Executives: John Holliday - Chief Executive Officer Manon Lacroix - Vice President,

Finance
Analysts: Stephen MacLeod - BMO Capital Markets Michael Van Aelst - TD

Securities
Operator: Good afternoon, ladies and gentlemen and welcome to the Rogers Sugar First Quarter 2016 Results Conference Call. After the presentation, we will conduct a question-and-answer session, which will be open only to financial analysts. Instructions will be given at that time. Please note that this call is being recorded, Tuesday, February 9, 2016 at 5.30 PM Eastern Time. I would now like to turn the meeting over to John Holliday, Chief Executive Officer.

Please go ahead, Mr. Holliday.

John Holliday: Thank you, operator and good afternoon ladies and gentlemen. Joining me today for this conference call is Manon Lacroix, our Vice President of Finance. In keeping with our usual format, I will kick off the call and briefly discuss some of the highlights for the quarter.

Thereafter, I will turn the proceedings over to Manon, who will review the financials in more detail and talk about the outlook for the remainder of the fiscal year. We will open up the phone lines for any questions you might have at the conclusion of her presentation. Turning first to our volumes, we sold approximately 4,300 metric tons more this past quarter versus last year’s comparable quarter. The increase in volume occurred in all segments of our business, except liquid, which was approximately 1,700 metric tons lower than the prior year due to timing. Industrial sales increased by approximately 200 tons and our consumer volumes were higher by approximately 1,800 tons lifted by strong retail promotions.

Exports were approximately 4,000 metric tons higher on earlier shipments against the U.S. quota and some full tier sales. For the quarter, free cash flow amounted to $14.5 million as compared to $14.8 million in fiscal 2015. The slight decrease in free cash flow was mostly due to higher pension contributions, higher interest paid and the repurchase of shares during the quarter offsetting some of the negative variances, the higher adjusted EBIT and lower capital expenditures. During the quarter, the company declared a dividend of $0.09 per common share for a total amount of $8.5 million.

During the first quarter, the company repurchased and canceled 80,800 common shares as part of the normal course issuer bid that expired at the end of November 2015. Subsequently to January 2, the company repurchased and canceled 97,800 common shares as part of another normal course issuer bid that was put in place in December 2015. Before handing the call over to Manon to provide more detail on the financials, I wanted to provide a brief update on Taber and our key operating strategies, specifically operational excellence, market access and acquisitions. Taber’s beet harvest and subsequent slicing campaign completed in early January. Equality and plant reliability were good resulting in a total production of approximately 90,000 tons of refined sugar from this year’s crop once thick juice run is completed later in the spring.

On operational excellence initiatives, our operational excellence initiatives have been largely focused on leveraging the tools, develop the Montreal across our other plants to establish common scorecards and interplant benchmarking. Capital spending for FY 2016 will increase versus prior years consistent with our plan. We will invest to increase plant reliability continue to update buildings and operations to meet new regulatory requirements and to reduce our operating costs. Major investments include a new specialty packaging equipment in Vancouver, based investments and improved dust controls, replacement of failed refining equipment in Montreal, upgrading equipment, upgrading centrifugal equipment and replacement of obsolete process controls. On the export market front, we continue to wait for the ratification of CETA and the government approval of TPP.

These agreements when ratified will bring new opportunities for our business. In the interim, we continue to monitor existing agreements, which are by and large benefiting from the weaker Canadian dollar and the lower number leveraging past the market. These same conditions are bringing new opportunities to Canadian food processors – to the Canadian food processing sector, which historically has increased added – value-added exports in these conditions. In the quarter, the business looked at one acquisition, which after our initial due diligence we have decided not to pursue further as it did not offer the synergies, market expansion or competitive advantage we were looking for. Now, I am going to pass the call to Manon.

Manon Lacroix: Thank you, John. I will now go over the first quarter results in more detail. Adjusted gross margin for the first quarter increased by 2% to $25.8 million versus $25.3 million for the comparable quarter last year mostly due to the increase in sales volume for the quarter. On a per ton basis, adjusted gross margin for the current quarter decreased slightly by $1.32 to approximately $165 per metric ton due mainly to some inefficiencies at the Montreal refinery. Administration and selling expenses amounted to $3.6 million compared to $5.5 million for the same quarter last year.

During the current quarter, the company completed the termination of the Western salaried defined benefit pension plan, with the settlement and transfer of the defined benefit pension liabilities to an insurance company. Therefore, at the end of the quarter, the company no longer had any obligations towards the Western defined benefit salaried pension plan. The settlement process resulted in the reversal of a non-cash accrual of $1.2 million against administration and selling expenses pertaining to the deficit outstanding as of October 3, 2015. Excluding the impact of the settlement of the Western defined benefit salaried pension plan, administration and selling expenses were $0.7 million lower than the comparable quarter last year. The decrease is mostly explained by a reduction in consulting fees, which were incurred in the first quarter of the prior year to complete the process improvement review at the Montreal refinery.

Distribution expense stood at $2.4 million for the quarter, $0.3 million higher than the comparable quarter last year due to additional transfer costs between the company’s various locations. Adjusted EBIT for the quarter was $19.9 million compared to $17.7 million last year mainly due to lower administration and selling expenses. When we exclude the mark-to-market adjustment on the interest rate swaps, finance costs were $0.3 million lower than the comparable period last year. The overall amount drawn under the revolving credit facility was reduced during the current quarter due to a lower level of inventory. I will now turn to the outlook for fiscal 2016.

It should be noted that when looking at our volume forecast, we exclude the additional repurchase shipment in the last quarter of fiscal 2015 when we compare to our expectations for fiscal 2016. With this adjustment in mind, the industrial and consumer segments are expected to be modestly higher than fiscal 2015. However, we forecast a slight decrease for the liquid segment in fiscal 2016. During the quarter, the company continued to capitalize on the weaker Canadian dollar and relative spread between the U.S. refined sugar prices and #11 world raw sugar prices to increase our export volume.

Some additional volume was contracted and deliveries will start in the second quarter and are expected to continue until year end. As a result, the company anticipates exports volume to be comparable to the prior year. Overall, we expect total sales volume in fiscal 2016 to be comparable to fiscal 2015 when we exclude the impact of the additional weeks of operations in the last quarter of fiscal 2015. Approximately 85% of the company’s gas consumption has been hedged for fiscal 2016. In addition, the foreign exchange on gas purchases has also been hedged at 85%.

The company does not expect any significant variation in energy costs for the fiscal 2016. Administration and selling costs are expected to be lower than last year due to positive variation in the first quarter relating to the pension plan settlement and lower consulting fees. In addition, the last quarter of fiscal 2015 include costs that are not expected to reoccur such as the accrual for the Western salaried pension plan termination, consulting fees for the Western salaried pension plan termination and CITT proceeding, recruiting fees and by debt expense. With that I would like to turn the call back to the operator for the Q&A session.

Operator: [Operator Instructions] Your first question comes from the line of George Doumet from Scotiabank.

Please go ahead.

Unidentified Analyst: Yes. Hi, this is [indiscernible] for George Doumet. I had a couple of questions. I guess on the consumer segment and the industrial segment.

Previously you provided guidance that you expected the volumes to be flat, what has changed for you to anticipate a modestly higher year-over-year volume, total volumes?

John Holliday: I will tackle that and Manon can jump into to add if necessary. So on the consumer side, our volume in the first quarter exceeded our expectations, I think that momentum we expect to carry through somewhat. So with the lift in the first quarter and our planned volumes for the balance of the year I think will be slightly just similar or slightly better than last year. On the industrial side of the business, the first quarter results were basically similar to the prior year. We anticipate that the market conditions that are favorable to us with respect to export will be also favorable to some of the producers or processors of sugar containing food products and we view that that might have a positive influence on their demands for sugar.

Unidentified Analyst: Okay, thanks. Thanks for the color there. Just switching gears to the exports, I am just curious here, what level of I guess Canadian FX versus the U.S. dollar, do we – as to what level has to be sustained in order for this high duty export opportunity to be profitable?

John Holliday: Okay. That’s a pretty specific question that’s on the full tier side.

So on the full tier side, there is two things you have to come into effect. We need to see a weaker Canadian dollar and we need to see a favorable spread between the number 11 and the number 16 market or the U.S. refine market. Both those conditions need to be in play. To give you a specific number, it really depends you could have a very weak number 11 and strong U.S.

sugar market. And in that marketplace with a relatively stronger Canadian dollar, you can still participate in the market. So, there isn’t a magic number though – it’s those two conditions combined that need to if you want to call address the threshold that needs to be there to allow us to pay for the import duties. I can’t give you a specific number I wish I could.

Unidentified Analyst: But I guess we are pretty above that threshold?

John Holliday: We have in the last 12 months, we have been above it and we have been outside of it.

And at this particular moment in time I would say we are probably not in it.

Unidentified Analyst: Alright. Thanks for the call, that’s it for me.

John Holliday: Okay.

Manon Lacroix: Thanks.

Operator: Your next question comes from the line Stephen MacLeod from BMO Capital Markets. Please go ahead.

Stephen MacLeod: Thank you. Good evening.

Manon Lacroix: Hi Stephen.

Stephen MacLeod: I just wanted to just on the – address your gross margin per metric ton, what were the plant inefficiencies that weighed on in the quarter and have you – is that sort of one-time in nature or are those inefficiencies still ongoing?

Manon Lacroix: Yes. The inefficiencies of the Montreal refineries were – continues from the fourth quarter. We had a refinery equipment – refining equipment breakdown in the last quarter of fiscal year 2015 and that carried through the repairs for that equipments were completed at the Christmas shutdown. And we expect that the refining process should ramp up in the next few weeks. So we should have a minimal impact on that for – in the second quarter.

Stephen MacLeod: Okay, great. And then just more broadly talking about the TPP, obviously there are still some hurdles that need to be overcome in terms of full ratification, but is – what do you sort of expect as kind of the long-term benefit from the TPP coming into signing like if you fast-forward a couple of years?

John Holliday: I will touch on that, the obvious benefit is the opportunity for us to deliver additional I guess Canadian origin sugar into the United States. We will have the benefit of 9,600 tons that will be shipped from Taber into the U.S. So that’s obvious, that’s declared in the agreement. We don’t expect that to occur for probably 2 years and that obviously always dependent on the ratification by the Obama administration and by the current Liberal administration in Canada.

And with regards to sugar containing products it’s a similar amount and I believe its 9,600 tons and that would be volume that will be shared by both ourselves and Redpath. The methodology for determining what that split would be is yet to be determined. So those are the two obvious benefits in there, probably 2 years away.

Stephen MacLeod: Okay. And is there anything that would – any benefit to other markets outside of the U.S.?

John Holliday: I would say, no, not material at this juncture.

And I think we have said this before one of the things that I think really needs to happen is to get the agreement ratified and we need to have the ability to understand all of the details. And so on the surface there is nothing obviously apparent to us. That doesn’t mean that the agreement fully in front of us and thus having the time and the opportunity to look at the details that we won’t see some other opportunities, but nothing as apparent as the 9,600 tons of Canadian sugar and 9,600 tons sugar containing products.

Stephen MacLeod: Okay, that’s great. And it doesn’t change any other – anyone else’s access to the Canadian market, is that correct?

John Holliday: Not in any material way.

There are slight improvements in tariffs for a couple of countries, but they weren’t – arguably there weren’t barriers before. So we don’t see any material impact in that way whatsoever.

Stephen MacLeod: Okay, that’s great. Thank you for color. And then just finally I just wanted to confirm that the defined benefit pension plan impact that you had the accrual reversal that’s just one-time in nature, is that correct, so you won’t – are expecting to see that anytime in the future?

Manon Lacroix: Yes, no, I thankfully I think I am done talking about it.

This quarter it was really the settlement. We transferred the funds to the insurance company. And really what occurs is that at year end we had estimated that we had a deficit of 1.2 and we ended up settling with the insurance company at flat we had no cash outflows to do. And therefore we had to reverse the accrual that we had done to the deficit and we created a non-cash $1.2 million profit and that’s the end of it.

Stephen MacLeod: Okay, that’s great.

Okay, great. Thank you very much.

Manon Lacroix: You are welcome.

Operator: [Operator Instructions] Your next question comes from the line of Michael Van Aelst from TD Securities. Please go ahead.

Michael

Van Aelst: Hi, good evening.

Manon Lacroix: Hi Michael.

John Holliday: Hi Michael. Michael

Van Aelst: Just on the volume outlook, your original guidance was for flat year-over-year excluding the extra week and you had maintained that, but industrial, consumer and export all went up and it didn’t look like liquid guidance went down. So did liquid guidance go down, did liquid situation get worst or is it just the overall looking a little bit more – a little bit better and you just didn’t really point that out to summarize it same way?

Manon Lacroix: Well, there is – yes, the industrial and consumer went up slightly.

The exports, you are right, went up slight and liquids didn’t really move. So it’s going to be comparable, could be slightly higher, but it’s not going to be materially higher. So we have called it comparable. Michael

Van Aelst: Okay. And you talked about acquisitions in your – some of your criteria, can you provide us a little bit more color as to what products and geographies that you – what product categories in general and in geographies you might be considering?

John Holliday: Okay.

We will give you – I will give you some comments acquisitions, I don’t know it will answer all of your questions. I think it took – definitely we have made acquisitions a bigger priority for the business and we are looking mainly in North America that ultimately the judge of any acquisition will be synergies that might create for the business access to new markets geographic or adjacent categories that it might provide its impact on creating or strengthening our leadership position in the categories we are in today and any sustainable competitive advantage that it delivers. So, our objective is to acquire a business that will have a material impact on EBITDA and is immediately accretive to our business. We believe we have the strength in the balance sheet to acquire a business using traditional debt financing. And we would be willing to increase our leverage to approximately 3 times EBITDA, but we will be looking at de-leveraging as soon as possible of any acquisition through the acquired business, not by refinancing.

Michael

Van Aelst: So what kind of capacity, those that give you than our acquisition capacity?

John Holliday: I will let Manon to speak to that.

Manon Lacroix: Yes. Well, I don’t want to like read – we could look at anywhere between 100 million to 200 million, but it really depends on how strategic it is for us. It will be smaller than that, we don’t want to advance ourselves and we are really looking for something that is strategic to us that would bring value and will bring synergy. Michael

Van Aelst: And can you give a little bit more color as to how you can gain synergies or gain like how a foreign acquisition or U.S.

acquisition could be strategic for you?

John Holliday: I don’t think I could answer that question talking about something specifically and I wouldn’t on this call talk about any specifics in that area. Michael

Van Aelst: Alright, thank you very much. I hope you feel better, Manon.

Manon Lacroix: Thanks, Michael.

John Holliday: Yes, that’s right.

Operator: There are no further questions at this time. I turn the call back over to the presenters.

Manon Lacroix: That’s it. Well, thank you very much for attending the call.

Operator: This concludes today’s conference call.

You may now disconnect.