response.
Nobody's runs out of a gas and ER and give us an AD. So once you do that connection digital.
You talked attrition because I have some people deeds in lieu of isn't all that you kind of attrition than that.
So weird that's when we get to 2% more growth in an industry. Then then the competitor because I've been there margin.
So.
Not to be sometime hard for people to relate to all your increased prices to lose welcome no she's doing intelligence, leading to tweak it properly and you asked.
Put another view around the customer first.
It's it's okay to fix.
Yeah, and and I think Jacob well outside yes part of your specific question was looking at the margin for Q1, which was 20 cents.
Typically you know, we will guide that 14% [laughter] and our overall on average margin on for 2020, I think towards the higher end of the range would be a number that you should be thinking about it and that's partly being impacted by customer mix as well so.
So and then that's just because a lot of the potential decreases in the volume are happening at wholesale type customers and a larger industrial in oil and gas customers, which generate lower margin. So on an average basis. It will increase it sort of towards that top but again 14 to 17 cents itself.
A reasonable range to think about higher end of that range for 2020.
[laughter] 10, if we think about volumes on the industrial commercial in oilfield side.
Can you just talk about what the shape of Dodd has looked like like was there any dramatic falloff in April one things are starting to proven may or are they still dropping off for how are you thinking about that right now.
Yeah, where when we first I'll say when we.
Forecast together equal Bucks a month of working people looking at every segment of a division of the vary region.
We feel a little bit more positive today.
April let me is really looking good.
Or the cost structure as it comes down and volume is good.
So you will have and that's where the 10% comendo and focus on us.
The.
When it comes to industrial since most of all in this business of course, they do wireless propane.
Some segment.
How are some commercial and a lot of commercial building up to eat them anyway, not much change good or bad timing kind of unusual dollar about but do you do have come to think minimum some type of customer where you lose volume when do you kind of musical without our calculations show, we probably six 7% and kinda, though reduction we went to.
And then adjusting or.
As this cost and according link and U.S. residential to trigger Sem and we even had a although our board as you know there.
CEO of Amerigas, and you said look 2% is probably good and overbid is eventual in slow down the coming so we put fine.
That's not do this to evaluate this year.
A big shopper take care of it.
[music].
Yeah. It's.
He could you give you just felt a little bit of offensive well, we would be expecting some of the that pressure and again, it's like said, it's the you know commercial oilfield forklift type volumes, which we would have seen on some of the reduction the way. We're looking at it currently is if you think that Q2 third of.
From worried originally thought we were going to be there'll be an impact, maybe 15 or 20% and some of those areas Q3 last more like a 10% and then as we get to Q4 less of an attack the 5% and again that you know, partly because you get your keating heating again base as well, but just begin.
A little bit of a sense of how we're looking at that shaping.
Yeah.
Oh till industry, which is a segment taxi would use propane.
The degree although bills have been affected a big time.
It's worth.
You forecast is lower.
Okay. Thank you and then my last question here is just on.
Maintenance on the specialty chemical side.
I think we've been hearing from some of your peers that.
There may be some potential issues as far as.
During the workers lined up here for maintenance turnarounds.
Are there any major turnarounds being planned for this year and itself the same expenditure offering.
Well I'll tell you it wasn't so did before then.
Love to get an eight different big industries, and other U.S. and.
Lots of changes by there's really no with energy and to rebuild the business and position us well for girls on 30 year fixed doesn't.
I have never met the management genes that professional I sort of go [laughter].
So on two with everything that as of the game. They know missed a beat but so they will only be prepared for every one of the plan a good protocol you know there together with the industry of health and safety, we can copy them for the rest of the business to improve the energy business held in 16 and the its.
Our culture now, but they do really during two there and that didn't know to run the stuff literally I've seen them better than the computer or no no true.
Hope here help indeed preparing all the word organized the protocol. So people are not close to each other.
First our president was explaining to the board this week and Saskatoon, we closed for cost reduction and efficiency we closed the.
Let's go to flow rate plan.
And we are going up as you know what spending on Buckingham low cost flat and themselves on a low cost blends in southeast.
So to Swift Swift reduction SREC production to lower cost.
Glad that closer to the end market.
And this assess catch one we have worked for a combined explore within the same building was far apart. So we've used the twos control center to make people work in different places they would they're all totally on top of that we're expecting know they come up at all in any plan. Its review regularly might have a senior team.
Oh I know there so nothing happened eager to us.
Problem.
Okay.
Thank you.
Our next question comes from Steve Hansen of Raymond James Your.
Your line is open.
Yeah, Good morning, guys [laughter].
Just the initial question I may have missed it but lupita comments or remind us on how quickly goes contract might itself to benchmark price changes in caustic is that a relatively swift.
Definitely growth after his or her legs to it.
No, it's pretty far us a.
We've had predicted the quarter to quarter with predicted that he would be.
Going up so much we'd be by midyear this year and we're getting a.
Does that help in that regard on caustic because the price are going up.
Every quarter.
Okay, Okay and then.
Maybe just a question on the tuck inside I understand tuck ins will be down this year, but you have moved into the retail side of California now.
You started in the wholesale market are there any unique advantages to being in the retail side in California.
Would be different from the retail dynamics, we see elsewhere.
Yes to that many times where [noise].
When we that's simply by the Uh Huh.
Sometimes it can make a box mechanism.
And it's due within California, and we don't want out of a big scale than ever before you know with her business model will bring 2% terminal girl, we have to do their everywhere will bring a operational effectiveness on the logistic or business mogul logistic with our sensor Goodwin installed on the spending by them enough everywhere every.
Hey, where they're at and hold to fill them. The most efficient way. So when we raised our business model will gain what mill one of the multiple parents will go from seven to sick.
If we're at I'd like we are bigger this you at eastern part of the states that seven become five.
Because nobody that we've put our business model and our way more attrition.
We'll go to the too sick then we look at Oh, there's a lot of overlap and they overlap you think it was caught out and getting another turn.
Well go to an extreme the canwest a seems as you know very well up where it was a $40 million business.
And there was a lot of overlap with us.
With the or they consider western Canada. So 40 million became 60, plus 50% improvement not 20 part why because there was so much overlap you don't need to starwood into a location and the thing no 20 miles.
Circle so you're.
More did you buy in an area that you already have a position you gain more through the synergies.
California will give us that synergy numbers for my Big thing.
Position on this is a big one and then after that it just looks like.
Right and the reason we are in California wanted to get big.
Hick up now on cash and all that stuff, but it doubled up and tripled up one day and U.S. because we are convinced this model and we can improve everything we're buying goes seven bring back to find me Barry Barnes said I'm going to come back to six well, we do a tough and Oh and the cash.
Yeah, and I think in the California market I'll, just also flag somebody other unique things that we tend to see there that you may not see everywhere else and one is it does have strong agricultural margin.
As a result of that just market in general I do want to think about it serves wineries et cetera.
You also tend to have interestingly when you look at me usage on a year over year over year basis, it tends to be fairly consistent.
In that usage by the customers in California. So it is nice from that perspective, and as Ilene mentioned it is a very large market as well so certainly from a longer term perspective, there's a lot of are integral I believe is talking about.
Okay helpful. It and I know, it's relevant or if you could share but of the toxic.
Entity that I think Luke referred to earlier movie ever since for how does the balance between east and West Coast.
A one west coast far Viscose [laughter].
Okay. Thanks, guys appreciate that figure.
Right.
Our next question comes from Nelson Ng of RBC capital markets. Please proceed.
Great. Thanks, good morning, everyone.
First question relates to the a deferral or that 30 million of Capex and 39 or Opex reduction I was just wondering.
How should we think about this like is the capex really a deferral.
30 million into 2021.
And.
Sure that 30 million of Opex reduction is this more of a short term cost savings or.
Or what costs and 2021 be higher or is some of this like a recurring.
Cost saving item.
Good good more comment there yeah I'll start can best will there today. So from a operating cost there are reduced because of all end is going to be less installed on the economy. So that's gone it's not coming back from Leslie kind of becoming active wasn't comes back on the Capex very good question, there's some our dealer.
Capex goes the other people to fall in time.
The bigger bigger one is be 50, while the go vitamin gives us up to 2024 to go through everything every 10 years what to do that then just to somebody just mentioned picking up and make sure that the Cook then is really.
To par.
We're done.
Tons of that up to now it costs us, let's say 10 billion a year and I hope it goes away. It will go away in 2024, So we had up to 2024 to do it.
So we said okay Oh.
We're closer to 3.8 or what do we just take a break here. We have time. So we did that that's coming back we would love to be done by 2024.
Our third Capex is our ficos bidding as you as you know a.
Sure, we'd all like target of 812 years old there's some truck bus they'll do a good less than you ever that's good and were mother guys are the big time is less 567 years as you know we've ever were short of beans, ER visits to the next level, though deficiency and we need to invest and then well done.
I don't have investment in that regard. So we well are you were talking about seven years average with a little Duane Nobody's arguments other big deal. So we feel like drugs.
Oh, yeah, and what I well I'm also flag, where we've been talking the majority of the.
Expense saving up are sort of one time as a result for the reduction there in some of that is linked to our superior way initiative as well it sounds laundry scaling the business. So we would anticipate as we move into 2021 there are are there.
It will be recurring or permanent cost savings in the range of 10 to 11 million. So we do see that there are some they aren't all one time are all variable based.
I might want to add something too soon is that all investment that keeps us differentiating ourselves, making a bigger than the competition out there.
Sensor, they're just old not stopping that.
Some of the we'll have to be.
It'd be hard to lease up to build our differentiation in our business model.
Let them know.
They're all these days, but what we can do lane.
<unk>.
Okay. Thanks for the Clecs and just moving onto the chlorate businesses like I mean, I know you mentioned that the.
This is doing well and demand is strong I know what are your peers reduce their expectation in terms of current volumes because of weak paper demand, but obviously tissue demands from could you comment on.
Your expectation of the Ur cobot impact, whether it's partly because you have a different mix of customers or.
Or whether you're seeing any.
Weakness going forward very good question. So first of all I remember when I talk about marketing and sales and chemicals. So what are you doing usone chemicals.
And years ago or leadership third goal and we move.
Some customer base that word paper, we knew it's going away what kind of person ever so starting today.
We went down to look at customers that are doing bleaching for fluff and other products. There's some good growth there so that move away slowly, but surely from goes deeper customer we still have some some personal verticals.
So I think that makes is helping us and it was kind of this strategic orientation of the last five plus years and don't forget and also we live alone we have people that we're 50% marketshare and flurries in Japan, What's already do you all know it's supposed to the phone that you don't get important flow rate is the biggest constant flow.
Turning to sort of across its energy in North America, and natural gas or electricity pullback.
When the world for the coming in that game again side, and we sort of on whatever old exporting and Oh, you got hardly a couple of marketing salespeople that traveled the world that's the big and good market share in different parts of the world. So we start or extract confessed Steve there's a hiccup in you lose 10000.
Uh huh.
We just did two months ago, let's exported we have all those connection you make pretty much the same margin.
Just a little bit more costly to trust for.
And we have definitely stability and then we address.
Okay, that's great color I.
I'll get back Mickey I can't Okay.
Our next question comes from Patrick Kenny Oh from National Bank Finance.
Sure Good morning, everybody, a hope Liberals keeping wealth.
Just with regards to the lower electricity bill rates that you experienced in the quarter now that the natural gas forward curve has moved up.
25% or so over the past couple of months.
Would you expect to see upward pressure on your electricity rates for some of your plants into the back half for the year and.
2021.
I guess, you know is factored into your revised guidance at least for 2020.
That said our guidance, we saved the a million plus oh, because don't forget the like Thristing go back.
It really low and we were up as you arrangement would prevent her because splendid calibrate.
Looking ahead, and we all know who's arrangement.
We don't getting cost increases electricity natural gas in the southeast.
Very good them, we don't see problem there Vancouver, it's another area, where you see or what does management do when your end up kind of business linked to further price Pike.
Oh for a couple of weeks or months I'm trying to remember this time.
And so whatever management did say we have capacity, we have some stock and other plans.
Pricing.
Well.
Well not producing for me.
It was sending.
And then.
The pricing and we adjust with other chemical pilloried that we had that's also tell right and that's a target by the export to jump on them. So.
So we're kind of flex again, the what I've done the business. This is getting too high on constantly couture well time out let's go down.
Let's let's produce some other blankenship the product no they're back with low prices were producing full time.
<unk> do we closed out here why the first let's get to the trustee goes up every year Morgan inflation like double inflation, what the heck that can do that for 10 years with 70% of your variable cost me call raises is electricity. So we shut downs already and we're building up okay number we are Lewis.
Yes, It would you see in.
Very good on maybe the world [laughter].
So in good shape and we've got four men done for living.
And just for clarity and your question on well it any anticipating for the remainder of the air we don't anticipate that same level no rates for the remainder of the year, our forecast would be I'm looking to sort of.
You know increasing to where we thought we were initially going to be so fundamentally it's not built in for the remainder yeah.
Okay perfect.
And then on the positive side I guess, one of the silver linings here. If this Ah. This crisis is that it's you know, forcing ever want to do.
Become more tech savvy <unk> are you seeing any immediate benefits here from a.
Customer service or operational efficiency perspective, I know.
He mentioned the 30 million of savings or are mainly wages and travel expenses.
But also alluded to you know a superior way.
Platform I'm, just curious you know.
What you're seeing in terms of accelerating some of these cost reductions related to the superior way initiative.
And how that might play into the back half 2020.
Very good points out because [noise].
With what's coming that's why are they really successful company do what's coming will give us <unk> or a chance to.
To say that way with everybody getting hurt so much everywhere in the world.
To do something better.
So what's happening in the acquisition or pay less what's happening with ER Brixham Barb equipment.
What do we have on site, let's say.
How can people worked for a moment or a total employee base today doesn't 40.
And we're I'm, sorry, I missed the I Didnt know that.
I'm shocked color customer call centers are like Wow, and we know weekend, where to put we have puts a a digital world of their business no like Oh, the macro we had positive people working from home.
What are we missing it were other like but there's nothing else.
What do you do going forward the rest of the year, we'll have a protocol to make sure that everybody goes back to the building the same time and well might address no working hours in working time take a bit longer time when people have kids. So they can come back tomorrow. We're good we're working from home, it's going well, we had a Q which was.
Very very we went to develop to best of class a call centers and the by doing that would do it with equipment and technology. So how do we can get from all their measured or efficiency. The number call Oh, we servicing customer or customer so.
I went up where customer service number and promotion score went up what I was going on here. So we're learning to Oh, we don't need everything we have and we just started that discussions me with the president a week ago. So it's pretty using okay. Let's start to think about we're not going to do everything the same way the year because.
We have a chance to think in thinking differently about who would have told me that are customer call center to go home and we have the same service and goes out I would never called that Tropic until I.
So, yes, there was coming coming stuff.
Facilitation cost.
AERCO reduce their cost if I were a million of Ah Ah just people flying everywhere.
Every person was saying I haven't seen we need to go back to that maybe it's absolutely playing a leading face to face nobody at the time of opportunity D. An acquisition and how we do Worthing management and do a number of buildings, we have all of that will be reconsider totally.
Okay, great. Thanks for that color Luke.
Then just switching gears here, but when you turn the drip back on earlier this year, obviously that was pretty crisis, and it's just too much much higher stock price. So just curious given the dilution here at these levels.
One other levers you might be able to pull just to achieve your de leveraging goals, but other smaller noncore asset sales or otherwise again, just to mitigate the dilution on your payout ratio as much as possible.
[noise] I mean I think from.
Our perspective, we are looking at other area, we do view that the get provides cash retention in the challenging environment and yeah. We've done it there is some dilution, but it's not material dilution. So from our perspective at this point in time, you know we're comfortable with it in place, although we do it now.
How much the fact that the share price as well.
[noise], Okay, and then on the flip side Best I guess, you know you mentioned the FX Tailwinds here, obviously, good opportunity to lock in some pretty attractive rates can you just confirm what percentage of your U.S. cash flow is hedged at this point for the remainder of 2020, and perhaps 2021 and then what.
You'll be targeting in terms of.
Hedging percentage as you move through the back half the year.
Yeah. So for I'm 20, Tony we have roughly 90% I'm currently hedged. So we do have our hedging policy and I guess to refer and certainly you can look what we need we do have some disclosure within our in DNA on the hedging in the percentages, but that being said there were 90% 2020 and.
And for 2021, we're currently sitting at roughly about 65%. So it certainly is something that we will look out within our typical parameters of hedging, which we have ranges as the years go out and we will lot certainly look to do that worried Mccain dollars is when you get that is currently.
Okay perfect. That's it for me keep well everybody.
To get into black but.
Our next question comes from the lives Pasquerilla of Industrial Alliance. Please proceed.
Hi, good morning, and have sort of echoing everyone's thoughts I hope all whether you are well.
I've got to a couple of questions that will sort of tied together.
Onto the adapt sort of forecasting and I'm sort of side. So first one is a bit of a follow up from from Patrick and I don't want to micrometer, but I noticed that we had about a 300000 shares issued in the drip with $2.7 million can you clarify if that was for one month or Ah.
For two months of dividend rationale if I just want to get a handle on the participation rate.
Oh, Yeah, maybe the best way to answer that is from participation rate perspective on the first must be put the drip then it was roughly 28% participation then for sort of March on this we went through you know the largest partner that the first indication of the crisis it decreased two.
In the range of 16%.
And then it did actually I'll jump back up to about 28%. So while we we've kind of readjusted, what our expectation wise, we historically have been about 30%, we're thinking it might end up being somewhere around 20% participation, but again going forward, we'll have a better sensor that other.
Month or two.
Okay.
And now one sort of taking out a bit further about 50, if I can to your around forecast.
Debt to EBITDA, you've updated that to 3.62 to four times and you've given us EBITDA guidance. So I guess would it be fair to say that you can see DAP holding relatively steady or may be declining a little bit.
You know trying to nor the potential FX.
Gyrations would that be sort of fair.
Yeah, I've said Thompson, you know FX changes, yes, we're still producing positive cash flow.
So that would be used to reduce that's kinda cash flow perspective, but again, yes, you have the FX impact.
[laughter].
And now I'll sort of move to Lukas I guess I'm going to push you a bad on the a tuck yet you have your your top six and you know I historically, you've been you know buying and Oh, yeah, I'd say sort of the midpoint range.
Maybe the sweet spot range, where you might be a you know $20 million to $30 million.
It could get to your dad number can we think of anything being budget it beyond what's occurred.
Just started from a planning perspective for us.
Or not.
Yes, there's really three buckets of acquisition I don't think we'll do six this year.
32 that are lined up that we'd like to do it shortly and then we'll see the rest of the year. It's all up because of the that are right and when it comes to small there's a lined up a small medium and larger one.
On the small Oh first I think it's important to note.
Right now with what's going on there from an issue or two or you anyway hopefully that.
And then I'm going away.
You might be one or two that we lose because we're not.
I would model whatever pay more or.
We're not looking at buying a enough.
Because of our fulfills, but I don't think in general there are going away and then going away the mark to get a good upper part for some lift sales are they the person kinda, though.
Whether it'd be able to do deals and I believe the deals are going to be but cheaper.
I'm not I'm pleased to do a big four or five acquisition this year versus and if we can do and we had a degree to do their job, but it's not so bad because there'll be more painful people wants to sell to see how many buyers out there. That's me how many are like us that knows everybody news, we have come back a relationship.
No one so where are the table that everyone. I can tell you bid since we started doing acquisition. The one we lose where the one walking away.
'cause they sold at a time, we're going to happen and more.
Yeah.
So were.
We're doing small there's a medium ones and to the medium one only once a month this year because the should a full year [laughter], but no I can't go out for you equity of these prices just free.
So we're continuing to contact in the relationship to the so that we don't fly would that be.
Well the continued up work as well push it a bit it's not going away Oh, and we'll get to position the older.
Oh in time that we can start ramping up properly.
Okay and does large one always need a major investor can come in because we go month before things, but that public company beds in the thinking with up to them.
Oh, no the only thing that all clarifies typically when we're looking at the range. We don't building any future acquisitions on that being said for the smaller type back acquisition, Oh, we will pro forma the EBITDA. So smaller transactions don't have a material impact on that on the leverage.
Just for could take clarified.
Okay.
[noise] in this kind of ties into sort of acquisitions, but and maybe cope at 19.
Have you seen any impact to your cash flow or.
Hey are related to to customers and you know I know you're not formally your utility but is there any relief if that's the case and.
Did that again play into the acquisitions for the smaller competitors.
I'm you know, we we certainly have seen certainly with some of the smaller oil and gas customers sort of concerns around credit on some of the customers that being said, we don't have we I I don't have any examples of non payment et cetera at this point and.
Time, well, we have done it's been very clear and allocated it very targeted a with our credit and collections people to have them focused on those areas and we are looking at various customers, where we believe we eat incremental collateral to reach out and addressed that being the one thing to remember from us.
Corporate perspective, and I'm talking about energy distribution right now we have a very diversified portfolio, we don't have.
Any concentration or extremely large customers. So from that perspective, it's something we're looking at its something that we think we made has considered going forward, but currently right now we're just focusing on an individual potential areas.
Great.
That's it for me all one stop at this point and I appreciate the color.
Yep.
Our next question comes from Joel Jackson of B M O capital markets.
Well. These are high this one hi, this is Barry Murphy on for Joe.
Thanks, [laughter], Thanks, I gave anyway [laughter] [laughter].
[laughter] most my questions have been answered it just one follow up for back you gave guidance on typical Canadian propane margin ranges and what you expect for the year can you do the same for U.S. propane.
Yeah, so from a U.S. perspective, the way to think about it it's between 30 to 32 cents U.S.
So again I'll get impacted by wherever the Canadian dollar it but if the Canadian dollar was that basically one point like a 1.4 or 1.4, then it would be somewhere between 40 to 45 doing think about it.
And then for this fear the expected to be just in the midpoint about range at a higher and.
I you know I think from our perspective again, depending on where the Canadian dollar is probably more so on shifting towards the higher end based on where the propane prices are.
Okay, Great. That's it for me thank you.
I would now like to turn the conference back to look <unk>, President and CEO Oh.
Thank you. So thank you for your questions was a really good to drill down and challenge or somebody areas, which we appreciate this sometime we learn also hope to respond probably to all our investors and analysts.
Thank you for listening supporting us to this difficult time is great thing or where would go dividends and we have a startup it's extremely though so and the started the quarter to widen the think it's very clear a big picture really warmer than than.
Oh, the dirty here sometime in the history. So they don't data as to what happens next year well usually.
It's where the whether it comes back to who got the development that time, and we restructure with lower cost I think we have a a good upside down the road with data along with continuing of course to do everything we can the visit and a little bit of went behind us. The April may June or because corridor, it's not.
Hey, good slower quarter, but it's a really coming well that wouldn't do that hold people know that only would goes a little bit of cold weather in the air cooled and maybe that puts another expected. So these are moving a little bit better than we anticipated when we put this affords us together.
So in a nutshell thing to Oh, the deficit and we'll talk to you. It in three months or so all the new toll road whenever you have something you want to know more it's a lot.
Yes.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
[noise] [noise].