Q2 2020 Superior Plus Corp Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star Zero I would now within the conference over to your Speaker, Mr. Rob Doreen, Vice President of Investor Relations and Treasurer. Please go ahead Sir.
[music]. Thank you Shirley good morning, everyone and welcome to superior parts. This conference call and webcast review, our 2022nd quarter results.
Speakers on the call today will be Luke do Jordanne, President and CEO and Beth Summers executive VP and CFO Darrin rebar senior VP and Chief Legal officer will also be available to answer any questions. During the question. After a period of today's call today's call is being webcast and we encourage listeners to follow along with us.
40 presentation, which is also available on our website.
This morning's call looking back will be begin with their prepared remarks, and then we will open up the call for questions before I turn the call them is I'd like to remind you that some of the comments made today maybe forward looking in nature and are based on superiors current expectations estimates judgments projections and risk.
Are there some of the information provided refers to non-GAAP measures. Please refer to superior second quarter Mdna posted on SEDAR and superiors website yesterday for further details on forward looking information and non-GAAP measures I would encourage listeners to review the M. DNA as it includes more detail on the financial information for this.
Second 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.
I'll now turn the call over to live.
Well take your Robin and good morning, everyone for joining the call overall, we delivered good results in the second or considering the challenges we're facing related to reduce the economy dignity reduce activity in the oil field and challenging I thought probably got says market and healthy chemical.
Our second quarter.
So even though I wouldn't say since I've been point treating again, it's nothing on the older or 13% hard then they're part of your order I mean due to an increase on there even though most operations and more corporate color.
Programs that private or dedicated workforce over 4000 employees have been able to may stay safe and reliable operation. During this challenging fine we continue to deliver a critical energy specialty chemical products to our customers and safe food service, if and when you see in which we all three there.
Okay and demonstrated by our team members from every level of the organization gives me confidence.
Good news to execute our strategy and maintain our commitment to safety and continuous improvement through operational excellence.
That's a fair books, we have continuing our money as part of business practices with their health and safety like employees.
Just a very local community other urge Bobby.
Our propane distribution that specialty chemicals businesses are considered essential in critical services and infrastructure and all the provinces to reach a reason state in which we operate under your Western Canada in Chile.
Well continue to service our customers that have been Fox apart is essential.
In response, we anticipate impact was called this 19 them. That's part of our ongoing cost saving initiatives. We took immediate action to protect our business and financial strength and the airport as a position superior to emerge from this situation, even stronger and 2020, we have reduced surplus capital expenditure.
Were by about 30 million and reduce our expected operational expense like forgive me again, even though we continue to look into all those cars. So awards coming I'm proud to tell you were on plan for the cost reduction in capital expenditures reduction I was up the second quarter.
On system, where first quarter basically finished 20 of those Oregon number because they communicated adjusted EBITDA range afford suddenly arc 550 million.
I made due to the impact of the warm winter in the eastern region, you're Western Canada.
Well, it's anticipated that.
<unk> 19, and their low price of oil reduced drilling activity impacting the western Canadian economy.
Although we have the next and then second quarter into strong for being just a mission margin cost reduction and colder weather in April may we still anticipate it will be modest they got the that probably from a business due to they come and make recession relate to call. The 19, Chuck styles, and they're lower price a wall and reduced drilling activity.
Okay.
I've done the Super job of adapting as I, just think that didnt find ourselves volume related to slow down the because maybe at the low price on board.
Which enabled us to maintain your adjusted EBITDA guidance or 2020 of the warrant.
I'm proud of our employees and our ability to respond quickly to this upgrade to the situation I.
I would like to mention some highlights of the second quarter in recent weeks following the out of the quarter.
Oh, Jim the eight we announced with Brookfield wouldn't that's to address coming into where there's a fair joining changeable preferred shares that spend and we closed the transaction July 13.
Got it used to proceed from Brookfield investments immediately reduce are definitely leverage and we plan to use our ample liquidity and the ability to execute on acquisition.
More aggressively pursue acquisitions are willing to U.S. retail propane distribution space, we have never seemed a backlog of potential acquisition as we have right now.
Third we told on the acquisition of shopping and energy 27.3 million you. When we're trying to additional 42 million, either where do you west propane distribution business and domain.
We have many opportunities due to growth requisition and you start U.S., and then, California, and we have a role because like I said earlier bigger part why that Weve never had an 11. Many years, we expect it'll be more acquisition opportunities coming out of the economy slow down as many small and midsize propane.
Retail just to Missouri company I've been they got their main pod and lot of commercial Pest America man increased cost to do business.
It's too many of them are aging of their 70000 person have the whole market at this stage been then dependent.
No doubt that people are we questioning during my going forward and more and more deals will come our way.
We continue to realize synergies of NGL retail these acquisition and there'll be some tuck in acquisition.
We still expect this 2020 with at least 24 million U.S. and run great synergy relate to NGL, we're able to reduce operating expenses you with propane distribution business by 5.5 billion in the second quarter compared to prior year quarter sure workforce optimization initiative utilizing.
Our superior waiting operating platform, we did talk to the gene propane distribution business and worry about applying it to argue with business.
Second quarter EBITDA from operation, what some of the 6.9 million 5.5 million or 8% increase other prior year quarter due to our result of U.S. propane and came in propane or I should know satisfied Sunborn result from the specialty chemical.
The second quarter do you ever being dissolved increase compared to prior year quarter due to higher margin anoro, bringing your expense, partially offset by lower sales Hawk.
You're welcome propane EBITDA from operation for 24, these up this space to be lower than 2019.
By too much but probably due by the significant warmer weather experienced in the first quarter.
When do you think of it the first quarter warm weather.
Turning negative EBITDA and we are.
And again that would be on our guidance this year.
So partially offset by incremental contribution from tuck in acquisition.
Up to maybe in the past there'll be lots in the future and complete or 2020 in fourth quarter of 2019, the incremental synergy relates went you haven't position that's I cant acquisition.
Okay, and propane result for the second quarter were modestly higher than the prior year quarter due to decreases operating expense and higher average margin.
That said by the decrease involvement due to the economy.
And then propane EBITDA Corporation 2025 anticipate to be more than 2019 somewhat probably due to unexpected decrease in sales volume and leveraging this margin personnel soundbar degrees and operating expense. So that's all of them are expected to decrease due to the empire.
12 at 19 reduced activity in the oil and gas in Western Canada and are ready to no price or more.
Specialty chemicals EBITDA from operations, the second quarter was somewhat.
Lower probably due to the decrease in so small them a parking lot of price.
Sure that satisfy mothers increase them and so its inventory price the decrease electricity costs and the reduction of operating expense again, [laughter] specialty chemicals EBITDA Corporation for 2020 cents to speak to be more than 2019 due to lower than expected decrease in Florida like gross profit partially.
I'm sorry about this increase in charge on calibrate gross profit and above this decrease in operating expense.
So now I'll turn the call over to best to discuss financial result, and the more detail.
Thank you like a good morning, everyone I'm looking at the financial highlights for the second quarter, our consolidated second quarter adjusted operating cash flow before transaction other costs per share with 23 cents per share, which was five cents higher than the prior year quarter due to the increase in adjusted EBITDA and decrease.
Interest expense, partially offset by an increase in cash.
Interest expense decreased primarily due to lower average interest rates on our variable rate debt and modestly lower average got well.
Period consolidated net income of seven and a half million compared to a net loss of 29.3 million in the prior year quarter, primarily due to higher unrealized gain on derivative contracts in foreign currency translation, a borrowing and lower DNA costs, partially offset by an increase in income tax expense.
Turning now to the individual business results.
Canadian propane EBITDA from operations for the second quarter with 21.3 million, a 1.2 million increase compared to the prior year quarter, primarily due to higher adjusted gross profit and lower operating expenses.
Adjusted gross profit increased compared to the prior year quarter, primarily due to effective margin management in a low host wholesale propane price environment, partially offset by lower sales volume.
Average unit margins were 19.4 cents to really here compared to 16.9 cents per leader in the prior year quarter due to margin management initiative in customer mix, partially partially offset by modestly weaker wholesale propane fundamental.
Total sales volumes were 360 million liters decreased 77 million liters or 18%. This.
This is primarily due to reduced demand in the wholesale oilfield commercial and motor fuel segment.
Average weather across Canada as measured by degree days with 2% colder than the prior year quarter, an 8% cold and then the five year average operating expenses were 6.4 million lower due to cost reduction in response to lower sales volume.
You want propane EBITDA from operations for the second quarter was 27.1 million, an increase of 14.3 million compared to the prior year quarter. If it's primarily due to average unit margin higher average unit margin and lower operating expenses, partially offset by modestly lower sales volume.
Average unit margins were 46.2 cents per liter compared to 38.7 cents per liter and the prior year quarter.
It is primarily due to lower wholesale propane prices and effective management of pricing in a low commodity price environment. The impact from the translation at U.S. denominated gross profit and to a lesser extent customer mix related to a focus on organic growth of higher margin propane customers.
Total sales volumes decreased 11 million liters or 5%.
Primarily due to the lower commercial and wholesale volumes, partially offset by higher residential volumes.
Average weather as measured by degree days across the markets were superior operating in eastern Europe, with 30% colder than the prior year quarter in 28% colder than the five year average.
Older whether it's less of an impact in the second quarter due to lower demand from eating end use customers.
Operating expenses were 5.5 million lower than the prior year quarter due to cost reductions related to workforce optimization initiatives and realized synergies from acquisition.
Turning now to specialty chemicals.
EBITDA off even up from operations for the second quarter with 28.6 million, a 10 million decrease compared to the prior year quarter. This was primarily due to lower gross profit, partially offset by lower operating expenses gross profit decreased due to lower chlor alkali sales prices involved.
And lower sodium chlorate sales volumes, partially offset by higher sodium chlorate sales prices and lower electricity Mallory.
Operating expenses decreased primarily due to cost reduction initiatives related to coated 19, lower freight costs related to reduce sales volume and the impact of the closure of the Saskatoon be sodium chlorate facility, which occurred in 2019.
Lastly to talk about corporate results and the adjusted EBITDA and leverage Guy.
Corporate costs were 7 million, a decrease of 1.5 million compared to the prior year quarter, primarily due to lower discretionary spending and cost reductions related to covert 19, and the lower l. tip expense related to the share price decline.
Interest expense was 24.3 million a decrease of 2.2 million. This is primarily due to lower average interest rate on variable rate debt and modestly lower average that level.
Interest rates on variable rate debt were lower due to interest rate cuts by the bank in Canada and the federal reserve in 2020.
In a second quarter superior had cash income tax expenses of 2.6 million.
Modest increase from prior year.
We still expect and finished up to finish at the lower end number 2020, adjusted EBITDA guidance range of 475 million to 550 million, primarily due to significantly warmer than average weather experienced in the first quarter in the U.S.
As well as the anticipated impact from Cobiz <unk> team and the lower price of oil on our business and our customers.
Average weather is measured by degree days for the remainder of 2020 is anticipated to be consistent with the five year average for Canada and the U.S.
The low end of the range accounts for good warmer than normal weather for the remainder of 2020 further weakness in economic activity in Western Canada further weakness in North American caustic soda and hydrochloric acid market.
And any further volume decline related to cope with 19.
The high end of the range I counter colder than normal weather for the rest of 2020.
Wholesale propane market fundamentals similar to 2019 increased drilling activity in Western Canada improved North American caustic soda and hydrochloric acid market.
And faster economic recovery from the Colgate 19 pandemic.
From a debt and leverage perspective.
Total debt to adjusted EBITDA leverage ratio for the trailing 12 month as at June Thirtyth 2020, with 3.7 times.
This compares to four times at March 31st 2019.
The increase in the leverage ratio from March 31st 2019 was primarily due to higher adjusted EBITDA and lower debt is cash generated from operations was used to repay debt and the impact of the stronger Canadian dollar on the translation of superior U.S. denominated debt.
We're confirming our guidance for total debt to adjusted EBITDA leverage at December 31st 2020 to a range of three to three and a half time consistent with our prior disclosure on June 820 20.
With that I'd like to turn the call over Q anyway.
Thank you, ladies and gentlemen, as a reminder, you want me to press Star one on your telephone to ask a question to withdraw your question press the pound.
Please standby, while we compile the Q and a roster.
My first question will come from David Neumann Wednesday's Arden. Please go ahead.
Good morning folks.
Oh strong result.
What's the strong quarter Dol effect of margin management, Vicki I think leaky flag last time, you know 10 10 to 11 million a permanent savings FX is working your way and then CLO you're going to close Champagne.
Congratulations on Champagne a in a in the third quarter I would've thought you might have raised your guidance more towards the midpoint of your range. So you touched on it and you know certainly Q1 was let's talk but the guidance is provided at the end of Q1 and you had a better quarter. What are the key reasons you think overall your.
For your caution is just coal that oil and gas Western Canada, caustic rolling over and hydrochloric acid, maybe long winded answer question, but just trying to get a central where your head was that on on setting the guidance awareness.
It was very good point than the.
Maybe or style that we started to bid and give you more color. There's no doubt that there's a lot of variable it's going up there that we could that.
Forecasts and <unk>.
Completely as we did the past years and be more into barred the median.
Which we did in the pads here this morning variable up there that.
How about many of them outside of their control very confident with our guidance things are really moving well.
But to take to tend to change the guy the stages are still quarter three and four ahead of us So we kind of.
Figure, where when the guidance and that's what we decided to come to do with our parents communication and we've done the type as you know that trains guy bids from quarter to quarter. So.
It's a bit.
Oh, we just wanted to be cautious and maybe Beth.
Detailed answer to that says that sure just talk a little bit more context around it Oh, yeah. We're pleased with the second quarter, but it is a lower order from a contribution perspective overall for the year and should be aware that he'd never ranges for 75 to 515, it's roughly 29.
And on each side of the midpoint. So again to put the Q2 in context. It was higher by 8 million versus 2019 modestly higher than potentially our expectation, but that would still have us within the lower end of the range. If you want to look at it and in the magnitude of the Q2 outperform.
And again, it as you'd flag being cautious from a cold bid 19 perspective, you know we didnt.
We didnt necessarily see as much impact it propane as we initially would've expected, but we're seeing more headwinds on the chemicals side. So from that perspective is we look at it going forward for the year from a from a cautious perspective, it not knowing exactly what is going to happen a we were comfortable with.
The low end of the range, Okay, well, we'll stay tuned and I'm sure you'll beat your guidance.
By the end to here [laughter], a second question on Canadian propane margins the build out of there's lot of build over the export capacity in Western Canada course, and the Western Canadian market could tighten do you think there was that a chance here that it could drive the basis differentials a between everything con weights and I guess the old ultimately what is your pool.
Our cash song on sort of the Canadian margins. It was a great quarter on the margin perspective, what should we anticipate there, yes, and no over 90% of or propane comes from natural gas. So there is a high level of confidence that there won't be a type markets out there that we will.
Oh, good supply and the fall and then when it comes to the different.
Price than.
What did 12 or wholesale business or visco huh.
Thanks.
Yeah, and referring to the Edmonton Conway spread up towards the end of the quarter, we didnt see it moving more towards a five year average is where it has been more robust for the first part of the year at first half that here.
So you know overall when we were looking at the second quarter. The second quarter. Those differentials were lower than you would've seen in 2019. So we would expect them towards the remainder of the year to come back more in line with that with the five year average and fundamentally if you want to think about.
That being lower than we would've seen in Q2 in the beginning at the beginning of Q2 and in Q1. It reflects the fact that you know the western Canadian market right now quite healthy from an inventory perspective and domestic demand also has seen some pressure from the reduction in the oilfield activity. So again.
Expectation would be more so the five year average differential.
Okay and similar in the U.S. propane prices have had recovered from the low it's like it's earlier in the quarter odd to some degree and you've had a very effective margins on the back of that any forecast like this is a very lofty number and again solely on the U.S. side should be modeling a little bit lower.
Then what a you know what what you have in the quarter.
Yeah, we would it we would expect so the low propane prices did allow us to pick up some incremental margin from some of the customer base, we are expecting with the commodity prices recovering and being a little higher for that ability for the remainder of the year could be.
Our so yes, some that's a long way of answering your correct me if you want to think of the U.S.
Bringing it back more in line when you look at the whole year to the margins, which is that 25 to 30 cents. You asked for 34 to 41 cents Canadian is a more reasonable range to look out for the whole year and in similar in Canada, Okay right Yeah.
Excellent and last one from me a carlyle platinum weighed down by caustic rolling over in and then the downward slope and hydrochloric acid, which doesn't seem to stop you know so taken together are sorting chlorate, where the volume I'm not sure. If the volumes are coming back up to some of the outages, but what is the second half look like for specialty chemicals overall.
A good part and the best I'm sure you're positioning point to make so.
We did a jobs are forecast to either before and the chemicals for the next month.
No price of caustic was going up for second quarter, No wind down yeah.
It is a good flow rate.
We have got enough over sales for this year, all planned store shaved, they're a bit lower recovery volume because whenever a big customer has.
The other gender plankton daily.
I have to repair the plant and probably won't be back until the following year next year 2021.
So it's kind of a little bit less on Tory because of that particular customers know, we're trying hard to place a phone exports we have some.
Good export business, a little bit conviction around the world sometime.
So it could be hard to place.
The a and then for next year, we have about 25% left over for range I'm trying to.
To fill up or plans for next year's nudge. When do you think wearing the Argus, that's kind of reasonable given the pullback at all from mix your prediction.
So cost no clear I kind of I guess is they are the area that's more difficult to predict <unk> go doesn't flow rates you know, it's a very solid sustainable business and you do work towards that this year would call bids are all the offices are but using a lot of paper.
[laughter], we're only so getting print at home a lot [laughter].
No no we don't have a loss on the on the papers hardware total mix about 7% what are completed or happens that creates a competitive no more pressure from our competition to get volume that comes available a month by month.
So net net we did reduce are forecast to be cautious for early coupled with the rest of the year. We really think earth goal. When you look at 10 years or 20 years. The Sthree is pretty much of the bottom of the cycle right now <unk> no Leipzig, there from the year or so but.
Oh, we're looking at different angles to get a cool back to more growth in much richer we'll see.
As Im sure, but well I was just gonna say I'm, you know to summarize at a high level, maybe one way as opposed to going through it on a line by line of product line by product line basis. Initially anyway is that that the second half.
To be modestly better than the first half in all the product line potentially other than hydrochloric acid, which is which is you had noticed I think from our perspective they'll have a lot of pressure on both price as well as on volume <unk>.
Excellent results guys and appreciate the comments.
Thank you.
Thank you. Our next question will come from Jacob bout, let's see I BC. Please go ahead.
Hi, good morning.
Hi, good morning.
Oh, let's talk a bit about M&A so another brookfield.
Has closed.
You know how are you expecting to step that up.
And then should that one small acquisition for Champagne.
Maybe talk a bit about the multiple you're paying him and or you know where things getting a little bit more reasonable in the U.S. right now is from a valuation perspective.
Yeah, I know and I've said it before I think you you can't let a crisis goes to where you said I've heard that I think it was above other that's one day ended under public with me. So that's where are we taking so many actions to the on on course with very bizarre and guidance.
And it's something to its helping there whats happening as we kind of.
Didnt go hard at acquisition, Oh, two Brookfield Cavium pool, so over the last year were enough.
You know or pursuing.
Acquisition as much as which could and the main reason was well we didnt take the market like the fact that were four times leverage.
So not a though that we could read and we could.
Have a good anchor investor with houses a great partner.
And then we have the cold bid and lot of some of the person independence things it sounds kind of changing the landscape. They probably were getting a waterfall, we never see wherever lining up of acquisition.
Robert.
The you'll see us are starting to roll demand.
Much higher levels in the past.
Harder if there are other quality businesses.
Thank God, Hi, Dan will pay a time, we don't want to pay more than that.
Hi words were probably paying seven oh, the on deals and then would you look at our business model, which we feel a bit more than one to worry about the license against every propane company in North America, we commend the largest with and we know we have.
More differentiation.
More due to stick with us numbers that came with us.
The better overeating better.
The industry buyers couldn't tooled up when you put it all together always say everything we buy we improved by 25%.
So.
Seven become six.
There's not much room, Maury becomes six even if theres more overlap.
So then the great position never being in a better position then right.
If we think about it from a capital allocation perspective.
You know you're at the low end up your leverage range, but basically there are three times. So should we assume that these tuck in acquisitions would be just in line with.
Free cash flow out could you give them.
Yeah, I think I am from our perspective, as we've always communicated our targeted three to three and a half time, while we're doing tuck in acquisition. So we'd be our expectation to remain within that three to three and a half time.
Okay.
Turning to our Corey.
So a change in tone, there sounds like you have a fairly major customer that's down.
How long does that continue for and.
As we think about the back half for the year I think you were talking about.
Hi, good volumes actually being higher year on year in first quarter, I think you're down 12%.
What's gonna look like for the remainder of the year.
Okay. So out of this it's good to.
Just a number of is not coming back from till early next year do so they need a good six months to repair yet the expectation is that that that customer would be out for the remainder of the year. We did identify some incremental export sales, but certainly we are seeing pressure from.
Colgate 19 perspective on chlorine as well.
Okay. So you could be down double digits for the back healthier.
You know I would say from our expectation around volume I would say you know our initial gut feel it's something closer to 5% for the back half of the year from where we would have been at the front happening here.
Okay.
Last question here is just on cost restructuring so it sounds like you've made some some headway in the quarter.
What are your plans to further reduce costs, what if you've learned during this pandemic. Your I know we've heard other companies talking about.
Some of the efficiencies around working from home <unk> real estate cost about type of thing.
What's your thinking right now.
No. There there are absolutely it doesn't move I know 30 million of cost reduction, we actually continuing and all that had to say what do we need how do we go forward and re questioning everything and we will end up with additional cost saving it will be able to tune of.
No I'm not not having as many location.
Great somebody that if we happen to be Oh, there's some savings going on we learned the truth co bid that we could run some of their operation with the people.
On the Western Canada as well.
We had reduced the personnel the accretion.
And we have not done the same at the next level and we're doing that right, though because there's less volume to deal for you.
So this is a come to know where the continuous improvement on everything we do we know there's always room on cost efficiency, we're including two pro chicken additional digitalization.
Over.
Ladies and our dispatcher and as we told the those projects are there more using that data and the digital to standardize and restructure some over operation. There's project can going on right now and they will bring benefits and once we habits of the region.
The two western Canada, or eastern Canada, we start somewhere we own pulled across the country than we own full though there was the best practice in the states.
[noise], there's project like Doug going on there Jacobs like.
It will never be us off but there was no there's there's millions and millions over opportunity to continue to be more efficient.
Well leave it there thank you very much in.
Thank you.
Thank you. Our next question will come from Ben Isaacson with Scotia Bank. Please go ahead.
Hi, Thank you and good morning, I'm wondering most of my questions have been I'm, sorry, but just maybe two more.
One on the multiples with respect to M&A first is there a difference between multiples that paper acquisitions in California, Versars the eastern Seaboard.
And and then maybe kind of a second part to that question is under a biden, president and see where tax rates, presumably go higher.
28% for so would that not result in lower multiples being paid for EBITDA as ebitdas worthless on an after tax cash basis.
Oh, it's hard to first question is best who think attacks question.
There are multiple are the same east or west.
And the reason for that is.
It was a small business and it's on its own than the there was a two big see a big seven this is while good scale and then you know a bit more.
So east or west can afford nobody's coach pretty much the same.
We do have more synergy when we acquired the east coast Red Dog is worth more.
More operation.
And the first the acquisition will do in California will bring a little bit less than ever to the two one ari whenever operational effectiveness versus too when you have overlap of branches offices.
Because we don't have to scale the up in California, We will one day.
On the types of Beth.
Yeah, I think from my perspective from a valuation perspective as you look at a discounted cash flow on an after tax but you know it would have an impact on return. So I would think longer term with those types of changes coming in place that will have an impact on multiples, but again I don't know that you'd necessarily see that immediately.
Typically what you'll see is these tend to roll in overtime.
HM.
Great next question is.
On your cost cutting efforts that you talked about $30 million being on plan just when I understand it's not all recurring cost savings or to some of that one time or if it is all recurring is there additional one time savings like you're seeing as a result to cope with.
Yeah, I think from a savings perspective, the 30 million they did that from an operating perspective, roughly half of it would be ongoing.
Okay. So just one clear a 15 million recurring next year 30 million this year half of which is one time for coal but.
Yep, Yeah, I, just the yeah run ranges Yep 50 million existing though that volume sort of funding coming back.
Sure well, though.
Or charts transmission work truck driver to do their job.
Nothing of the top was only more people that though.
The 50 million those yeah.
Despite the way if you look at how does the here.
During this year in the full running rate.
That would be 15 for next year, the full run rate for 2021.
Yes, okay.
Okay. That's great. That's all my questions. Thank you very much.
<unk>.
Thank you. Our next question will come from Steve Hansen with Raymond James. Please go ahead.
Yeah, Good morning, guys I'm.
Just thinking back to be M&A here again for a minute.
Obviously topical cut back the Brookfield deal.
During the sense of what the complexity of your business is going to look like in the U.S.
Couple of years, you've obviously got a.
A great deal work still to do I understand that but you've already also got a big list of M&A targets, you know sort of at your disposal.
The complex you're going to change much at all.
From a end market standpoint, im sick retail versus industrial commercial or the exposure is going to shift West coast East coast or you know where you can fill in the Midwest gap it still there.
However, if we think about that as you look to the boy. This large amount of capital you got it.
Yes, so no doubt we.
He is colson West coast is what we have right in front of us for the Knicks. Many years from this special they've been confirmed that.
We certainly would look at everything that's called propane that this thing.
But the Oh, we don't look good retail is retail commercial industrial yeah were 75%.
Not to be filled in Canada, where 80% in the states Vito.
Keep in mind to some bonus you get more affected by the winter when you retail versus commercial industrial.
Can they be slow down <unk> retail not much Oh right now we see it there's not much a reduction in volume and then you have it than commercial industrial sort of balance.
Operating to kinda, the east West, where you get more or less effect on the whether it kinda, though because were could be warm and to ease and cold in the west and what we're all the more balancing I can let this big driver in.
Right now we're just few of the east. So we are there some quarter one we've got affected more by the weather is where retail or the one thing will be all the way. These both one day will be everywhere in California, and probably just coming in.
Or you know east.
All right so.
So I think if you look at a were doing or are you plan every year were due in November.
Digital book.
Do what are the board.
No doubt within the rules the states like this was a couple hundred billion of EBITDA will cover the east coast away schools will get or synergy that we've been able to it.
Sure.
And we'll be a business a little baby.
[noise] skewed towards energy big time versus energy and chemicals.
So.
Okay. That's helpful and just maybe as a follow up if I may and do you think the boat again that list of yours. It's quite long you know is there is there not a good rationale behind going after a lot of the smaller tuck ins to really exploit synergy opportunities I'm just thinking back to the NGL deal that you did a couple of years back now and.
You know it was a bigger step out you were still able to glean.
A good amount of synergies in a more than you originally targeted but it came with less.
So I'm just trying to think about that split between platform deal.
That really broaden your reach for the diversification benefit of smaller tuck ins and what kind of mix we should expect.
Yeah predicts a boost for sale and then when hard to do this stuff too many large enterprises. So there's only three.
And then the rest is something that site. Besides that say 25 to 50 menu.
And then the small one one preferred maybe little bit, though we don't look at them all.
Its.
We will we won't segregate say because one day, we wanted to be doubling up in the state. So we will see it's a small one that's not acquired today that's required of a mid sized one we'll see some propane business can we improve its 25 or so is this an east coast and work scopes, Yes. The go Bard school do it.
The question of.
We will disagree gate small medium or even large if we have an opportunity to go bigger.
We're certainly not.
Not against Oh.
I don't know, how many business and industry out there that Oh, we don't have a lot of growth in energy, it's reasonable one 2% drove industry, but when you think you had a machine in the business model that makes everything you're buying to attend west of this world and she held it.
Hang in there and on a non coming through improved their bottom line by 20 partners that you'd be seven screens.
And he told me when front, we know that rolled the mail this weekend.
Okay fair enough thanks to the color appreciate.
Thank you. Our next question will come from Nelson Ng with RBC capital markets. Please go ahead.
Great. Thanks in terms of the a it's a first question relates to specialty chemicals on the chlorate side.
The 12% reduction in volumes.
Could you give a rough split in terms of or whether it was due to lower demand versus higher levels of maintenance and that forced outage from from the large customer.
It looks like.
Roughly if you want to take a minute glass and give them. The 2080 split 20% with the customer outage, 80% is that impact theme, which we had their colvin 19 impacting.
Okay, and then Beth or just to clarify you've mentioned.
That for the second half so the air you expect you expect chlorate volumes to be 5% lower the 5% lower than first half of this year or 5% lower than the second half of last year.
You have to last year.
Okay got it.
And then the other question I had on the chemicals side is like in terms of the up the.
The chlorine and each cell volumes that are down materially.
Has that been causing you like is that the main driver of of lower utilization rates like I know cost because the more valuable product for you guys, but has the reduction in demand or oh or lack of demand.
Materially reducing your operating rate for your Europe, Chlor alkali side.
Yeah, Yeah, I mean, where what we're seeing from a chlor alkali perspective is our operating rates are between 75, an 8% and you're correct I'm back. The result of our ability to move the chlorine molecule. We are converting now roughly 50% of our chlorine into hydrochloric acid.
Then and you may recall, we've been in high 65, 75% historically, so that is influencing how much we can produce and how much caustic we're selling.
Okay got it.
And there's just one last question in terms of tuck ins.
So you mentioned that you're looking at a wide range of of tuck ins does that champagne tuck in is that a like I guess that can you call that typical size for for tuck it like our most of the opportunities you're looking out in that range of roughly call it $27 million U.S.
That's a small side.
Some of the small sizes is a few that we're looking at the though inside.
Okay.
Yeah.
Alright, Thanks, I'll get back in Q.
Sure.
Thank you. Our next question will come from Patrick Kenny with National Bank Financial. Please go ahead.
Sure. Thank you good morning, everybody.
Well I mean, our.
Just wanted to go back to the propane margins here.
You don't looks like the market is a tightening up here in Western Canada.
Your guidance assumes similar wholesale margins this winter compared to last year, but.
You know as West coast propane exports continue to rise I'm curious to get your thoughts on how stronger image and pricing might affect your wholesale operations going forward and.
Your overall margin per liter.
Performance relative to your base guidance.
Yeah, Hey, and again from our perspective, we would see returning back to for an average in that typically talking about differential like you'll recall in the wholesale business average differentials that factored into the guidance, but if you think about.
The margins from.
Retail customer or from our retail propane businesses think of commodity it really from a business model perspective, it's a pass through.
We have based on margin management as we talked about picked up a little bit of incremental margin as a result of that both the U.S. and Canada from a Canadian perspective to give you a bit of the sense from our residential.
Right and then to arc, our retail propane.
That margin impact was roughly one that so this is one where we were at 19 cents per leader for the quarter. Why we're saying you don't think about for the whole year being more so at the high end of our typical 14 to 17 cents per liter guidance.
Okay.
Thanks for that and then maybe more on the volume side. So we saw the enbridge.
Line five.
My pleasure temporarily under service this quarter.
Obviously back on line now but.
Assuming a scenario where there is an extended outage.
In line online fly Fi there.
As of operational issues or legal challenges what have you.
Hi, how are you guys position to take advantage of.
The drop off in pipeline deliveries through the Midwest, maybe you can speak to both your distribution business as well as any opportunities on the wholesale front.
Yeah, there's no doubt that the a couple of weeks I've done my five covers the Chicago region. The then the late goes to Sarnia, but it's a big.
And put the propane that these calls of kinda, though.
And if you recall that and I do finally quickly resolved is another.
Right thing is there more potential discussions and.
They have to do some repairs on the mining problem and stuff they open.
Oh.
What were we don't seem to go from although a piece going up and then.
Couple of weeks, a pickup could come back again, that's a good point at least to be and the winter tire.
So if you look at the two events that happened recently with the.
Pain that as the difficulty a real to move to the east who go back in maritime.
And we were or a few weeks the only help that need to ease.
The the conservatism because we're probably.
And the reason for that is.
I agree the scale.
Oh, good word kinda Doe and on the east coast USA than wherever roll till business.
In California, that's pretty big to weather events like that happens our professional people probably worse for bad there like tweaking stuff every day from other logistic and whatnot.
Year, there it was to break whether that'd be the real we started to move propane to the east coast of USA is a little bit more of these oh, we can service or compared Qubec maritime.
It's always an or buying as to whats. The plan B C was RV event, where do you buy cheaper and should the two web application. We have there's 25 people doing every hours a day.
So hopefully we can continue to find solution, because it really scale or sorry for storage and their wholesale business.
But hopefully there's never been crisis, where everybody Rosenfeld I don't think that can happen because it's easier for the people than the Chicago region, or Ontario, Quebec, I know you're talking about.
The whole than commercial business is good he would've gotten so.
Thank you deliver these are trying to crisis.
Certainly something we looked at and we look at other solutions. If this was to happen.
Best anything you want to.
I mean, I think the reality is as we approach the business. We're always focused on security of supply for our yeah in internal business or our retail propane as well as the wholesale customers that we have so we do try to diversify supply. We certainly our focus is a business can show.
Sure that we have really arts et cetera, we're making some investments in transload or.
To try to ensure that we have other options. It disruptions occur I'm certainly line five would be very large disruption, but having seen that we have really focused.
All of our talented people in that business to to try to come up with strategies and ways to a draft. If we do have further disruptions from that perspective.
That's great.
Okay.
Thank you.
Thank you know our next question will come from Joel Jackson with BMO capital markets. Please go ahead.
Hi, good morning, a wonderful up in the good margin performance can you help US bridge you in years preparing the second quarter, you have a 14 million more margin not business eight cents a leader.
Help bridge, how much adopt a was from FX what some good cost management synergies maybe help bridge how are you got the multimillion.
Thanks.
Okay. Thank you Joe I mean, I, probably the easiest way to do it is sort of on a a ascent per liter basis.
As you want to think about it from the impact on margin the I'm looking at margin specifically in the low commodity environment think about is roughly two cents.
From a foreign exchange perspective think of it roughly one cents and then we do have a change in the mix as well as we focused on the higher margin residential customers compared to some of the other I'd just like no. Other commercial customers. So that makes impact would have been roughly in that range of four cents.
That's really helpful and if you pick up the FX tailwind you've seen in 2020 can you maybe quantify that trends real BLA for your EBITDA guidance.
Yes, I mean overall EBITDA guidance I'm be impacted minor and not because we do hedge both our cash flows as well as EBITDA.
And I.
They have at a modest.
From an FX perspective, it will impact the EBITDA from operation, but in total overall adjusted EBITDA basis, because of the hedging it's a much needed more muted impact.
Thank you very much.
Oh sure do.
Thank you ladies and gentlemen. This does concludes today's question and answer session I would now like to turn the call back over to Mr. listings are Dan for any further remarks.
Well. Thank you for your question as I look forward speaking with you or through the third quarter. This is an exciting time for superior as we're well positioned to execute on our growth strategies for acquisition that we can significantly improve the operation.
Any business we're at war.
Thank you for the thing on the call and supporting US through this challenging time and again I would like to take our management employees.
I'm proud of the action, we have taken and the agility that we have to respond to situation and our ability to.
On to do to looking forward considers improving of every scale that we.
We deal with so make sure your participation and a are you all have moved through quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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