R
O
G
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A
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.
2
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1
8
A
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WE ARE CANADA’S LARGEST
PRODUCER OF SUGAR PRODUCTS
AND BOTTLER OF MAPLE SYRUP
TOTAL DIVIDEND (thousand of $)
OCT NOV
DEC
JAN
FEB MAR APR MAY
JUN
JUL AUG
SEP TOTAL
Fiscal 2018
Fiscal 2017
–
–
–
–
9,517
8,460
–
–
–
–
9,517
8,459
–
–
–
–
9,487
8,460
–
–
–
–
9,450
37,971
9,517
34,896
PER SHARE DIVIDEND ($)
OCT NOV
DEC
JAN
FEB MAR APR MAY
JUN
JUL AUG
SEP TOTAL
Fiscal 2018
Fiscal 2017
–
–
–
–
0.09
0.09
–
–
–
–
0.09
0.09
–
–
–
–
0.09
0.09
–
–
–
–
0.09
0.09
0.36
0.36
2018 ANNUAL REPORT
1
1
SUGAR VS. MAPLE SYRUP
PRODUCTS
25%
Maple Syrup
75%
Sugar
MAKING GOOD
BUSINESS BETTER
With a respected heritage of over 125 years of business
achievements, Lantic has surely been doing many things
right! At the core of our success is the need to continuously
reflect and pragmatically act on the strengths and
weaknesses of our overall business – and to swiftly deal with
any threats to our ongoing growth.
The addition of the Maple business last year represents an important
GEOGRAPHIC PARTITION
step in our strategy to bring innovation and expansion to our business.
The initiative has provided Lantic with access to new export markets. This
investment was strategic and represents the first step in the evolution of
our business into a natural sweetener supplier.
A year of integration work is now behind us, and solid transformational
plans are now guiding us. We have resumed a mindset that focuses on
day-to-day operational efficiency and continuous improvement. These
are the dynamics that have shaped our 125-year history, and which will
ensure Lantic’s success going forward.
5%
Other
5%
Europe
14%
U.S.
76%
Canada
More on page 6
OUR FACILITIES
ROGERS
LBMT
1. Head Office and
Cane Refinery
VANCOUVER, BC
2. Beet Plant
TABER, AB
3. Distribution Centre
and Blending Facility
TORONTO, ON
4. Administrative Office
and Cane Refinery
MONTREAL, QC
5. Head Office —
Bottling Plant, Eastern Sales
and Distribution
GRANBY, QC
6. Bottling Plant, Warehousing
and Shipping
SAINT-HONORÉ-DE-
SHENLEY, QC
7. Bottling Plant, Warehousing
and Shipping
DÉGELIS, QC
8. Botting Plant, Warehousing
and Shipping
WEBSTERVILLE, VT
1
2
6
7
4
5
3
8
2018 ANNUAL REPORT 2
REPORT FROM THE CHAIRMAN
To my fellow shareholders:
I am pleased to report that, excluding acquisition and non-recurring costs, the
consolidated EBITDA results for fiscal 2018 were $99.9 million. These results came
with a solid volume growth in the Sugar segment, which grew by approximately 3.5%
during the current year.
Looking at the results of the Sugar segment, year-over-year volume was approximately 25,400 metric
tonnes greater than in fiscal 2017. A significant portion of this improvement was attributable to the liquid
and export markets, both benefiting from low #11 sugar values which improved our competitiveness with
respect to high tier refined sugar sales to the U.S. and, similarly, brought more conversion opportunities
against High Fructose Corn Syrup suppliers in Canada. Overall, adjusted gross margins for the sugar
business was approximately $138 per metric tonne compared to approximately $144 per metric tonne
last year. The lower adjusted gross margin per metric tonne is largely explained by the somewhat lower
profitability of the Taber facility where lower # 11 raw sugar values can become decoupled from our beet
costs and erode some of the economic value.
With the acquisition of LBMT in August and the subsequent acquisition of Decacer in November
2017, the business has tackled a significant amount of integration work. The Maple products segment
adjusted EBITDA was lower than anticipated and finished the year at $18.6 million. Fiscal 2019 should
offer better results with the benefit of a full year of operation of Decacer and anticipated savings and/
or operational gains, whereby we expect adjusted EBITDA to amount to $21.0 million, excluding
non-recurring costs. Although the financial outcomes on the newly acquired maple business have been
lower than anticipated, I am pleased by the amount of work that has been done and management’s
resolve and well considered plans to still deliver the expected economic value, albeit over a modestly
longer time horizon.
Over the next twenty-four months, the final stages of the maple business integration should be completed.
The four individual autonomous business units will have been reconfigured into one business, led by
enterprise-wide business teams, with common processes that are supported by a redesigned, retooled,
2018 ANNUAL REPORT
3
best in class manufacturing platform that can support future growth. The Board continues to believe in
the strategy of developing a broader product offering and expanded geographic offering of alternate
natural sweeteners.
Notwithstanding the time commitments and challenges that come with integrating a new business, it
was encouraging for the Board to see that management ensured that the core sugar business delivered
excellent results in a challenging trading environment.
Overall, fiscal 2018 is the first step in the evolution of the business from a leading Canadian sugar
refiner to a leading North American natural sweetener supplier. To achieve this vision we will maintain
our investment and good stewardship of the core sugar business, whilst we seek new growth through
acquiring and growing alternative natural sweetener businesses. The Board expects that the more
diversified business platform will deliver stronger growth with more diversified and stable earnings
performance.
In fiscal 2018, Rogers paid quarterly dividends of $0.09 per share for a yearly total of $0.36 per share.
Rogers’ free cash flow of $47.8 million represented a distribution ratio of 79% of the declared dividend
for fiscal 2018 of $38.0 million. The Board of Directors will continue to assess the appropriateness of
the level of the dividend based on performance and on the outlook for the business. The Board views
sustainable returns to shareholders and maintenance of the dividend as a strategic priority.
During the current year, Rogers issued $97.8 million of seventh series 4.75% convertible unsecured
subordinated debentures. Funds were used to repay the fifth series 5.75% convertible unsecured
subordinated debentures that had a maturity date of December 31, 2018. In addition, Rogers, through
its subsidiary Lantic, used the remaining funds to reduce the revolving credit facility.
Also, during the year, Rogers put in place a Normal Course Issuer Bid and as a result, the Corporation
purchased and cancelled 736,900 common shares for a total cash consideration of $4.0 million.
Finally, as we make these commitments to change, I would also like to thank all of our employees for
their efforts and resolve to strengthen the Corporation. We are always guided by our obligation to both
ensure and enhance the value of your investment. We thank you our shareholders for the trust and the
continued support you have accorded us.
On behalf of the Board of Directors,
Dallas Ross
Chairman
November 21, 2018
2018 ANNUAL REPORT 4
REPORT FROM
THE PRESIDENT AND CEO
In fiscal 2018, we continued our efforts to make a good business better. The acquisition of
Decacer added an important asset and capability to our maple syrup portfolio and solidified
our leadership position in this growing natural sweetener segment. With our core sugar refining
business and the maple syrup acquisitions, we have made good progress towards our Vision of
becoming a leading North American natural sweetener supplier.
The acquisition of Decacer early in fiscal 2018 created some delays to our original integration plans for LBMT and
added more complexity to the overall undertaking. More importantly however, the addition of Decacer delivered an
excellent manufacturing facility that, when fully leveraged, will allow us to lower our cost, improve overall product
quality and support planned future growth.
Measured strictly in economic terms, the results in our maple business were disappointing. Measured by what we
accomplished in terms of restructuring the business and setting it up for future success, a significant amount was
accomplished. New sales and go-to market strategies, new information technology platforms, new supply chain
structure, a complete rethink and manufacturing optimization plan, and new standard financial procedures and
policies required a significant amount of effort. We continue to believe that this new natural sweetener segment,
once fully integrated and optimized, will deliver the financial results we expected.
The core sugar business navigated very volatile market conditions with large commodity swings, currency fluctuations
and trade threats that brought both opportunities and risks. The overall outcomes exceeded our expectations for
volume which grew just short of 720,000 metric tonnes or an increase of 3.7% versus fiscal 2017. Adjusted results from
operating activities (“Adjusted EBIT”) amounted to $67.8 million, which ranked fiscal 2018 as our second best result
in the last 15 years when we exclude extraordinary years where the U.S. issued special refined sugar quotas due to
temporary supply shortages. In fact, on this measure, our last three years represent the best three fiscal financial
results over the last 15 years. These results are a testament to a strong management team that had the capacity to
manage a heavy integration agenda on maple, and at the same time, maintain its attention to the needs of our sugar
business.
2018 ANNUAL REPORT 5
We continue to believe our three core strategies of Operational Excellence, Market Access and Acquisition/Brand
development provide the right focus for our business. This focus helps us to communicate our priorities and channel
our resources, human and capital, towards making meaningful progress.
With the flatter growth outlook for sugar, we have made a greater effort to increase our return on investment projects
that will deliver bottom line growth and/or absorb inflation. Our operating budget earmarked approximately
$6 million of capital to support investments in solutions that lower energy costs, increase automation and deliver new
value-added manufacturing capabilities. A complete redesign of our sugar decolourization system in Vancouver, the
automation of palletizing operations in Taber, the addition of a new fully automated retail packing line in our Toronto
Blending plant and the installation of newer processing technology to lower our energy consumption in Montreal,
represent the bulk of our investment initiatives in fiscal 2018. This capital spending is complemented by continuous
investments in replacement of equipment that has reached the end of its useful life, and together, will lower our costs
and improve our reliability and help deliver on our Operational Excellence Strategy.
After much uncertainty, NAFTA negotiations concluded with a new modernized agreement, the USMCA. Although
not fully ratified and likely not to take effect until mid-calendar 2019, the agreement provides a better environment
for investment by food processors and some opportunities for improved market access for Canadian beet sugar and
sugar-containing products. Through our association with the Canadian Sugar Institute, Lantic provided technical
support to the trade negotiations that helped deliver improved outcomes for our industry. Our Market Access
Strategy is equally applicable to our maple syrup business. Largely unencumbered by tariffs, the maple syrup
portfolio offers us an excellent opportunity to expand sales beyond our borders. In fact, approximately 75% of our
revenues in this newly acquired business come from export sales, our largest market being the USA which continues
to provide good opportunities for growth in both the traditional retail and the food ingredient channels.
Lastly our Acquisition Strategy continues to be an important enabler to our overall vision for the company. To
achieve our vision of becoming a leading North American natural sweetener supplier, we will need to find new
targets for growth. Our immediate focus in this area is the integration, but in parallel, we continue to build insights
and explore potential ways to further strengthen our product offering and market development within North America
through strategic partnerships or targeted acquisitions.
We are continuing to pursue our strategies and achieving success will require hard work, perseverance, team work,
a common purpose and a continuous improvement mindset. Reaching our vision for the future will certainly not
always follow a straight line but when difficult decisions will need to be made, we will turn to our values for guidance.
Finally I would like to take this opportunity to thank our valued employees for all their contributions in fiscal 2018
as well as for their ongoing support in fiscal 2019 as we work together towards evolving our business into a leading
natural sweetener supplier that will deliver long-term growth and value for our shareholders.
John Holliday
President and Chief Executive Officer
November 21, 2018
2018 ANNUAL REPORT 6
OUR EFFORTS TO MAKE
A GOOD BUSINESS BETTER
OPERATIONAL EXCELLENCE
In fiscal 2018 a number of investments to enhance Operational
Excellence were planned and executed. We introduced new
technology to lower energy costs, increase automation, and
deliver additional value-added manufacturing capabilities. Our
deep-seated operational knowledge has in many cases yielded
valuable innovation. The result has been seamless integration
of new processing solutions within legacy operating assets.
Underlying all of our initiatives is a passion for what we do, which
has played a critical role in our recent success.
MARKET ACCESS STRATEGY
The sugar industry is steeped in a history of regulation and trade
barriers. The USMCA represents the most recent example of such
an agreement. When ratified, it will double our access to U.S.
markets. Canadian origin sugar will benefit from an additional
9,600 metric tonnes of access.
EXPANDING BEYOND BORDERS
For Lantic, access to other markets is also being realized through
our maple syrup platform. Given the nature of its unique
sourcing and characteristics, this product faces substantially
fewer tariffs. Our maple platform, dominated by export sales,
now represents over 75% of our sales. Creating awareness
and new marketing channels for this ingredient offers substantial
opportunities for growth.
2018 ANNUAL REPORT 7
IMPROVED PACKAGING
Paper packaging has been in use for decades. It provides an economical format to
package sugar. While we continue to offer sugar in paper bags, we have recently
broadened our options to include flexible pouch packaging. We are offering several
OUR NEW POUCH IS RESEALABLE
WITH A WIDE OPENING ALLOWING
of our sugars in this modern format. Our new pouch is resealable with a wide opening
USERS TO PUT A MEASURING
allowing users to put a measuring spoon inside. Continuing to offer packaging
SPOON INSIDE.
improvements to enhance the consumer’s experience is a priority for us.
NEW SPECIALIZED PRODUCTS
Maple flakes and maple sugar are perfect additions
to a growing roster of natural sweeteners under our
brands.
Consumers demand choices when it comes to natural sweeteners.
We are always looking for ways to enhance our consumers’
everyday needs. Leveraging our existing relationships in the
baking aisle with retailers nation-wide, provides us an efficient
way to distribute innovative natural maple products. Maple
flakes and maple sugar are made from 100% pure maple syrup,
simply dehydrated to offer unique textural and functional
characteristics. They are great on yogurt, tea and coffee, baked
goods, fresh fruit and toppings for dessert.
2018 ANNUAL REPORT 8
OUR VALUES
We strive to reduce our environmental footprint and add
value to the bottom line.
We are adopting new and better business practices, while investing in
better processing technology, to reduce our environmental footprint.
These initiatives require sustained effort and a mindset focused on
continuous improvement. Much of this work occurs at our manufacturing
facilities. Unfortunately, when embedded in our financial results, some
achievements risk going unnoticed. For this reason we wanted to
highlight some important successes and future goals in the area of waste
reduction, energy conservation and best practices adoption.
WASTE REDUCTION
• Divert 100% of processing waste from landfill to composting site and
reuse by producers
• Achieving “Zero Waste” certification in Vancouver
ENERGY CONSERVATION
• Fiscal 2018 plant efficiencies lowered natural gas consumption by
5% (equivalent to the average annual amount of energy used to heat
1,590 homes in Canada)
• Fiscal 2018 plant efficiencies lowered water consumption by 1.8 million
liters (equivalent to the average amount of water used per day by
5,500 people)
• Looking forward, our ongoing focus and investments involve a
continuous reduction of our energy/water consumption. Benefits
from investments made in Fiscal 2018 will be substantial, generating
an additional 2% in natural gas reduction (equivalent to the annual
heating consumption of 558 homes) and water reduction equivalent to
2.7 million liters (daily usage of 8,200 people).
BEST PRACTICES ADOPTION
• Collaborating with Alberta Sugar Beet Growers to have growers
certified by recognized sustainability program
• Collaboration with the Town of Taber to develop a wet land site
• Working with Alberta Environment and Park on the approval and
execution of our air particulate emissions reduction project in Taber.
New system commissioning will be completed in Fiscal 2019.
2018 ANNUAL REPORT
9
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
September 29, 2018 and September 30, 2017
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 10
T his Management’s Discussion and Analysis (“MD&A”) of
consolidated financial statements for the years ended
Rogers Sugar Inc.’s (“Rogers” or the “Corporation”) audited
September 29, 2018 and September 30, 2017 should be read in
measures calculated and presented in accordance with IFRS.
Non-GAAP financial measures are not standardized; therefore,
it may not be possible to compare these financial measures with
the non-GAAP financial measures of other companies having the
conjunction with the audited consolidated financial statements
same or similar businesses. We strongly encourage investors to
and related notes for the years ended September 29, 2018 and
review the audited consolidated financial statements and publicly
September 30, 2017. The Corporation’s MD&A and consolidated
filed reports in their entirety, and not to rely on any single financial
financial statements are prepared using a fiscal year which typically
measure.
consists of 52 weeks, however, every five years, a fiscal year
consists of 53 weeks. The fiscal years ended September 29, 2018,
We use these non-GAAP financial measures in addition to, and in
September 30, 2017 and October 1, 2016 all consist of 52 weeks.
conjunction with, results presented in accordance with IFRS. These
non-GAAP financial measures reflect an additional way of viewing
All financial information contained in this MD&A and audited
aspects of the operations that, when viewed with the IFRS results
consolidated financial statements are prepared in accordance with
and the accompanying reconciliations to corresponding IFRS
International Financial Reporting Standards (“IFRS”). All amounts
financial measures, may provide a more complete understanding
are in Canadian dollars unless otherwise noted, and the term
of factors and trends affecting our business.
“dollar”, as well as the symbol “$”, designate Canadian dollars
unless otherwise indicated.
The following is a description of the non-GAAP measures used by
the Company in the MD&A:
Management is responsible for preparing the MD&A. Rogers’s
audited consolidated financial statements and MD&A have been
• Adjusted gross margin is defined as gross margin adjusted for:
approved by its Board of Directors upon the recommendation
>
“the adjustment to cost of sales”, which comprises of
of its Audit Committee prior to release. This MD&A is dated
the mark-to-market gains or losses on sugar futures,
November 21, 2018.
foreign exchange forward contracts and embedded
derivatives as shown in the notes to the consolidated
Additional information relating to Rogers, Lantic Inc. (“Lantic”)
financial statements and the cumulative timing differences
(Rogers and Lantic together referred as the “Sugar segment”),
as a result of mark-to-market gains or losses on sugar
L.B. Maple Treat Corporation (“LBMTC”), 9020-2292 Québec Inc.
futures,
foreign exchange
forward contracts and
(“Decacer”) and Highland Sugarworks Inc. (“Highland”) (the
embedded derivatives as described below; and
latter three companies together referred to as “LBMT” or the
>
“the amortization of transitional balance to cost of sales
“Maple products segment”), including the annual information
for cash flow hedges”, which is the transitional marked-
form, quarterly and annual
reports, management proxy
to-market balance of the natural gas futures outstanding
circular, short
form prospectus and various press releases
as of October 1, 2016 amortized over time based on their
issued by Rogers is available on the Rogers’s website at
respective settlement date until all existing natural gas
www.LanticRogers.com or on the Canadian Securities
futures have expired, as shown in the notes to the
Administrators’ System for Electronic Document Analysis and
consolidated financial statements.
Retrieval (“SEDAR”) website at www.sedar.com. Information
contained in or otherwise accessible through our website does not
• Adjusted EBIT is defined as EBIT adjusted for the adjustment
form part of this MD&A and is not incorporated into the MD&A by
to cost of sales, the amortization of transitional balances to
reference.
cost of sales for cash flow hedges.
NON-GAAP MEASURES
• Adjusted EBITDA is defined as adjusted EBIT adjusted to
In analyzing results, we supplement the use of financial measures
add back depreciation and amortization expenses, the Sugar
that are calculated and presented in accordance with IFRS with a
segment acquisition costs and the Maple products segment
number of non-GAAP financial measures. A non-GAAP financial
non-recurring expenses.
measure is a numerical measure of a company’s performance,
financial position or cash flow that excludes (includes) amounts, or is
• Adjusted net earnings is defined as net earnings adjusted
subject to adjustments that have the effect of excluding (including)
for the adjustment to cost of sales, the amortization of
amounts, that are included (excluded) in most directly comparable
transitional balances to cost of sales for cash flow hedges, the
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
11
amortization of transitional balance to net finance costs and
• Adjusted pro forma EBITDA assuming the LBMTC Integration
the income tax impact on these adjustments. Amortization
Gains and the RSI Integration Gains is defined as the
of transitional balance to net finance costs is defined as the
adjusted pro forma EBITDA assuming the LBMTC Integration
transitional marked-to-market balance of the interest rate
Gains, adjusted to include business efficiencies, including
swaps outstanding as of October 1, 2016, amortized over time
procurement cost reductions and Operational Excellence, and
based on their respective settlement date until all existing
customer gains, as a result of the Rogers integration.
interest rate swaps agreements have expired, as shown in the
notes to the consolidated financial statements.
• Decacer’s pro forma Adjusted EBITDA is defined as earnings
before interest expenses, taxes, depreciation and amortization
• Adjusted gross margin rate per MT is defined as adjusted gross
expense for the twelve-month period ended March 31, 2017,
margin of the Sugar segment divided by the sales volume of
adjusted to take into account non-recurring items identified
the Sugar segment.
by the Decacer Management, non-recurring items identified
by the Corporation during the course of its due diligence and
• Adjusted gross margin percentage is defined as the adjusted
estimated adjustments required to reflect the going-forward
gross margin of the Maple products segment divided by the
EBITDA run-rate.
revenues generated by the Maple products segment.
• Adjusted net earnings per share is defined as adjusted net
excluding changes in non-cash working capital, mark-to-
earnings divided by the weighted average number of shares
market and derivative timing adjustments, amortization of
•
Free cash flow is defined as cash flow from operations
outstanding.
transitional balances, financial instruments non-cash amount,
deferred financing charges and includes funds received from
• Maple products segment Adjusted EBITDA is defined as the
the issue or excludes funds paid for the purchase of shares
earnings before interest expenses, taxes and depreciation
and includes capital and intangible assets expenditures, net
and amortization expenses of the Maple products segment,
of operational excellence capital expenditures. Free cash flow
adjusted for the total adjustment to cost of sales relating to
for fiscal 2017 excludes any funds received or paid as part of
its segment, non-recurring expenses and depreciation and
the short form prospectus offering for subscription receipts
amortization expenses.
and convertible unsecured subordinated debentures issued in
July 2017. Free cash flow for fiscal 2018 excludes any funds
•
LBMTC’s EBITDA is defined as earnings before interest
received or paid for the issuance of the convertible unsecured
expenses, taxes, depreciation and amortization expenses,
subordinated debentures issued in March 2018.
business combination related costs, gain on business
acquisition and fair value adjustment to purchase price
In the MD&A, we discuss the non-GAAP financial measures,
allocation on inventories.
including the reasons why we believe these measures provide
useful information regarding the financial condition, results of
• Adjusted pro forma EBITDA is defined as LBMTC’s EBITDA,
operations, cash flows and financial position, as applicable. We also
adjusted to include the EBITDA of Highland and Great
discuss, to the extent material, the additional purposes, if any, for
Northern from April 1, 2016 until their respective acquisition
which these measures are used. These non-GAAP measures should
by LBMTC and the expected EBITDA of Sucro-Bec for the
not be considered in isolation, or as a substitute for, analysis of
twelve-month period ended March 31, 2017, as well as certain
the Company’s results as reported under GAAP. Reconciliations of
non-recurring operating expenses.
non-GAAP financial measures to the most directly comparable IFRS
financial measures are also contained in this MD&A.
• Adjusted pro forma EBITDA assuming the LBMTC Integration
Gains is defined as the adjusted pro forma EBITDA, adjusted to
include any recent customer gains, procurement efficiencies,
re-alignment of production lines, reduction of maple syrup
losses and previous integration of acquired businesses.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 12
FORWARD-LOOKING STATEMENTS
the Acquisitions, including that the Representation and Warranty
This report contains Statements or information that are or may be
Insurance (“RWI”) Policy may not be sufficient to cover such costs
“forward-looking statements” or “forward-looking information”
or liabilities or that the Corporation may not be able to recover
within the meaning of applicable Canadian securities laws. Forward-
such costs or liabilities from the shareholders of LBMTC and
looking statements may include, without limitation, statements
Decacer, the risks related to the regulatory regime governing the
and information which reflect the current expectations of Rogers,
purchase and sale of maple syrup in Québec, including the risk that
Lantic and LBMT (together all referred to as “the Company”) with
LBMT may not be able to maintain its authorized buyer status with
respect to future events and performance. Wherever used, the
the Federation des Producteurs Acéricoles du Québec (“FPAQ”)
words “may,” “will,” “should,” “anticipate,” “intend,” “assume,”
and the risk that it may not be able to purchase maple syrup in
“expect,” “plan,” “believe,” “estimate,” and similar expressions
sufficient quantities, the risk related to the production of maple
and the negative of such expressions, identify forward-looking
syrup being seasonal and subject to climate change, the risk of any
statements. Although this is not an exhaustive list, the Company
government regulation and foreign trade policies change, the risk
cautions investors that statements concerning the following
related to customer concentration and LBMT’s reliance on private
subjects are, or are likely to be, forward-looking statements: future
label customers, the risks related to consumer habits and the risk
prices of raw sugar, natural gas costs, the Canadian origin quota
related to LBMT’s business growth, substantially relying on exports.
to the United States (“U.S.”), the opening of special refined sugar
quotas in the U.S., beet production forecasts, growth of the maple
Although the Corporation believes that the expectations and
syrup industry, anticipated benefit of the LBMTC and Decacer
assumptions on which forward-looking information is based are
acquisitions (including expected Maple products segment adjusted
reasonable under the current circumstances, readers are cautioned
EBITDA), the status of labour contracts and negotiations, the level
not to rely unduly on this forward-looking information as no
of future dividends and the status of government regulations and
assurance can be given that it will prove to be correct. Forward-
investigations. Forward-looking statements are based on estimates
looking information contained herein is made as at the date of this
and assumptions made by the Company in light of its experience
MD&A and the Corporation does not undertake any obligation to
and perception of historical trends, current conditions and expected
update or revise any forward-looking information, whether as a result
future developments, as well as other factors that the Company
of events or circumstances occurring after the date hereof, unless
believes are appropriate and reasonable in the circumstances, but
so required by law. Adjusted EBITDA for fiscal 2018 amounted to
there can be no assurance that such estimates and assumptions
$18.6 million, short of Management’s expectations at $19.9 million.
will prove to be correct. Forward-looking statements involve known
The lower than expected results are mainly explained by lower
and unknown risks, uncertainties and other factors that may cause
sales volume and sales growth than anticipated due to market
actual results or events to differ materially from those anticipated
competitiveness and to higher distribution costs. Given the lower
in such forward-looking statements. Actual performance or results
than anticipated results from fiscal 2018, and as of the date of this
could differ materially from those reflected in the forward-looking
MD&A, Management believes it is prudent to reduce expectations
statements, historical results or current expectations. These risks
with regards to the Maple products segment Adjusted EBITDA
are referred to in the Company’s Annual Information Form in the
for fiscal 2019 by approximately the same value of the fiscal 2018
“Risk Factors” section and include, without limitation: the risks
shortfall and therefore, expects that Adjusted EBITDA should be
related to the Corporation’s dependence on the operations and
approximately $21.0 million, excluding non-recurring costs. Refer
assets of Lantic, the risks related to government regulations and
to the “Outlook” section of this MD&A for further details.
foreign trade policies, the risks related to competition faced by
Lantic, the risks related to fluctuations in margins, foreign exchange
and raw sugar prices, the risks related to security of raw sugar
FORWARD-LOOKING INFORMATION IN THIS MD&A
supply, the risk related to weather conditions affecting sugar beets,
The following table outlines the forward-looking information
the risks relating to fluctuation in energy costs, the risks that LBMT’s
contained
in this MD&A, which the Corporation considers
historical financial information may not be representative of future
important to better inform readers about its potential financial
performance, the risk that following the acquisition of LBMTC on
performance, together with the principal assumptions used to
August 5, 2017 and of Decacer on November 18, 2017 (together
derive this information and the principal risks and uncertainties that
referred to the “Acquisitions”), Rogers and Lantic may not be able
could cause actual results to differ materially from this information.
to successfully integrate LBMTC and Decacer’s businesses with
their current business and achieve the anticipated benefits of the
Acquisitions, the risks of unexpected costs or liabilities related to
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 13
EXPECTED ADJUSTED EBITDA FOR LBMTC
Principal Risks and Uncertainties
Principal Assumptions
The expected adjusted EBITDA is the expected earnings before
• Historical financial information used may not be
representative of future results.
interest expenses, taxes, depreciation and amortization expense
•
Variability in Decacer’s performance.
for a twelve-month period, adjusted for one-time costs and
including the integration gains. The Corporation estimates annual
• Unexpected administration, selling or distribution
operating earnings by subtracting from the estimated revenues
expenditures.
the estimated annual operating costs, from which it subtracts
estimated general and administrative expenses. The integration
• Uncertainty of successful integration and operational gains.
gains include LBMTC for fiscal 2018 and RSI integration gains
for fiscal 2019. LBMTC integration gains are estimated gains
resulting from the three acquisitions completed by LBMTC since
CONTROLS AND PROCEDURES
February 2, 2016 and which include customer gains, procurement
In compliance with the provisions of Canadian Securities
efficiencies, re-alignment of production lines, reduction of maple
Administrators’ Regulation 52-109, the Corporation has filed
syrup losses and previous integration of acquired businesses. RSI
certificates signed by the President and Chief Executive Officer
integration gains are estimated operational gains resulting from the
(“CEO”) and by the Vice-President Finance and Chief Financial
combination of the Corporation and LBMTC which include business
Officer (“CFO”), in that, among other things, report on:
efficiencies and customer gains.
Principal Risks and Uncertainties
•
their responsibility for establishing and maintaining disclosure
controls and procedures and internal control over financial
• Historical financial information used to estimate budgeted
reporting for the Company; and
amounts may not be representative of future results.
•
Variability in LBMTC’s performance.
procedures and the design and effectiveness of internal
•
the design and effectiveness of disclosure controls and
controls over financial reporting.
• Unexpected administration, selling or distribution
expen di tures.
• Uncertainty of successful integration and operational gains.
The CEO and the CFO, have designed the disclosure controls and
procedures (“DC&P”), or have caused them to be designed under
• Other risks relating to the business of LBMTC (refer to the
their supervision, in order to provide reasonable assurance that:
DISCLOSURE CONTROLS AND PROCEDURES
“Risk Factors” section).
• material information relating to the Company is made known
to the CEO and CFO by others, particularly during the period
EXPECTED ADJUSTED PRO FORMA EBITDA FOR DECACER
in which the interim and annual filings are being prepared; and
Principal Assumptions
•
information required to be disclosed by the Company in its
Decacer’s Adjusted pro forma EBITDA is the expected earnings
annual filings, interim filings or other reports filed or submitted
before interest expenses, taxes, depreciation and amortization
by it under securities legislation is recorded, processed,
expense for a twelve-month period, adjusted to take into
summarized and reported within the time periods specified in
account non-recurring items identified by Decacer Management,
securities legislation.
non-recurring items identified by the Company during the course
of its due diligence and estimated adjustments required to reflect
As at September 29, 2018, an evaluation was carried out, under the
the going-forward EBITDA run-rate.
supervision of the CEO and the CFO, of the design and operating
effectiveness of the Company’s DC&P. Based on this evaluation,
the CEO and the CFO concluded that the Company’s DC&P
were appropriately designed and were operating effectively as at
September 29, 2018.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 14
INTERNAL CONTROLS OVER FINANCIAL REPORTING
CHANGES IN INTERNAL CONTROLS OVER
The CEO and CFO have also designed internal controls over
FINANCIAL REPORTING
financial reporting (“ICFR”), or have caused them to be designed
There were no changes in the Company’s internal controls over
under their supervision, in order to provide reasonable assurance
financial reporting during the year that have materially affected,
regarding the reliability of financial reporting and the preparation of
or are reasonably likely to materially affect, the Company’s internal
financial statements for external purposes in accordance with IFRS
control over financial reporting.
using the framework established in “Internal Control – Integrated
Framework (COSO 2013 Framework) published by the Committee
of Sponsoring Organizations of the Treadway Commission
OVERVIEW
(COSO)”. As at September 29, 2018, an evaluation was carried
Rogers is a corporation incorporated under the Canada Business
out, under the supervision of the CEO and the CFO, of the design
Corporations Act, which holds all of the common shares and
and operating effectiveness of the Company’s ICFR. Based on that
subordinated notes of Lantic.
evaluation, they have concluded that the design and operation
of the Company’s internal controls over financial reporting were
The following chart illustrates the structural relations between
effective as at September 29, 2018.
shareholders, debenture holders, Rogers, Lantic Capital Inc.,
Rogers’s operating company, Lantic and its subsidiaries, namely
In designing and evaluating such controls, it should be recognized
LBMTC, Decacer and Highland.
that, due to inherent limitations, any controls, no matter how well
designed and operated, can provide only reasonable assurance
of achieving the desired control objectives and may not prevent
or detect misstatements. Projections of any evaluations of
SHAREHOLDERS
DEBENTURE HOLDERS
effectiveness to future periods are subject to the risk that controls
ROGERS SUGAR INC.
may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may
deteriorate. Additionally, management is obliged to use judgement
in evaluating controls and procedures.
Common Shares and
Subordinated Notes
(100%)
LIMITATION ON SCOPE OF DESIGN
The Company has limited the scope of its DC&P and ICFR to
exclude controls, policies and procedures of Decacer acquired not
more than 365 days before the last day of the period covered by
the annual filing. The Company elected to exclude it from the scope
of certification as allowed by NI 52-109. The Company intends to
perform such testing within one year of acquisition.
The chart below presents the summary financial information
included in the Corporation’s consolidated financial statements for
LANTIC INC.
LANTIC CAPITAL INC.
2 Classic Shares
Governance Agreement
Common Shares and
Subordinated Notes
(100%)
L.B. MAPLE TREAT
CORPORATION
Common Shares
(100%)
HIGHLAND
SUGARWORKS
INC.
9020-2292
QUÉBEC INC.
(DECACER)
the excluded business:
Decacer
(In thousands of dollars, unaudited)
Statement of Financial Position
Total assets
Statement of Comprehensive Income
Total revenue
Results from operating activities
2018
$
75,305
37,696
4,771
Rogers is governed by not less than three, nor more than seven
directors who are appointed annually at the annual general meeting
of the shareholders of Rogers. As of the date of this MD&A, there
were five directors.
The directors are responsible for, among other things: acting for,
voting on behalf of and representing Rogers as a shareholder and
noteholder of Lantic; maintaining records and providing reports
to the shareholders; supervising the activities and managing the
investments and affairs of Rogers; and effecting payments of
dividends to shareholders.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
15
Communication with shareholders on matters relating to the
Sales are focused in three specific market segments: industrial,
Company is primarily the responsibility of the Administrator, Lantic,
consumer, and liquid products. The domestic market represents
through its CEO and CFO. Regular meetings and discussions are
more than 90% of the Company’s total volume.
held between these individuals and industry analysts, brokers,
institutional investors, as well as other interested parties.
In fiscal 2018, the domestic refined sugar market increased by
An Audit Committee of Rogers exists and is composed of three
directors, all of whom are independent and unrelated.
The industrial segment is the largest segment accounting for
approximately 2% versus last fiscal year.
SUGAR SEGMENT
Production Facilities
approximately 60% of all shipments. The industrial segment is
comprised of a broad range of food processing companies that
serve both the Canadian and American markets. Some of these
processors are able to take the relative advantage of a weaker
Canadian dollar and lower value of the #11 world raw sugar prices,
Lantic is the largest refined sugar producer in Canada, with annual
compared to #16 raw sugar prices used as the basis for pricing in
nominal production capacity of approximately 1,000,000 metric
the U.S. market, to expand sales into export markets as most of
tonnes. Lantic operates cane refineries in Montréal, Québec and
these sales are not subject to duty tariffs.
Vancouver, British Columbia, and a sugar beet factory in Taber,
Alberta.
In the consumer market segment, a wide variety of products are
offered under Lantic and Rogers brand name. This segment has
With total sales volume of approximately 650,000 to 725,000
remained fairly stable during the last several years although volume
metric tonnes per year, Lantic has ample capacity to meet all
sold within this market in fiscal 2018 represented a 2% growth
current volume requirements. None of the production facilities
year-over-year. We continue our marketing efforts by bringing
currently operate at full capacity. Lantic is the only sugar producer
more new innovations to the sugar and sweetener category.
with operating facilities across Canada. The strategic location of
Recognizing the need to offer more packaging choices, we have
these facilities confers operating flexibility and the ability to service
launched a series of sugar staples in a bold new packaging format.
all customers across the country efficiently and on a timely basis.
Our staples – fine granulated sugar, organic sugar, jam and jelly
mix as well as super fine sugar are now also available in stand up
Lantic also operates a custom blending and packaging operation in
re-sealable bags. This new packaging features high quality graphics
Toronto which blends and packs high sugar containing products, as
and visuals, re-sealable closure, a wide opening with a rip-proof
well as non-sugar products, for manufacturing and food processing
feature, all of which will enhance the end users’ experience of our
companies and selected products for retail customers. In addition
products. In addition, with the integration of the maple business,
to domestic sales opportunities, the Blending operation provides
we successfully launched Maple Sugar and Maple Sugar Flakes with
Lantic with the capability to leverage sugar containing products
major retailers. Also, the integration of our four websites into one
(“SCP”) quotas under certain trade agreements such as the existing
has been completed – www.LanticRogers.com – is now the one
North American Free Trade Agreement (“NAFTA”) and the yet to
portal where consumers can access product information, recipes,
be ratified United States-Mexico-Canada Agreement (“USMCA”),
investor information and other relevant company information.
as well as Canada-European Union Comprehensive Economic
and Trade Agreement (“CETA”). The total capacity of this plant is
The liquid market segment is comprised of core users whose
approximately 40,000 metric tonnes per year.
process or products require liquid sucrose and another customer
group that can substitute liquid sucrose with high fructose corn
Lantic also operates a full service rail truck transfer and distribution
syrup (“HFCS”). The purchasing patterns of substitutable users are
centre in Toronto.
Our Products
largely influenced by the absolute price spread between HFCS and
liquid sugar. Increasingly, other considerations, such as ingredient
labeling could also bear some influence on the purchasing decision.
All Lantic operations supply high quality white sugar as well as a
The liquid segment grew during the current fiscal year as a result
broad portfolio of specialty products which are differentiated by
of an increase in overall demand and conversion from HFCS to
colour, granulation, and raw material source. We are committed
sucrose that was beneficial for the Canadian refiners.
to responding to the evolving needs of our customers through
innovative packaging and supply chain solutions, as well as
customized product specifications.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 16
Lantic’s Taber plant is the only beet sugar factory in Canada and
of sugar beets to the Taber beet plant. The 2018 crop, which will be
is therefore the only producer of Canadian origin sugar. As such,
harvested in the fall and processed in fiscal 2019, would have been
this plant is the sole participant in an annual Canadian-specific
the last one under this contract. However, during the third quarter
quota to the U.S. of 10,300 metric tonnes. As part of the recently
of the current year, the Company entered into an additional two
announced USMCA, an additional quota of 9,600 metric tonnes of
year agreement with the Growers. As a result of this agreement,
Canadian origin sugar has been awarded to Canada but has not yet
the Company has secured sugar beet supply up to fiscal 2021.
taken effect. This additional market access should be beneficial to
Any shortfall in beet sugar production related to crop problems is
Lantic once the USMCA is ratified (see “Government Regulations
replaced by refined cane sugar from the Vancouver refinery, which
and Foreign Trade Policies with regards to Sugar” within the “Risk
acts as a swing capacity refinery.
Factors” section). In addition, there is a 7,090 metric tonnes U.S.
global refined sugar quota, which opens and is usually filled on a
The contract with the Growers stipulates a fixed price for all beet
first-come first-served pro-rata basis on October 1st of every year.
sugar derived from the beets processed in addition to a scaled
The Montréal and Vancouver cane operations and the Taber beet
incentive as the price of raw sugar increases. As a consequence,
factory can all participate in this global quota. Sales to the U.S.
the Company is exposed to fluctuations in the #11 world raw sugar
under both the Canadian-specific and the U.S. global quotas are
price for all domestic beet sugar volume sold against the #11 world
typically made at above average margins as U.S. pricing reflects
raw sugar prices, which is approximately 70,000 metric tonnes. The
agricultural and price support and typically exceeds Canadian
Company can use a pre-hedge strategy to mitigate the fluctuation
pricing, which is derived from #11 world raw sugar pricing. In fiscal
risks, which is explained below in the section “Use of Financial
2018, favourable market conditions continued which allowed the
Derivatives for Hedging”.
Company to complete some additional volume of sales of specialty
sugars over and above these two quotas, on a high tier (duty
Pricing
paid) basis. These favourable conditions occur when the spread
In fiscal 2018, the price of raw sugar fluctuated between U.S. 9.83
between #11 world raw sugar prices and U.S. refined sugar prices
cents per pound and U.S. 15.49 cents per pound and closed at
widens, combined with the devaluation of the Canadian dollar,
U.S. 11.20 cents per pound at the end of the fiscal year, which was
more than fully offset the U.S. import duties. With its broad and
2.90 cents lower than the closing value at September 30, 2017.
diversified production platform, the Company is well positioned
Although price variation during the year was much less than in
to take advantage of such opportunistic sales. The Company pays
fiscal 2017 when raw sugar prices fluctuated between U.S. 12.74
close attention to these market spreads and when appropriate,
and U.S. 23.90 cents per pound, the average raw sugar prices in
leverages a well-developed customer network to commercialize
fiscal 2018 was much lower than fiscal 2017 average. Since 2017,
these opportunities.
the global sugar market has been in a surplus situation driven by
increased output in India, the European Union and Thailand.
By-products relating to beet processing and cane refining activities
are sold in the form of beet pulp, beet and cane molasses. Beet
The price of refined sugar deliveries from the Montréal and
pulp is sold domestically and to export customers for livestock feed.
Vancouver raw cane facilities is directly linked to the price of the
The production of beet molasses and cane molasses is dependent
#11 world raw sugar market on the ICE. All sugar transactions are
on the volume of sugar processed through the Taber, Montréal and
economically hedged, thus eliminating the impact of volatility in
Vancouver plants.
Our Supply
world raw sugar prices. This applies to all refined sugar sales made
by these plants. Liquid sales to HFCS substitutable customers are
normally priced against competing HFCS prices and are historically
The global supply of raw cane sugar is ample. Over the last several
the lowest margin sales for the Company.
years, Lantic has purchased most of its raw cane sugar from Central
and South America for its Montréal and Vancouver cane refineries.
Whereas higher #11 world raw sugar values may have the effect
All raw cane sugar purchases are hedged on the Intercontinental
of reducing the competitiveness of the liquid business versus
Exchange (“ICE”) #11 world raw sugar market. This hedging
HFCS, the opposite holds true for our beet operation. In Taber,
eliminates gains or losses from raw sugar price fluctuations, and
the raw material used to produce sugar is sugar beets, for which
thus helps Lantic avoid the effects of volatility in the world raw
a fixed price, plus a scaled incentive on higher raw sugar values,
sugar market.
is paid by Lantic to the Growers. As a result, Lantic benefits from,
or alternatively, absorbs some of the changes associated with
In fiscal 2015, the Company entered into a four-year agreement
fluctuations in world raw sugar prices for all volume sold, excluding
with the Alberta Sugar Beet Growers (the “Growers”) for the supply
non U.S. export volume.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS World raw sugar cane prices
Cents per pound — yearly averages
(September 1996 to September 2018)
30
25
20
15
10
5
0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Source: #11 ICE
Operations
Employees are key to our success and employee safety is
continuously at the forefront of our priorities. Each of the Company’s
manufacturing operations incorporates occupational health and
safety components in its annual planning which are reviewed weekly
by senior management and quarterly by the Board of Directors.
For our refinery operations, labour remains the largest cost item.
17
$0.25 per gigajoule until 2021. This trend could increase the overall
energy costs for the Company.
The Montréal refinery operates under a firm gas contract as opposed
to an interruptible gas contract, which terminates in November
2021. This firm gas contract eliminates incremental energy costs
relating to service interruptions as a result of cold winter conditions.
Natural gas price continuation chart
(January 2004 to September 2018)
16
14
12
10
8
6
4
2
0
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Source: NYMEX
Our operating plants’ labour agreements have staggered expiry
Production reliability is also critical to the success of our operations.
dates. The Toronto warehouse bargaining agreement expired at
Every year, each plant makes considerable investments in preventive
the end of June 2018 and negotiations began during the fourth
maintenance and repairs, thus maintaining their efficient working
quarter of fiscal 2018.
order and competitiveness.
Energy is our second largest operating expense. We use large
The Sugar segment invested $14.9 million in “Stay in Business
amounts of natural gas in our refineries. We have a hedging
and Safety” capital projects for plant reliability, product security,
strategy in place with futures contracts to mitigate the impact of
information systems and environmental requirements, of which,
large fluctuations in natural gas prices. With a continued weakness
$1.3 million was spent for the air emission compliance solution in
in natural gas prices, Lantic added some hedged positions for fiscal
Taber. The Company is spending an increased amount on stay in
2019 through 2024 at prices equal to or lower than fiscal 2018’s
business and safety capital projects when compared to recent fiscal
average price. We will continue to closely monitor the natural
years due to the start of more significant projects being undertaken,
gas market in order to reduce volatility and maintain an overall
more specifically, in Montréal and in Vancouver.
market competitiveness. Lantic’s forward hedging policy mitigates
but does not fully eliminate the impact of year-over-year trends in
“Operational Excellence”, or return on investment capital projects,
natural gas prices.
forms the balance of the fiscal year capital investment for the Sugar
segment. In fiscal 2018, operational excellence capital expenditures
Provincial application of some form of carbon tax has been
amounted to $6.9 million, of which, $3.9 million was spent on
increasingly important across Canada. The Company’s two cane
an energy saving project at the Vancouver refinery that will be
refineries and its beet factory are subject to an additional levy
completed in the first half of fiscal 2019 for a total of approximately
pertaining to gas emissions, the latter having started on January 1,
$5.1 million. In addition, $1.1 million was spent on a new packaging
2017. On January 1, 2018, the Alberta carbon tax increased from
equipment that will bring retail packaging innovation to our product
$1.011 to $1.517 per gigajoule. In addition, the British Columbia
offering and will help reduce co-packaging costs. An energy saving
carbon tax increased from $1.49 to $1.7381 per gigajoule on
project at the Montréal refinery of approximately $3.3 million
April 1, 2018 and is expected to continue to increase annually by
started in fiscal 2017 and was completed by the end of the second
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
18
quarter of the current fiscal year. This project generated savings
for both the domestic and export markets. Moreover, our blending
commencing in the second half of the year. Another energy saving
facility was recently certified as a packing establishment for maple
project at the Montréal refinery was undertaken in fiscal 2018 and
products under the Maple products regulations. We are committed
should be completed in the first half of fiscal 2019 for a total capital
to increasing blending volume in both the industrial and retail
spend of $0.5 million. The palletizing station installation in Taber
sectors, including non-sugar containing blends.
was completed during the current fiscal year for a total capital of
approximately $1.2 million. These investments are undertaken
because of operational savings to be realized when such projects
MAPLE PRODUCTS SEGMENT
are completed.
On November 18, 2017 the Company acquired 100% of
Over the past few years, the Company has been actively working
Decacer for $43.0 million, after closing adjustments. Last year,
on solutions to reduce the air emissions footprint of the Taber
on August 5, 2017, the Company also acquired 100% of LBMTC
facility. During the current fiscal year, the Company completed
from Champlain Financial Corporation Inc., for approximately
the engineering and project design to upgrade the Taber beet
$166.4 million, after closing adjustments.
factory to be fully compliant with the new air emissions regulations
by the start of the fiscal 2020 beet harvesting season (crop 2019).
The combined acquisition of LBMTC and Decacer makes the
This solution is expected to require between $8.0 million and
Company one of the world’s largest branded and private label
$10.0 million in capital expenditures, of which, approximately
maple syrup bottling and distribution companies. It will also allow
$1.3 million was spent in fiscal 2018. The investment required for
the Company to diversify into the large and growing market of
this project is considered as a one-time incremental investment
maple syrup, a natural sweetener, as one of the leaders in the
to the ongoing capital expenditure program. For the 2019 beet
industry and expand its product offering, including a unique maple
harvesting season (crop 2018), the Taber facility obtained from
sugar dehydration technology.
Alberta Environment and Parks a variance for non-compliance of air
emission standards valid until May 2019, which allows us more than
Overview of the Maple Syrup and Maple Products Industry
sufficient time to process our 2018 sugar beet crop.
Maple syrup is fundamentally organic and gluten-free. Maple
syrup is increasingly viewed as a healthy alternative to traditional
The Company is fully committed to continuous improvement
sweeteners. Maple syrup is extracted mainly from two types of
and to the competitive supply of quality and safe products that
maple trees: sugar maple and red maple. The biggest concentration
meet or surpass customer and legislative requirements. Customer
of maple trees is located in Québec, New Brunswick, Ontario,
satisfaction is achieved and maintained by a qualified and motivated
Vermont, Maine and New Hampshire.
workforce that is accountable and responsible for all aspects
of quality and food safety. By understanding and responding to
The production of maple syrup takes place over a period of 6 to
evolving needs and expectations, we are well positioned with
8 weeks during the months of March and April of each year. The
respect to ever changing requirements such as the Global Food
syrup takes its origin from the sap which is collected from the maple
Safety Initiative, currently the universal benchmark for food safety
tree. Through photosynthesis, sugar maple and red maple convert
and consumer protection.
the starch stored during the warmer seasons into sugar. This sugar
then combines with the water absorbed by the tree’s roots and in
As a result of this commitment and focus, we are pleased to report
the spring, when temperatures rise, the sweet sap in the trunk and
that the Food Safety System Certification 22000 (“FSSC 22000”) is
roots expands, creating pressure inside the tree to ultimately push
in place at each of our three production facilities.
sap out of the maple tree.
Furthermore, our blending facility is also certified under the FSSC
The sap generally travels from the trees by gravity or through a
22000 standard, thereby demonstrating our commitment to
vacuum collector system attached to the trees by small taps
provide quality and safe products for our customers. The plant is
and connected to larger conveyance tubes that are themselves
already registered as a Canadian Food Inspection Agency (“CFIA”)
connected to the sugar shack, where it is ultimately boiled into
dairy establishment, which allows Lantic to pursue dry dairy blends
maple syrup.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 19
Global Supply and Demand
Pursuant to the Sales Agency Regulation, the FPAQ is responsible
Canada remains the largest producer of maple syrup, with over
for the marketing of bulk maple syrup in Québec. Therefore,
77% of the world’s production. The U.S. is the only other major
any container that contains 5L or more of maple syrup must be
producing country in the world, producing approximately 22%
marketed through the FPAQ as the exclusive selling agent for the
of the global supply. Québec represented 71% of the world’s
producers. Bulk maple syrup may be handed over to the FPAQ
production in 2017.
Regulatory Regime in Québec
or sold to “authorized buyers” accredited by the FPAQ. Maple
syrup producers may hand over unsold inventory to the FPAQ
before September 30th of each year. The FPAQ then arranges
There are approximately 7,300 commercial-scale maple syrup
for the sale of such unsold inventory to industrial and authorized
producers in Québec. The maple syrup producers in Québec are
buyers. In Québec, nearly 90% of the total production of maple
represented by the FPAQ, a body created in 1966 to support the
syrup is sold through the FPAQ to the authorized buyers, leaving
interests of maple syrup producers and to ensure a “level playing
only approximately 10% of the total production being sold directly
field”. The FPAQ generally regulates the buying and selling of bulk
by the producers to consumers or grocery stores. The authorized
maple syrup.
buyer status is renewed on an annual basis.
The FPAQ, in its capacity as bargaining and sales agent for the
Quality Control
producers of maple syrup in Québec as well as the body empowered
In Québec, maple syrup delivered in barrels is systematically
to regulate and organize the production and generic marketing of
inspected by an independent company. Every year, ACER Division
maple syrup, and the bulk buyers of maple syrup, represented by
Inspection Inc. verifies, inspects and grades over 225,000 barrels of
the Conseil de l’industrie de l’érable (the Maple Industry Council
maple syrup. This inspection system ensures a high quality control
(“MIC”)) entered into a Marketing Agreement, which is expected
on maple syrup that is produced and sold in Québec. Pursuant to
to be renewed on an annual basis.
the quality control process set up by the FPAQ and the MIC, the
Pursuant to the Marketing Agreement, authorized buyers must pay
in Laurierville, Québec, or at authorized buyers’ facilities.
a minimum price to the FPAQ for any maple syrup purchased from
the producers. The price is fixed on an annual basis and depends
The quality control system established by the FPAQ also facilitates
on the grade of the maple syrup. In addition, a premium is added
the certification of Québec maple syrup as “organic”, as it provides
to the minimum price for any organic maple syrup. Pursuant to
the ability to trace maple syrup back to the origin maple farm.
verification, inspection and grading is performed at the FPAQ plant
the Marketing Agreement, authorized buyers must buy maple
syrup from the FPAQ in barrels corresponding to the “anticipated
The Quota System
volume”. The anticipated volume must be realistic and in line
In 2004, the FPAQ adopted a policy with respect to production and
with volumes purchased in previous years and anticipated sales
marketing quotas which resulted in an annual production volume
forecasts.
allocated to each maple syrup business. The main objective of
the policy is to adjust the supply of maple syrup in response to
Producers of maple syrup in Québec are required to operate within
consumer demand, and more specifically, to stabilize selling prices
the framework provided for by the Marketing Act. Pursuant to the
for producers and, ultimately, the buying price for consumers, foster
Marketing Act, producers, including producers of maple syrup,
investments in the maple industry and maintain a steady number of
can take collective and organized control over the production
maple producing businesses in operation, regardless of their size.
and marketing of their products (i.e. a joint plan). Moreover, the
Marketing Act empowers the marketing board responsible for
The FPAQ Strategic Reserve
administering a joint plan, that is the FPAQ in the case of maple
In 2002, the FPAQ set up a strategic maple syrup reserve in order to
syrup, with the functions and role otherwise granted to the Régie
mitigate production fluctuations imputable to weather conditions
des marchés agricoles et alimentaires du Québec, the governing
and prevent such fluctuations from causing maple syrup prices
body created by the Government of Québec to regulate, among
to spike or drop significantly. The reserve was initially established
other things, the agricultural and food markets in Québec. As part
to set aside a production quantity equivalent to half of the then
of its regulating and organizing functions, the FPAQ may establish
annual demand. Each year, the FPAQ may organize a sale of a
arrangements to maintain fair prices for all producers and may
portion of its accumulated reserve. This allows bottlers to respond
manage production surpluses and their storage to offer security of
to supply shortages in the event of a poor harvest or unplanned
supply and price stability of maple syrup.
growth and demand. As at December 31, 2017, the FPAQ had
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 20
over 95 million pounds of bulk maple syrup, including 21 million
Storage Facilities and Distribution Centres
pounds of processing/industrial grade maple syrup, in its strategic
LBMT uses a distribution centre in Richmond, British Columbia and
reserve, which represents a little over half of the annual global retail
owns a bulk maple syrup storage facility in St-Robert-Bellarmin,
consumption.
Québec.
Regime Outside of Québec
In addition, during the year, Decacer entered into a ten-year
Outside of Québec, the maple syrup industry is generally organized
lease of a 35,000 square foot facility in Degelis that will be used
through producer-based organizations or associations, which
as a bulk maple syrup storage facility. The lease is effective as of
promote maple syrup in general and its industry and serve as the
November 1, 2018.
official voice for maple syrup producers with the public.
Products
Authorized Buyer Status and Relationship with the FPAQ
LBMT’s products are comprised of the following: bottled maple
LBMTC and Decacer are authorized buyers with the FPAQ. An
syrup, bulk maple syrup, maple sugar and flakes and ancillary or
authorized buyer is authorized to receive maple syrup in bulk (i.e.
derived maple products.
in barrels) directly from Québec maple syrup producers. LBMTC
and Decacer are both active members of the MIC, which represents
Bottled maple syrup is packaged in a variety of ways and sizes,
approximately sixty authorized buyers, in negotiating the Marketing
including bottles, plastic jugs and the traditional cans. Bottled
Agreement with the FPAQ. Of the sixty authorized buyers, six are
maple syrup is available in all commercial grades and in organic
major players and represent over 85% of the volume purchased
and non-organic varieties. The majority of the maple syrup is
through the FPAQ, two of which are LBMTC and Decacer.
purchased from Québec producers and is bottled at one of LBMT’s
bottling plants. LBMT’s bottled maple syrup is sold under a variety
LBMT has relationships with more than 1,400 maple syrup producers,
of brands, including Uncle Luke’s™, L.B. Maple Treat™, Great
mainly in Québec and Vermont. Most of these producers sell 100%
Northern™, Decacer and Highland Sugarworks™.
of their production to LBMT. Through its strong relationship with
such producers, LBMT was able to develop a leading position in
Bulk maple syrup is mainly sold in containers of 4L or 17L, barrels
certified organic maple syrup.
Operating Facilities
and totes in size to foodservice retailers as well as other wholesalers.
Bulk maple syrup is also sold for industrial use for bottling or for
use in food production, and privately under the L.B. Maple Treat™
LBMT currently operates three plants in Québec, namely, in Granby,
brand.
Dégelis and in St-Honoré-de-Shenley, and one in Websterville,
Vermont, and twelve operating lines allocated amongst the four
Maple derived products include maple blended syrup, maple
plants, and including one can-filling line in St-Ferdinand, Québec,
butter, maple cookies, maple taffy and other maple candies,
which is outsourced by LBMT to a third party. LBMT is the owner of
popcorn, teas and coffees. Maple products are mainly sold under
the St-Honoré and Degelis facilities.
the L.B. Maple Treat™ and Highland Sugarworks™ brands.
The Granby and Websterville facilities are both subject to a lease
Operations
which will expire on October 31, 2019 and August 25, 2021,
LBMT employs a total of approximately 200 employees in its
respectively. On August 1, 2018, the Company announced its
facilities in Québec and Vermont. Approximately 60 of LBMT’s
intention to relocate its Granby operation to a new built for purpose
employees, namely in the LBMT division in Granby, Québec,
state of the art leased property also in Granby. The relocation is not
are under a collective bargaining agreement, which is currently
expected to occur until late fiscal 2019 or beginning of fiscal 2020.
scheduled to expire in 2023.
Compared to the current facility, the new site will improve the overall
storage and distribution capabilities, allow the operations to better
Maple syrup cost represents more than 80% of the costs of sales for
align production flows and install a new high capacity bottling line.
the Maple products segment.
As a result of this decision, approximately $4.5 million will be spent
on return on investment capital investment, which will meet our
Maple syrup production and bottling is a low-risk process from the
normal threshold of a payback of less than five years. Monies will
standpoint of food safety and quality assurance processes. This
be spent towards new equipment and leasehold improvements, of
being said, world food standards are extremely important to us.
which, approximately $0.5 was spent in fiscal 2018.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
21
LBMT’s bottling plants are certified as follows: HACCP, BRC, Kosher,
in these estimates may result in small gains or losses on hedged
Halal, QAI and Ecocert Canada certified organic, Non Genetically
transactions. As an example, a customer may be taking more or less
Modified Organism (“Non GMO”) & Aliments du Québec and CFIA
sugar than determined under its contract and small gains or losses
inspected. LBMT is subject to numerous audits and certification
may be incurred as a result on the hedged transactions.
bodies where it continues to exceed performance requirements.
The Company mitigates the impact of the above by reviewing on
a daily basis the total hedged position to determine that, in total,
USE OF FINANCIAL DERIVATIVES FOR HEDGING
all sugar transactions are hedged. The Company also prepares a
Sugar
hedged transaction report by terminal periods to determine that
there are no straddles within each terminal period. In the event that
In order to protect itself against fluctuations in the world raw sugar
a straddle position exists due to circumstances discussed above, the
market, the Company follows a rigorous hedging program for all
Company will immediately correct the straddle and record any gain
purchases of raw cane sugar and sales of refined sugar.
or loss incurred in correcting the straddled position. In addition,
if a customer is late in taking delivery of its “priced” sugar, and if
The #11 world raw sugar market is only traded on the ICE, which
the Company needs to roll forward the un-drawn quantity to the
trades in U.S. dollars. One can trade sugar futures forward for a
following terminal period, the Company can invoice the customer
period of three years against four specific terminals per year
for all costs incurred in rolling forward the un-drawn volume.
(March, May, July and October). The terminal values are used to
determine the price settlement upon the receipt of a raw sugar
The Board of Directors authorized the Company to have a trading
vessel or the delivery of sugar to the Company’s customers. The
book to trade outright sugar futures, options, spreads and
ICE rules are strict and are governed by the New York Board of
white-raw differentials to a limit of 25,000 metric tonnes. It was also
Trade. Any amount owed, due to the movement of the commodity
agreed that a report on all activities would be reviewed quarterly
being traded, has to be settled in cash the following day (margin
at each Board meeting and that all trading book activities would
call payments/receipts).
be discontinued if trading losses of $250,000 were accumulated
in any given year. Any mark-to-market gains or losses on any open
For the purchasing of raw sugar, the Company enters into long-term
positions of the trading book at year end, as well as gains or losses
supply contracts with reputable raw sugar suppliers (the “Seller”).
on any liquidated positions of the trading book are recognized in
These long-term agreements will, amongst other things, specify
the Company’s adjusted earnings.
the yearly volume (in metric tonnes) to be purchased, the delivery
period of each vessel, the terminal against which the sugar will be
Beet Sugar
priced, and the freight rate to be charged for each delivery. The
As noted, the Company purchases sugar beets from the Growers
price of raw sugar will be determined later by the Seller, based
under a fixed price formula plus a scale incentive when raw sugar
upon the delivery period. The delivery period will correspond to
values exceed a certain price level. Except for sales to the U.S.,
the terminal against which the sugar will be priced.
under the export quota, to HFCS-substitutable accounts, and for
other export opportunities, all other sales are made using the same
The selling of refined sugar by the Company is also done under the
formula as cane sugar, following the #11 world raw sugar price.
#11 world raw sugar market. When a sales contract is negotiated
with a customer, the sales contract will determine the period of the
The Board of Directors authorized the Company to hedge forward
contract, the expected delivery period against specific terminals
up to 70% of the Taber sales to be made under the raw sugar formula
and the refining margin and freight rate to be charged over and
as long as a beet sugar contract was signed with the Growers for
above the value of the sugar. The price of the sugar is not yet
those years. This was done to allow the Company to benefit from
determined but needs to be fixed by the customer prior to delivery.
a sudden rise in the raw sugar market. Any gains earned (if a sales
The customer will make the decision to fix the price of the sugar
contract is entered at a lower raw value) or losses incurred (if a sales
when he feels the sugar market is favourable against the sugar
contract is entered at a higher raw value) when those positions are
terminal, as per the anticipated delivery period.
unwound, are recognized in the period when that quantity of beet
sugar is delivered. This is referred to as the Taber pre-hedge.
Inefficiencies could occur and small gains or losses could be incurred
on hedged transactions. Every year, the Company estimates sales
The Company does not have any volume under the pre-hedge
patterns against the receipt of sugar deliveries. Any discrepancies
program for fiscal 2019.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 22
Natural Gas
Foreign Exchange
The Board of Directors of Lantic approved an energy hedging
Sugar segment
policy to mitigate the overall price risks in the purchase of natural
Raw sugar costs for all sales contracts are based on the U.S. dollar.
gas.
The Company also buys natural gas in U.S. dollars. In addition,
sugar export sales and some Canadian sugar sales are denominated
The Company purchases between 3.0 million gigajoules and
in U.S. dollars.
3.5 million gigajoules of natural gas per year for use in its refining
operations. To protect against large and unforeseen fluctuations,
In order to protect itself against the movement of the Canadian
the Company can hedge forward up to 90% of its estimated usage
dollar versus the U.S. dollar, the Company, on a daily basis,
over the next 12 months and lower percentages of its estimated
reconciles all of its exposure to the U.S. dollar and will hedge the
usage on a longer term basis. The Company will hedge close to
net position against various forward months, estimated from the
its maximum level allowed if natural gas prices are below a certain
date of the various transactions.
percentage of the prior year’s average price and therefore lock in
year-over-year savings.
Maple products segment
These gas hedges are unwound in the months that the commodity
dollars or in Euro. In order to mitigate against the movement of the
is used in the operations, at which time any gains or losses incurred
Canadian dollar versus the U.S. dollars and Euro, LBMT enters into
are then recognized for the determination of adjusted gross
foreign exchange hedging contracts with certain customers. These
Certain export sales of maple syrup are denominated in U.S.
margins and earnings.
Variation Margins (Margin Calls)
foreign exchange hedging contracts are unwound when the money
is received from the customer, at which time any gains or losses
incurred are then recognized for the determination of adjusted
For all hedged sugar positions on the futures market, the Company
gross margins and earnings. Foreign exchange gains or losses on
must settle with the commodity broker on the following day any
any unhedged sales contracts are recorded when realized.
gains or losses incurred on the net hedged position, based on the
trading values at closing of the day. These daily requirements are
called “margin calls.”
When sugar prices are on the rise, the Company’s raw sugar
suppliers will normally price in advance large quantities of sugar to
benefit from these higher prices. On the other hand, the Company’s
customers will only price forward small quantities, hoping for
a downward correction in the marketplace. This will result in the
Company having a “short” paper position. As the price of sugar
continues to rise, the Company has to pay margin calls on a regular
basis. These margin calls are paid back to the Company when the
price of sugar declines or upon receipt or delivery of sugar.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 23
SELECTED FINANCIAL INFORMATION
The following is a summary of selected financial information of Rogers’ consolidated results for the 2018, 2017 and 2016 fiscal years. The
Company’s fiscal year ends on the Saturday closest to the end of September. All references to 2018, 2017 and 2016 represent the fiscal
years and fourth quarter ended September 29, 2018, September 30, 2017 and October 1, 2016. The financial results for fiscal 2018 include
those of Decacer since its acquisition on November 18, 2017 and the financial results for fiscal 2017 include those of LBMTC since its
acquisition on August 5, 2017. The Company’s audited consolidated financial statements were prepared under IFRS and the Company’s
functional and reporting currency is the Canadian dollar.
(In thousands of dollars, except volume and
per share information)
Total volume
Fourth Quarter
Fiscal Year
2018
2017
2018
2017
2016
Sugar (metric tonnes)
200,147
183,397
719,875
694,465
675,224
Maple syrup (‘000 pounds)
Total revenues
Gross margin
Results from operating activities (“EBIT”)
Net finance costs
Income tax expense
Net earnings
Net earnings per share:
Basic
Diluted
Dividends per share
10,549
$
5,764
$
211,807
192,984
29,255
18,231
4,735
3,863
9,633
0.09
0.09
0.09
22,631
10,138
3,360
2,764
4,014
0.04
0.04
0.09
45,119
$
805,201
130,853
84,100
17,132
18,239
48,729
0.46
0.43
0.36
5,764
$
682,517
77,298
41,031
10,218
8,907
21,906
0.23
0.22
0.36
n/a
$
564,411
128,223
98,598
9,612
23,407
65,579
0.70
0.64
0.36
CONSOLIDATED RESULTS OF OPERATIONS
the fourth quarter of fiscal 2018 and year-to-date, respectively, for
Total revenues
the mark-to-market of derivative financial instruments as explained
below (See “Adjusted results” section). In fiscal 2017, a mark-to-
Revenues for the current quarter amounted to $211.8 million,
market loss of $5.4 million and $26.0 million was recorded for the
an increase of $18.8 million versus the comparable quarter last
fourth quarter and year-to-date, respectively, resulting in gross
year. Year-to-date, revenues were $805.2 million compared
margins of $22.6 million and $77.3 million for their respective
to $682.5 million for fiscal 2017, representing an increase of
period.
$122.7 million. The improvement for both periods is mainly
attributable to increase in the Maple products segment revenues
Results from operating activities (“EBIT”)
as a result of the Decacer acquisition and a full year of LBMTC
EBIT is defined as earnings before interest and taxes. For the fourth
results. The positive contribution from the maple products segment
quarter of fiscal 2018, EBIT amounted to $18.2 million compared
was somewhat reduced by a decrease in revenues from the sugar
to $10.1 million last year. As mentioned above, the gross margin
segment, due mostly to a decrease in #11 raw sugar values, partially
comparison does not reflect the economic results from operating
offset by higher sales volume.
Gross margin
activities which were positively impacted by $1.9 million due to
the quarter-over-quarter variation in mark-to-market of derivative
financial instruments. The Sugar and Maple products segments
Gross margin of $29.3 million for the quarter and $130.9 million
both contributed positively to the EBIT for the current quarter,
year-to-date does not reflect the economic margin of the Company,
when compared to the same quarter last year when excluding the
as it includes a loss of $3.5 million and a gain of $4.5 million for
mark-to-market of derivative financial instruments. With regards to
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
24
the maple products segment, the EBIT increased by $2.8 million
segment contributed an additional $11.0 million in EBIT, when
as a result of a full quarter of operations for LBMTC and Decacer,
excluding the impact of the mark-to-market variation. In addition,
while the sugar segment improved by $3.4 million due mainly
LBMT’s acquisition costs for the full year of fiscal 2017 represented
to an increase in sales volume and a reduction in administration
$2.5 million in additional administration and selling expenses, which
and selling expenses since the Company incurred $1.9 million in
was a non-recurring cost in fiscal 2017. Finally, the sugar segment’s
acquisition costs in fiscal 2017 relating to the transaction to acquire
EBIT was $0.9 million lower than fiscal 2017, when excluding the
LBMTC.
impact of the mark-to-market variation and the non-recurring costs,
due mainly to additional distribution costs.
Fiscal 2018 results from operating activities increased from
$41.0 million to $84.1 million, a $43.1 million improvement versus
Net finance costs
last fiscal year. Most of the positive variance when compared
Net finance costs consisted of interest paid under the revolving
to fiscal 2017 is explained by the mark-to-market variation of
credit facility, as well as interest expense on the convertible
derivative financial instruments, which resulted in an increase of
unsecured subordinated debentures and other interest. It also
$30.5 million in EBIT. With the benefits of having the LBMTC for the
includes a mark-to-market gain or loss on the interest swap
full year and Decacer since its acquisition date, the maple products
agreements.
The net finance costs breakdown is as follows:
(In thousands of dollars)
Interest expense on convertible unsecured
subordinated debentures
Interest on revolving credit facility
Amortization of deferred financing fees
Other interest expense
Amortization of transition balances and net change in fair value of
interest rate swap agreements
Net finance costs
Fourth Quarter
Fiscal Year
2018
$
2,072
1,280
329
1,182
(128)
4,735
2017
$
1,469
1,245
209
521
(84)
3,360
2018
$
7,691
5,374
1,422
3,177
2017
$
5,813
3,474
781
521
(532)
17,132
(371)
10,218
The interest expense on the convertible unsecured subordinated
The interest on the revolving credit facility for the current quarter
debentures increased by approximately $0.6 million, for the
was comparable to the same period last year. Year-to-date, interest
current quarter and by $1.9 million, year-to-date, when compared
expense for fiscal 2018 was $1.9 million higher than fiscal 2017
to the same periods last year. The additional interest expense in
due mainly to the additional drawdown as a result of the LBMTC
fiscal 2018 is mostly explained by the issuance of the Sixth series
and Decacer acquisitions. The increase in interest rates also had a
5.0% convertible unsecured subordinated debentures (“Sixth
negative impact in the current year when compared to last fiscal
series debentures”) on July 28, 2017, following the acquisition
year.
of LBMTC. In fiscal 2018, the Fifth series 5.75% convertible
unsecured subordinated debentures (“Fifth series debentures”)
The other interest expense pertains mainly to interest payable
were repaid on March 28, 2018 using a portion of the funds raised
to the FPAQ on syrup purchases, in accordance with its payment
on the same day from the issuance of the Seventh series 4.75%
terms. The variation quarter-over-quarter and year-over-year is as
convertible unsecured subordinated debentures (“Seventh series
a result of the timing in the acquisitions of LBMTC and Decacer.
debentures”). Increased borrowings throughout fiscal 2018 more
than offset the reduction in interest rate on the Sixth and Seventh
The issuance of the Sixth and Seventh series debentures as well as
series debentures. Accretion expense on the equity component
additional drawdown under the revolving credit facility also had a
of the two convertible unsecured subordinated debentures also
negative impact on the amortization of deferred financing costs for
contributed to the increase when compared to the same periods
the quarter and year-to-date.
last year.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
25
Starting on October 2, 2016, interest rate swap agreements were
in the current quarter and year-to-date, the Company removed
designated as effective cash flow hedging instruments and as a
a gain of $0.1 million and $0.5 million, respectively from other
result, mark-to-market adjustments are now recorded in other
comprehensive income and recorded a gain of the same amount
comprehensive income. The transitional balances, representing
in net finance costs. For the comparative periods of fiscal 2017, the
the mark-to-market value recorded as of October 1, 2016, will
Company recorded a mark-to-market gain of $0.1 million for the
be subsequently removed from other comprehensive income
fourth quarter and of $0.4 million for the full year. The transitional
when each of the fixed interest rate tranches will be liquidated,
balance relating to interest rate swap agreements will be fully
in other words, when the fixed interest rate is paid. As a result,
depleted in fiscal 2020. See “Adjusted results” section.
Taxation
The income tax expense (recovery) is as follows:
(In thousands of dollars)
Current
Deferred
Income tax expense
Fourth Quarter
Fiscal Year
2018
$
3,091
772
3,863
2017
$
(2,353)
5,117
2,764
2018
$
17,967
272
18,239
2017
$
13,198
(4,291)
8,907
The variation in current and deferred tax expense, quarter-over-
instruments somewhat offset by a slightly lower contribution from
quarter and year-over-year, is consistent with the increase in
the Sugar segment, additional distribution costs, net finance costs
earnings before taxes in fiscal 2018.
and acquisition costs.
Deferred income taxes reflect temporary differences, which result
Adjusted results
primarily from the difference between depreciation claimed for
IIn the normal course of business, the Company uses derivative
tax purposes and depreciation amounts recognized for financial
financial instruments consisting of sugar futures, foreign exchange
reporting purposes, employee future benefits and derivative
forward contracts, natural gas futures and interest rate swaps. For
financial instruments. Deferred income tax assets and liabilities
fiscal 2016 and prior years, all derivative financial instruments were
are measured using the enacted or substantively enacted tax rates
marked-to-market at each reporting date, with the unrealized
anticipated to apply to income in the years in which temporary
gains/losses charged to the consolidated statement of earnings. As
differences are expected to be realized or reversed. The effect of a
of October 2, 2016, the Company adopted all the requirements of
change in income tax rates on future income taxes is recognized in
IFRS 9 (2014) Financial Instruments. As a result, the Company has
income in the period in which the change occurs.
designated as effective cash flow hedging instruments its natural
Net earnings
gas futures and its interest rate swap agreements entered into in
order to protect itself against natural gas prices and interest rate
Net earnings for the current quarter were $9.6 million compared to
fluctuations as cash flow hedges. Derivative financial instruments
$4.0 million for fiscal 2017. The increase in net earnings is mostly
pertaining to sugar futures and foreign exchange forward contracts
explained by the after-tax contribution of the Sugar and Maple
continue to be marked-to-market at each reporting date and are
products segments, positive variations in the mark-to-market of
charged to the consolidated statement of earnings. In addition,
derivative financial instruments and in acquisitions costs in fiscal
the derivative financial instruments pertaining to foreign exchange
2018. Net earnings were somewhat off-set by the after tax impact
forward contracts on maple syrup sales were marked-to-market
on an increase in net finance costs.
as at September 29, 2018 and also charged to the consolidated
statement of earnings. The unrealized gains/losses related to
Year-to-date, net earnings amounted to $48.7 million, a $26.8 million
natural gas futures and interest rate swaps are accounted for in
increase versus the comparative period last year. The increase is
other comprehensive income. The amount recognized in other
also explained by the after-tax contribution of the Maple products
comprehensive income is removed and included in net earnings
segment and a gain on the mark-to-market of derivative financial
under the same line item in the consolidated statement of earnings
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
26
and comprehensive income as the hedged item, in the same
contracts has been delivered. As at September 29, 2018, there
period that the hedged cash flows affect net earnings, reducing
were no embedded derivatives outstanding.
earnings volatility related to the movements of the valuation of
these derivatives hedging instruments. The transitional marked-to-
Management believes that the Company’s financial results are
market balances outstanding as of October 1, 2016 are amortized
more meaningful to management, investors, analysts and any
over time based on their settlements until all existing natural
other interested parties when financial results are adjusted by
gas futures and all existing interest rate swaps agreements have
the gains/losses from financial derivative instruments and from
expired.
embedded derivatives. These adjusted financial results provide a
more complete understanding of factors and trends affecting our
The Company sells refined sugar to some clients in U.S. dollars.
business. This measurement is a non-GAAP measurement. See
Prior to October 1, 2016, these sales contracts were viewed as
“Non-GAAP measures” section.
having an embedded derivative if the functional currency of the
customer was not U.S. dollars, the embedded derivative being the
Management uses the non-GAAP adjusted results of the operating
source currency of the transaction. The embedded derivatives were
company to measure and to evaluate the performance of the
marked-to-market at each reporting date, with the unrealized gains/
business through its adjusted gross margin, adjusted EBIT and
losses charged to the consolidated statement of earnings with a
adjusted net earnings. In addition, management believes that these
corresponding offsetting amount charged to the consolidated
measures are important to our investors and parties evaluating our
statement of financial position. As of October 2, 2016, the U.S.
performance and comparing such performance to past results.
dollars of these sales contract were no longer considered as being
Management also uses adjusted gross margin, adjusted EBITDA,
an embedded derivative as it was determined that the U.S. dollar
Maple products segment Adjusted EBITDA, adjusted EBIT and
is commonly used in Canada. This change in estimate was applied
adjusted net earnings when discussing results with the Board of
prospectively, as a result, only the embedded derivatives relating
Directors, analysts, investors, banks and other interested parties.
to sales contracts outstanding as of October 1, 2016 continued to
See “Non-GAAP measures” section.
be marked-to-market every quarter until all the volume on these
The results of operations would therefore need to be adjusted by the following:
Income (loss)
Fourth Quarter Fiscal 2018
Fourth Quarter Fiscal 2017
(In thousands of dollars)
Mark-to-market on:
Sugar futures contracts
Foreign exchange forward contracts
Embedded derivatives
Total mark-to-market adjustment on derivatives
Cumulative timing differences
Adjustment to cost of sales
Amortization of transitional balance to cost of
sales and changes in fair value of
expired contracts for cash flow hedges
Total adjustment to costs of sales (1) (2)
Sugar
$
Maple
Products
$
(1,896)
290
—
(1,606)
(3,134)
(4,740)
582
(4,158)
—
660
—
660
(11)
649
—
649
Total
$
(1,896)
950
—
(946)
(3,145)
(4,091)
582
(3,509)
Sugar
$
(1,313)
(1,206)
272
(2,247)
(4,172)
(6,419)
852
(5,567)
Maple
Products
$
—
164
—
164
—
164
—
164
Total
$
(1,313)
(1,042)
272
(2,083)
(4,172)
(6,255)
852
(5,403)
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
27
Income (loss)
(In thousands of dollars)
Fiscal 2018
Sugar
$
Maple
Products
$
Total
$
Sugar
$
Mark-to-market on:
Sugar futures contracts
Foreign exchange forward contracts
Embedded derivatives
(3,154)
—
(3,154)
231
51
1,263
1,494
—
51
Total mark-to-market adjustment on derivatives
(2,872)
1,263
(1,609)
Cumulative timing differences
Adjustment to cost of sales
Amortization of transitional balance to cost of
sales and changes in fair value of
expired contracts for cash flow hedges
Total adjustment to costs of sales (1) (2)
3,076
309
204
1,572
2,715
2,919
—
1,572
3,385
1,776
2,715
4,491
(9,311)
(1,025)
254
(10,082)
(19,061)
(29,143)
3,018
(26,125)
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section.
Fiscal 2017
Maple
Products
$
—
164
—
164
—
164
—
164
Total
$
(9,311)
(861)
254
(9,918)
(19,061)
(28,979)
3,018
(25,961)
The fluctuations in mark-to-market adjustment on derivatives are
liquidated, in other words, when the natural gas is used. As a result,
due to the price movements in #11 world raw sugar and foreign
in fiscal 2018, the Company removed a gain of $0.6 million and
exchange variations. See “Non-GAAP measures” section.
$2.7 million from other comprehensive income and recorded a gain
of the same amount in cost of sales for the fourth quarter and year-
Cumulative timing differences, as a result of mark-to-market gains
to-date, respectively. The transitional balance relating to natural
or losses, are recognized by the Company only when sugar is sold
gas futures will be fully depleted in fiscal 2020. See “Non-GAAP
to a customer. The gains or losses on sugar and related foreign
measures” section.
exchange paper transactions are largely offset by corresponding
gains or losses from the physical transactions, namely sale and
The above described adjustments are added or deducted to the
purchase contracts with customers and suppliers. See “Non-GAAP
mark-to-market results to arrive at the total adjustment to cost of
measures” section.
sales. For the fourth quarter of the current year, the total cost of
sales adjustment is a loss of $3.5 million versus a loss of $5.4 million
As previously mentioned, starting on October 2, 2016, natural
to be added to the consolidated results for the comparable quarter
gas futures were designated as an effective cash flow hedging
last year. Year-to-date, the total cost of sales adjustment is a gain of
instrument and as a result, mark-to-market adjustments are
$4.5 million to be deducted from the consolidated results compared
now recorded in other comprehensive income. The transitional
to a loss of $26.0 million to be added to the consolidated results
balances, representing the mark-to-market value recorded as
for the comparable period last year. See “Non-GAAP measures”
of October 1, 2016, will be subsequently removed from other
section
comprehensive income when the natural gas futures will be
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
28
Segmented information
Following the acquisition of LBMT, the Company has two distinct segments, namely, refined sugar and by-products, together referred to as
the “Sugar” segment and maple syrup and derived products, together referred to as the “Maple products” segment.
The following is a table showing the key results by segments:
Consolidated results
Fourth Quarter Fiscal 2018
Fourth Quarter Fiscal 2017
(In thousands of dollars)
Revenues
Gross margin
Administration and selling expenses
Distribution costs
Results from operating activities
Non-GAAP results:
Total adjustment to the cost of sales (1) (2)
Adjusted Gross Margin (1)
Adjusted results from operating activities (1)
Depreciation of property, plant and
equipment and amortization of
intangible assets
Sugar Segment Acquisition costs (1)
Maple Segment non-recurring costs (1)
Adjusted EBITDA (1)
Additional information:
Addition to property, plant and equipment
and intangible assets
Sugar
$
Maple
Products
$
Total
$
Sugar
$
Maple
Products
$
Total
$
161,040
50,767
211,807
166,318
26,666
192,984
29,255
19,041
21,640
4,751
2,908
13,981
4,158
25,798
18,139
7,615
2,215
1,150
4,250
6,966
4,058
18,231
(649)
3,509
6,966
3,601
32,764
21,740
3,431
1,165
4,596
—
—
—
(4)
—
(4)
21,570
4,762
26,332
19,942
7,400
2,451
9,190
5,567
24,608
14,757
3,298
1,887
—
3,590
1,948
694
948
(164)
3,426
784
491
—
1,076
2,351
22,631
9,348
3,145
10,138
5,403
28,034
15,541
3,789
1,887
1,076
22,293
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section.
10,894
608
11,502
6,660
64
6,724
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
Consolidated results
Fiscal Year 2018
Fiscal Year 2017
29
(In thousands of dollars)
Revenues
Gross margin
Administration and selling expenses
Distribution costs
Results from operating activities
Non-GAAP results:
Depreciation of property, plant and
equipment and amortization of
intangible assets
Sugar Segment Acquisition costs (1)
Maple Segment non-recurring costs (1)
Adjusted EBITDA (1)
Additional information:
Addition to property, plant and equipment
and intangible assets
Sugar
$
Maple
Products
$
Total
$
Sugar
$
Maple
Products
$
Total
$
601,958
203,243
805,201
655,851
26,666
682,517
102,578
28,275
130,853
21,070
11,001
10,760
3,922
70,748
13,352
32,071
14,682
84,100
73,708
23,655
9,970
40,083
26,125
99,833
66,208
13,105
2,517
—
3,590
1,948
694
948
77,298
25,603
10,664
41,031
(164)
25,961
3,426
103,259
784
66,992
491
—
1,076
2,351
13,596
2,517
1,076
84,181
13,495
4,979
18,474
—
—
—
—
1,859
1,859
81,324
18,618
99,942
81,830
Total adjustment to the cost of sales (1) (2)
(2,919)
(1,572)
(4,491)
Adjusted Gross Margin (1)
99,659
26,703
126,362
Adjusted results from operating activities (1)
67,829
11,780
79,609
23,352
1,792
25,144
17,306
64
17,370
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section.
Results from operation by segment
Sugar
Revenues
Volume (MT)
Revenues ($000’s)
Fourth Quarter
Fiscal Year
2018
200,147
161,040
2017
183,397
166,318
2018
719,875
601,958
2017
694,465
655,851
The total Canadian nutritive sweetener market, which includes
increase of approximately 25,400 metric tonnes above fiscal 2017
both refined sugar and HFCS, increased by approximately 1.5% in
volume.
fiscal 2018 while the per capita sugar consumption remained stable
during the year.
The
industrial market segment
increased by approximately
5,100 metric tonnes and approximately 400 metric tonnes for
The Company’s total sugar deliveries for the fourth quarter of
the last quarter of fiscal 2018 and year-to-date, respectively. The
fiscal 2018 were very strong and increased by approximately 9%
improvement in volume for the fourth quarter is mostly due to
or approximately 16,700 metric tonnes versus the comparable
timing, which more than offset the lag in volume that was reported
period last year, with improvements in all categories versus the
for the first nine months of the current fiscal year and as a result, the
fourth quarter last year. The improvement year-over-year was not as
industrial volume ended fiscal 2018 slightly above last fiscal year.
pronounced as a percentage but still finished with a commendable
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
30
Total consumer volume also had a solid fourth quarter with an
Finally, the export volume increased by approximately 4,500 metric
increase of approximately 1,700 metric tonnes when compared to
tonnes and approximately 11,300 metric tonnes for the current
the same period last year as a result of additional retail promotional
quarter and year-to-date, respectively, when compared to the same
activities in the last quarter of the current year. Overall, the
periods last year. Variation for both periods is attributable to timing
consumer volume ended the year approximately 400 metric tonnes
in sales deliveries to Mexico, as well as additional U.S. high tier
lower than the last twelve months of fiscal 2017.
opportunistic sales versus last year’s comparative periods.
The liquid market continued to deliver higher volume when
The decrease in revenues for the fourth quarter of fiscal 2018 and
compared to the prior year with the strongest increase quarter-
year-to-date versus the comparable periods last year is mainly
over-quarter in fiscal 2018. For the current quarter, volume grew
explained by a decrease in the weighted average raw sugar values
by approximately 5,400 metric tonnes, raising the fiscal 2018 liquid
in Canadian dollars, since the cost of raw sugar for all domestic
volume by approximately 14,100 metric tonnes above last year.
sales is passed on to the Company’s customers which more than
The increase for the quarter and year-to-date is due mainly to the
offset the increase in revenues generated by the additional volume
recapture of some business temporarily lost to HFCS in fiscal 2017
for both periods.
and to additional demand from existing customers.
Gross margin
Two major factors impact gross margins: the selling margin of the products and operating costs.
Gross margin
Fourth Quarter
Fiscal Year
(In thousands of dollars, except per metric tonne information)
Gross margin
Total adjustment to cost of sales (1) (2)
Adjusted gross margin
Gross margin per metric tonne
Adjusted gross margin per metric tonne
Included in Gross margin:
2018
$
21,640
4,158
25,798
108.12
128.90
2017
$
19,041
5,567
24,608
103.82
134.18
2018
$
102,578
(2,919)
99,659
142.49
138.44
2017
$
73,708
26,125
99,833
106.14
143.76
Depreciation of property, plant and equipment
3,252
3,129
12,813
12,466
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section.
Gross margin of $21.6 million for the quarter and $102.6 million
Adjusted gross margin for the quarter was $25.8 million compared
year-to-date does not reflect the economic margin of the
to $24.6 million for the same quarter last year, representing an
sugar segment, as it includes a loss of $4.2 million and a gain
increase of $1.2 million. The increase is mainly driven by higher
of $2.9 million for the fourth quarter of fiscal 2018 and year-to-
volume and an increase in by-products revenues. However, these
date, respectively, for the mark-to-market of derivative financial
positive variations were somewhat offset by lower #11 raw sugar
instruments as explained above. In fiscal 2017, a mark-to-market
values when compared to last year, which had a negative impact on
loss of $5.6 million and $26.1 million was recorded for the fourth
Taber’s domestic sales gross margin rate and higher maintenance
quarter and year-to-date, respectively, resulting in gross margins of
costs in Montreal and Taber. The current quarter’s adjusted gross
$19.0 million and $73.7 million for their respective periods. These
margin rate was $128.90 per metric tonne as compared to $134.18
mark-to-market gains and losses must be deducted from or added
per metric tonne in fiscal 2017, a decrease of $5.28 per metric
to the gross margin in order to arrive to adjusted gross margin
tonne. This decrease is mostly explained by the lower #11 raw
results, as explained above.
sugar prices, the unfavorable sales mix with the strongest volume
increase in industrial, liquid and opportunistic export sales and the
We will therefore comment on adjusted gross margin results.
additional maintenance costs.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
31
Year-to-date, adjusted gross margin of $99.7 million includes
gross margin rate of $138.44 per metric tonne includes a gain of
a non-cash pension plan income of $1.5 million recorded as a
$2.05 per metric tonne for the non-cash pension plan income,
result of the approval by the Alberta Treasury Board and Finance
explained above, thus reducing the adjusted gross margin rate
of an amendment to the Alberta hourly pension plan. Excluding
to $136.39 per metric tonne as compared to $143.76 for fiscal
this non-cash income, adjusted gross margin was $98.2 million or
2017, a decrease of $7.37 per metric tonne. As it was the case for
$1.7 million lower than last year. The decrease is mainly explained
the quarter, the lower #11 raw sugar values during the year, the
by lower #11 raw sugar prices, which had the biggest impact in the
unfavorable sales mix and additional maintenance expenses had a
second half of the current year, as well as additional maintenance
negative impact on adjusted gross margin per metric tonne when
costs in the last quarter of fiscal 2018. The year-to-date adjusted
compared to last year.
Other expenses
(In thousands of dollars)
Administration and selling expenses
Distribution costs
Included in Administration and selling expenses:
Fourth Quarter
Fiscal Year
2018
$
4,751
2,908
2017
$
7,400
2,451
2018
$
21,070
10,760
2017
$
23,655
9,970
Amortization of intangible assets
179
169
682
639
Administration and selling expenses for the fourth quarter of
Distribution expenses for the quarter and year-to-date were
fiscal 2018 and year-to-date were $2.6 million lower than both
approximately $0.5 million and $0.8 million higher, respectively,
comparable periods last year, mainly due to a charge of $1.9 million
than the comparable periods due to higher volume transferred to
and $2.5 million in fiscal 2017 for the quarter and year-to-date,
the Toronto distribution center, higher freight rates and additional
respectively, relating to the acquisition of LBMTC. In addition, for
storage costs in Taber.
the current quarter, employee benefits were lower when compared
to the fourth quarter of fiscal 2017.
Results from operating activities
Fourth Quarter
Fiscal Year
(In thousands of dollars)
Results from operating activities
Adjusted results from operating activities (1)
(1) See “Non-GAAP measures” section.
2018
$
13,981
18,139
2017
$
9,190
14,757
2018
$
70,748
67,829
2017
$
40,083
66,208
The results from operating activities for fiscal 2018 of $14.0 million
In addition, the acquisition of LBMTC has resulted in expenses that
and $70.7 million for the fourth quarter and year-to-date,
do not reflect the economic performance of the operation of the
respectively, do not reflect the adjusted results from operating
Sugar Segment. Finally, non-cash depreciation and amortization
activities of the Sugar segment, as they include gains and losses
expense also had a negative impact on the results from operating
from the mark-to-market of derivative financial instruments, as well
activities. As such Management believes that the Sugar segment’s
as timing differences in the recognition of any gains and losses on
financial results are more meaningful to management, investors,
the liquidation of derivative instruments.
analysts, and any other interested parties when financial results are
adjusted for the above mentioned items.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
32
Adjusted EBITDA
The results of operations would therefore need to be adjusted by the following:
Adjusted EBITDA
(In thousands of dollars)
Results from operating activities
Total adjustment to cost of sales (1) (2)
Adjusted results from operating activities
Depreciation of property, plant and equipment and
amortization of intangible assets
Sugar Segment Acquisition costs (1)
Adjusted EBITDA (1)
Fourth Quarter
Fiscal Year
2018
$
13,981
4,158
18,139
3,431
—
2017
$
9,190
5,567
14,757
3,298
1,887
21,570
19,942
2018
$
70,748
(2,919)
67,829
13,495
—
81,324
2017
$
40,083
26,125
66,208
13,105
2,517
81,830
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section.
Adjusted EBITDA for the fourth quarter amounted to $21.6 million,
$81.8 million, a $0.5 million decrease when compared to fiscal 2017.
which represented an increase of $1.6 million versus the last
The decrease is mostly explained by an increase in distribution
quarter of fiscal 2017. The increase is explained by higher
costs of $0.8 million, somewhat offset by an increase in adjusted
adjusted gross margins of $1.3 million and lower administration
gross margin of $0.2 million and a decrease of $0.1 million in
and selling expenses of $0.8 million, excluding depreciation and
administration and selling expenses, the latter two items, excluding
amortization expense and Acquisition costs, somewhat offset by
depreciation and amortization expense and Acquisition costs, as
higher distribution costs of $0.5 million, as explained above. Year-
explained above.
to-date, adjusted EBITDA amounted to $81.3 million compared to
Maple products
Results for the current year include Decacer’s results since its acquisition on November 18, 2017. Results for fiscal 2017 represent results
generated by LBMTC since its acquisition on August 5, 2017.
Revenues
Fourth Quarter
Fiscal Year
Volume (‘000 pounds)
Revenues ($000’s)
2018
10,549
50,767
2017
5,764
26,666
2018
45,119
203,243
2017
5,764
26,666
Revenues for the fourth quarter and year-to-date amounted to $50.8 million and $203.2 million, respectively, compared to $26.7 million for
both periods last year.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
33
Gross margin
Two major factors impact gross margins: the selling margin of the products and operating costs.
Gross margin
Fourth Quarter
Fiscal Year
(In thousands of dollars, except adjusted gross margin rate information)
Gross margin
Total adjustment to cost of sales (1) (2)
Adjusted gross margin
Gross margin percentage
Adjusted gross margin percentage
Included in Gross margin:
2018
$
7,615
(649)
6,966
15.0%
13.7%
2017
$
3,590
(164)
3,426
13.5%
12.8%
2018
$
28,275
(1,572)
26,703
13.9%
13.1%
2017
$
3,590
(164)
3,426
13.5%
12.8%
Depreciation of property, plant and equipment
309
139
1,479
139
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated operating results section and “Segmented information” section.
Gross margin of $7.6 million and $28.3 million for the quarter and year-to-date does not reflect the economic margin of the Maple products
segment, as it includes a gain of $0.6 million and $1.6 million, respectively, for the mark-to-market of derivative financial instruments on
foreign exchange contracts.
We will therefore comment on adjusted gross margin results.
Adjusted gross margin for the current quarter was $7.0 million, representing an adjusted gross margin percentage of 13.7% while year-to-
date adjusted gross margin amounted to $26.7 million or 13.1% of revenues. However, included in cost of sales for the first quarter of fiscal
2018, was an amount of $0.3 million due to an increase in value of the finished goods inventory at the date of acquisition of Decacer. Under
IFRS, all inventories of finished goods upon acquisition are valued at the estimated selling price less the sum of the costs of disposal, and a
reasonable profit allowance for the selling effort of the acquirer which results in lower selling margins when the acquired inventory is sold.
Without this adjustment, adjusted gross margin for fiscal 2018 would have been $27.0 million or 13.3% of revenues.
Fiscal 2017 results only represents approximately eight weeks of operations of LBMTC since its acquisition date on August 5, 2017.
Other expenses
Other expenses
(In thousands of dollars)
Administration and selling expenses
Distribution costs
Included in Administration and selling expenses:
Fourth Quarter
Fiscal Year
2018
$
2,215
1,150
2017
$
1,948
694
2018
$
11,001
3,922
2017
$
1,948
694
Amortization of intangible assets
856
352
3,500
352
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
34
Administration and selling expenses amounted to $2.2 million and $11.0 million for the current quarter and year-to-date, respectively, the
latter includes non-recurring costs of $0.9 million and consulting fees and other costs totalling $0.7 million associated with acquisition of
Decacer in the first quarter of the current year. This compares to $1.9 million for the quarter and year-to-date of fiscal 2017, which included
$0.4 million in acquisition costs and non-recurring items.
Distribution expenses were $1.2 million for the fourth quarter of fiscal 2018 and $3.9 million year-to-date, compared to $0.7 million for both
periods last year.
Results from operating activities
Results from operating activities
Fourth Quarter
Fiscal Year
(In thousands of dollars)
Results from operating activities
Adjusted results from operating activities (1)
(1) See “Non-GAAP measures” section.
2018
$
4,250
3,601
2017
$
948
784
2018
$
13,352
11,780
2017
$
948
784
The results from operating activities for fiscal 2018 of $4.3 million and $13.4 million for the fourth quarter and year-to-date, respectively, do
not reflect the adjusted results from operating activities of the Maple products segment, as they include gains and losses from the mark-
to-market of derivative financial instruments, as well as timing differences in the recognition of any gains and losses on the liquidation of
derivative instruments.
In addition, the acquisitions of LBMTC and Decacer resulted in expenses that do not reflect the economic performance of the operation
of the Maple products segment. Finally, non-cash depreciation and amortization expense also had a negative impact on the results from
operating activities. As such Management believes that the Maple products segment’s financial results are more meaningful to management,
investors, analysts, and any other interested parties when financial results are adjusted for the above mentioned items.
Adjusted results
The results of operations would therefore need to be adjusted by the following:
Adjusted results
(In thousands of dollars)
Results from operating activities
Total adjustment to cost of sales (1) (2)
Fourth Quarter
Fiscal Year
2018
$
4,250
(649)
2017
$
948
(164)
Adjusted results from operating activities
3,601
784
Non-recurring expenses:
Acquisition costs incurred
Other one-time non-recurring items
Finished goods value at the estimated selling price less
disposal costs as of the acquisition date
Depreciation and amortization
LBMT Adjusted EBITDA (1) (2)
—
(4)
—
1,165
4,762
211
195
670
491
2,351
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated operating results section and “Segmented information” section.
Other non-recurring items mainly include severance costs expensed to date.
2018
$
13,352
(1,572)
11,780
675
923
261
4,979
18,618
2017
$
948
(164)
784
211
195
670
491
2,351
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
35
Consolidated results
The reconciliation of the Adjusted gross margin, adjusted results from operating activities and adjusted EBITDA by segment as well as the
consolidated Adjusted net earnings is as follows. Results were explained above in each segment.
Consolidated results
Fourth Quarter Fiscal 2018
Fourth Quarter Fiscal 2017
(In thousands of dollars)
Gross margin
Total adjustment to the cost of sales (1) (2)
Adjusted Gross Margin (1)
Results from operating activities
Total adjustment to the cost of sales (1) (2)
Sugar
$
Maple
Products
$
Total
$
21,640
7,615
29,255
4,158
25,798
13,981
4,158
(649)
3,509
6,966
4,250
32,764
18,231
(649)
3,509
Sugar
$
19,041
5,567
24,608
9,190
5,567
Adjusted results from operating activities (1)
18,139
3,601
21,740
14,757
Depreciation of property, plant and
equipment and amortization of
intangible assets
Sugar Segment Acquisition costs (1)
Maple Segment non-recurring costs (1)
3,431
1,165
4,596
—
—
—
(4)
—
(4)
3,298
1,887
—
Adjusted EBITDA (1)
21,570
4,762
26,332
19,942
Net earnings as per financial statements
Total adjustment to the cost of sales (1) (2)
Amortization of transitional balance to net
finance costs (1) (2)
Income taxes on above adjustments
Adjusted net earnings (1)
Net earnings per share basic, as per
financial statements
Adjustment for the above
Adjusted net earnings per share basic (1)
9,633
3,509
(128)
(892)
12,122
0.09
0.03
0.12
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated operating results section and “Segmented information” section.
Maple
Products
$
Total
$
3,590
22,631
(164)
3,426
948
(164)
784
491
—
1,076
2,351
5,403
28,034
10,138
5,403
15,541
3,789
1,887
1,076
22,293
4,014
5,403
(84)
(1,395)
7,938
0.04
0.04
0.08
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
36
Consolidated results
(In thousands of dollars)
Fiscal 2018
Maple
Products
$
Sugar
$
Total
$
Gross margin
102,578
28,275
130,853
Total adjustment to the cost of sales (1) (2)
(2,919)
(1,572)
(4,491)
Adjusted Gross Margin (1)
99,659
26,703
126,362
Results from operating activities
70,748
13,352
84,100
Total adjustment to the cost of sales (1) (2)
(2,919)
(1,572)
(4,491)
Adjusted results from operating activities (1)
67,829
11,780
79,609
Depreciation of property, plant and
equipment and amortization of
intangible assets
Sugar Segment Acquisition costs (1)
Maple Segment non-recurring costs (1)
13,495
4,979
18,474
—
—
—
—
1,859
1,859
Sugar
$
73,708
26,125
99,833
40,083
26,125
66,208
13,105
2,517
—
Adjusted EBITDA (1)
81,324
18,618
99,942
81,830
Net earnings as per financial statements
Total adjustment to the cost of sales (1) (2)
Amortization of transitional balance to net
finance costs (1) (2)
Income taxes on above adjustments
Adjusted net earnings (1)
Net earnings per share basic, as per
financial statements
Adjustment for the above
Adjusted net earnings per share basic (1)
48,729
(4,491)
(532)
1,326
45,032
0.46
(0.03)
0.43
(1) See “Non-GAAP measures” section.
(2) See “Adjusted results” within the consolidated operating results section and “Segmented information” section.
Fiscal 2017
Maple
Products
$
3,590
(164)
Total
$
77,298
25,961
3,426
103,259
948
(164)
784
491
—
1,076
2,351
41,031
25,961
66,992
13,596
2,517
1,076
84,181
21,906
25,961
(371)
(6,782)
40,714
0.23
0.19
0.42
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
37
Summary of Quarterly Results
The following is a summary of selected financial information of the consolidated financial statements and non-GAAP measures of the
Company for each of the quarters of fiscal 2018 and 2017:
QUARTERS
2018
2017
(In thousands of dollars, except for volume
and per share information)
First
Second
Third
Fourth
First
Second
Third
Fourth
Sugar Volume (MT)
174,144 163,253 182,331 200,147
168,376
168,723
173,969
183,397
Maple products volume
(‘000 pounds)
Total revenues
Gross margin
EBIT
Net earnings
11,191
12,725
10,654
10,549
$
$
$
$
—
$
—
$
—
$
5,764
$
204,883 189,455 199,056 211,807
159,604
163,566
166,363
192,984
43,113
27,055
31,430
29,255
28,176
16,605
9,886
22,631
31,685
14,888
19,296
18,231
20,216
7,586
11,294
9,633
Gross margin rate per MT (1)
206.88
126.51
113.04
108.12
Gross margin percentage (2)
14.4%
12.1%
14.3%
15.0%
20,596
13,552
167.34
—
8,784
4,788
98.42
—
1,513
10,138
(448)
4,014
56.83
103.82
—
13.5%
Per share
Net earnings
Basic
Diluted
Non-GAAP Measures
0.19
0.18
0.07
0.07
0.11
0.10
0.09
0.09
0.14
0.14
0.05
0.05
—
—
0.04
0.04
Adjusted gross margin
37,303
28,607
27,687
32,764
29,115
23,267
22,843
28,034
Adjusted EBIT
25,875
16,440
15,553
21,740
21,535
15,446
14,470
15,541
Adjusted net earnings
15,848
8,617
8,445
12,122
14,118
9,628
9,030
7,938
Adjusted gross margin
rate per MT (1)
Adjusted gross margin
percentage (2)
Adjusted net earnings per share
179.19
134.66
113.37
128.90
172.92
137.90
131.31
134.18
12.4%
12.5%
13.9%
13.7%
—
—
—
12.8%
Basic
Diluted
0.15
0.14
0.08
0.07
0.08
0.08
0.12
0.11
0.15
0.14
0.10
0.10
0.10
0.10
0.08
0.08
(1) Gross margin rate per MT and Adjusted gross margin rate per MT pertains to the Sugar segment only.
(2) Gross margin percentage and Adjusted gross margin percentage pertains to the Maple products segment only.
Historically the first quarter (October to December) of the fiscal year is the best quarter for adjusted gross margins and adjusted net earnings
due to the favourable sales mix associated with an increased proportion of consumer sales during that period of the year. At the same
time, the second quarter (January to March) historically has the lowest volume as well as an unfavourable customer mix, resulting in lower
revenues, adjusted gross margins and adjusted net earnings.
The increase in revenues for the fourth quarter of fiscal 2018 is explained by the benefit from the LBMT acquisition since August 5, 2017
and the Decacer acquisition on November 18, 2017. The timing of both acquisitions also had an impact on the Maple products segment
volume.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
38
Financial condition
Liquidity
(In thousands of dollars)
2018
2017*
2016
Total assets
870,209
835,474
585,198
Total non-current liabilities
382,136
344,130
214,685
$
$
$
*
Includes adjustment of prior year purchase price allocation (see Consolidated
Financial Statements - Note 4, Business combinations and Note 16, Goodwill).
Cash flow generated by Lantic is paid to Rogers by way of dividends
and return of capital on the common shares and by the payment
of interest on the subordinated notes of Lantic held by Rogers,
after taking a reasonable reserve for capital expenditures, debt
reimbursement and working capital. The cash received by Rogers
is used to pay administrative expenses, interest on the convertible
debentures, income taxes and dividends to its shareholders.
Lantic had no restrictions on distributions of cash arising from the
The increase in total assets in the current fiscal year is due mainly
compliance of financial covenants for the year.
to the acquisition of Decacer’s long-term assets in November 2017
totalling $34.7 million. The increase in total asset between fiscal
(In thousands of dollars)
2016 and 2017 is mainly explained by the acquisition of LBMTC,
2018
2017*
$
$
representing $254.1 million.
Non-current liabilities for fiscal 2018 also increased during the
current year with the issuance of the Seventh series debentures
for a total amount of $97.8 million less the repayment of the
$60.0 million Fifth series debentures. In addition, the long-term
portion of the revolving credit facility was higher for the current
year than in fiscal 2017 due to increase borrowings as a result of the
Decacer acquisition. Finally, deferred tax liabilities were $5.7 million
higher than the prior fiscal year. Somewhat offsetting the negative
variance in long-term liabilities is a reduction in employee benefits
liabilities of $7.7 million due mainly to a change in pension actuarial
assumptions as at September 29, 2018. Non-current liabilities for
fiscal 2017 increased when compared to fiscal 2016 as a result of
the additional drawdown under the revolving credit facility to repay
the Fourth series debentures as well as to partially fund the LBMT
acquisition. In addition, the Sixth series debentures were issued on
July 28, 2017, therefore increasing the overall non-current liabilities
compounded by the fact that the Fourth series debentures were
presented as current in fiscal 2016. Somewhat reducing the
negative variance is a decrease in the employee benefits balance
of $13.8 million also due mostly to a change in pension actuarial
assumptions as of last year end.
Cash flow from operating activities
52,912
52,037
Cash flow (used in) from
financing activities
(1,555) 147,272
Cash flow used in investing activities
(66,429)
(183,485)
Effect of changes in exchange
rate on cash
140
(37)
Net (decrease) increase in cash and
cash equivalents
(14,932)
15,787
*
Includes adjustment of prior year purchase price allocation (see Consolidated
Financial Statements - Note 4, Business combinations and Note 16, Goodwill).
Cash flow from operating activities was $52.9 million in fiscal
2018, as opposed to $52.0 million in fiscal 2017, an increase of
$0.9 million. Cash flow from operating activities increased due
to a higher EBIT of $43.1 million and lower income taxes paid of
$4.2 million. However, it was almost all reduced due to a negative
working capital variation of $36.0 million, mostly attributable to
lower trade and other payables, higher negative changes in fair
value of financial instruments of $7.4 million and higher interest
paid of $4.9 million. It should be noted that the acquisition of the
working capital of Decacer is shown in investing activities and
therefore, only the working capital variation between the acquisition
date and September 29, 2018 is presented as part of the cash flow
On an annual basis, a goodwill impairment calculation is performed
from operating activities.
with the aim of ensuring that the fair value of the Company’s
operating segments is more than their respective carrying value.
There was no impairment in fiscal 2018 analysis or for any of the
previous two years.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
39
The negative variation in cash flow used in financing activities of
in fiscal 2017 of $166.2 million. The year-over-year variation
$148.8 million is mainly attributable to a reduction of the revolving
associated with acquisitions resulted in a positive variance of
credit facility of $108.0 million, no issuance of common shares in
$123.4 million. Somewhat reducing this variation is greater capital
fiscal 2018 as opposed to $66.5 million in fiscal 2017 and increased
spending during the current year as a result of various major
dividend payments of $4.2 million. In addition, the Company
projects undertaken and an increased plan spending during the
purchased and cancelled common shares for a total cash outflow
year, resulting in an increase of $6.4 million.
of $4.0 million. Somewhat reducing the negative variance is the
movement year-over-year of convertible debentures, for which
In order to provide additional information, the Company believes
the issuance, net of repayment had a total positive impact of
it is appropriate to measure free cash flow that is generated by the
$28.0 million and an increase in bank overdraft of $5.5 million.
operations of the Company. Free cash flow is defined as cash flow
Finally, payments of financing fees had a positive impact on cash
from operations excluding changes in non-cash working capital,
flow from financing activities of $0.4 million.
mark-to-market and derivative timing adjustments and financial
instruments’ non-cash amounts, funds received or paid from the
The cash outflow used in investing activities decreased compared
issue or purchase of shares and capital expenditures, excluding
to fiscal 2017 by $117.1 million due mainly to the acquisition
operational excellence capital expenditures. Free cash flow is a
of Decacer for $42.1 million and a purchase price payment of
non-GAAP measure.
$0.7 million in fiscal 2018. This compares to the LBMTC acquisition
Free cash flow is as follows:
(In thousands of dollars)
Fourth Quarter
2018
$
2017*
$
2018
$
Fiscal Year
2017*
$
2016
$
Cash flow from operations
57,991
65,861
52,912
52,037
66,672
Adjustments:
Changes in non-cash working capital
(43,877)
(52,628)
12,764
(23,192)
27,703
Mark-to-market and derivative
timing adjustments
Amortization of transitional balances
Financial instruments non-cash amount
4,091
(710)
2,610
Capital expenditures and intangible assets
(11,818)
Operational excellence capital expenditures
Stock options exercised
Purchase and cancellation of shares
Deferred financing charges
Free cash flow (1)
Declared dividends
4,149
—
(2,151)
—
10,285
9,450
6,255
(936)
(3,829)
(8,760)
1,038
93
—
(469)
6,625
9,517
(1,776)
(3,247)
7,645
28,979
(3,389)
(32,257)
—
278
(2,155)
(23,655)
(17,303)
(15,156)
7,394
—
(3,963)
(272)
47,802
37,971
3,344
521
—
(629)
40,646
34,896
835
—
(727)
(90)
44,825
33,796
(1) See “Non-GAAP measures” section.
*
Includes adjustment of prior year purchase price allocation (see Consolidated Financial Statements - Note 4, Business combinations and Note 16, Goodwill).
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
40
Free cash flow for the fourth quarter of 2018 was $10.3 million
During the fourth quarter and full year of fiscal 2018, Rogers
compared to $6.6 million for the same period year, an increase of
purchased and cancelled a total of 400,000 common shares and
$3.7 million. The higher free cash flow is mainly explained by an
736,900 common shares, respectively, under the normal course
increase in adjusted EBITDA (See “Non-GAAP measures” section
issuer bid (“NCIB”) for a total cash consideration of $2.2 million
in the MD&A) of $6.4 million and a decrease in deferred financing
and $4.0 million, respectively.
charges payment of $0.5 million. This positive variance was
somewhat offset by purchase and cancellation of shares totalling
In fiscal 2017, an amount of $0.1 million and $0.5 million was
$2.2 million and higher interest paid of $1.1 million.
received during the fourth quarter and year-to-date, respectively,
following the exercise of share options by certain executives of the
Free cash flow for fiscal 2018 was $7.2 million higher than the
Company. There was no exercise of options in fiscal 2018.
previous year mainly explained by an increase in adjusted EBITDA
(See “Non-GAAP measures” section in the MD&A) of $15.4 million,
Financing charges are paid when a new debt financing is completed
a decrease in income taxes paid of $4.2 million and lower deferred
and such charges are deferred and amortized over the term of that
financing charges paid of $0.4 million. However, these variations
debt. The cash used in the year to pay for such fees is therefore not
were somewhat offset by higher interest paid of $4.9 million, the
available and as a result is deducted from free cash flow. In fiscal
purchase and cancellation of shares, as opposed to issuance of
2018, an amount of $0.3 million was paid to amend the revolving
shares following the exercise of share options, for a total negative
credit facility as opposed to $0.5 million and $0.6 million for the last
variance of $4.5 million, higher capital and intangible spending, net
quarter of fiscal 2017 and last fiscal year, respectively.
of operational excellence capital of $2.3 million and higher pension
plan contribution of $1.1 million.
The Company declared a quarterly dividend of 9.0 cents per
common share, resulting in an amount payable of $9.5 million for
Operational excellence capital expenditures are $3.1 million and
the quarter and of $38.0 million for the current year. This compares
$4.1 million higher for the quarter and year-to-date, respectively,
to $9.5 million for the fourth quarter last year and $34.9 million
when compared to the same periods last fiscal year. This year’s
for the year. The year-to-date increase is due to the issuance of
operational excellence capital expenditures comprised of various
common shares in July 2017 for the acquisition of LBMTC.
projects. In fiscal 2018, $3.9 million was spent on an energy saving
project at the Vancouver refinery that will be completed in the
Changes in non-cash operating working capital represent year-
first half of fiscal 2019 for a total of approximately $5.1 million. In
over-year movements in current assets, such as accounts receivable
addition, $1.1 million was spent on new packaging equipment that
and inventories, and current liabilities, such as accounts payables.
will bring retail packaging innovation to our product offering and
Movements in these accounts are due mainly to timing in the
will help reduce co-packaging costs. An energy saving project at
collection of receivables, receipts of raw sugar and payment
the Montréal refinery of approximately $3.3 million started in fiscal
of liabilities. Increases or decreases in such accounts are due to
2017 and was completed by the end of the second quarter of the
timing issues and therefore do not constitute free cash flow. Such
current fiscal year. Another energy saving project at the Montréal
increases or decreases are financed from available cash or from the
refinery was undertaken in fiscal 2018 and should be completed in
Company’s available credit facility of $265.0 million. Increases or
the first half of fiscal 2019 for a total capital spend of $0.5 million.
decreases in bank indebtedness are also due to timing issues from
The palletizing station installation in Taber was completed
the above and therefore do not constitute available free cash flow.
during the current fiscal year for a total capital of approximately
$1.2 million. Free cash flow is not reduced by operational
The combined impact of the mark-to-market, financial instruments
excellence capital expenditures, as these projects are not necessary
non-cash amount and amortization of transitional balances of $6.0
for the operation of the plants, but are undertaken because of the
million and $2.6 million for the current quarter and fiscal year,
substantial operational savings that are realized once the projects
respectively do not represent cash items as these contracts will be
are completed.
settled when the physical transactions occur, which is the reason for
the adjustment to free cash flow.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
41
Contractual obligations
The following table identifies the outstanding contractual obligations of the Company as at year-end, and the effects such obligations are
expected to have on liquidity and cash flow over the next several years:
(In thousands of dollars)
Revolving credit facility
Interest on convertible debentures
Interest based on swap agreement
Finance lease obligations
Operating leases
Purchase obligations
Other long-term liabilities
Total
$
172,000
25,594
5,505
121
8,665
Less than
1 year
$
12,000
3,759
1,620
55
2,581
100,816
100,677
773
773
Derivative financial instruments
(31,846)
(56,267)
Purchase obligations (in MT)
Purchase obligations (in ‘000 pounds)
281,628
1,337,000
12,812
65,198
479,000
12,812
1 to 3 years
4 to 5 years
After 5 years
$
—
7,518
2,839
66
3,024
139
—
9,210
22,796
858,000
—
$
160,000
7,518
1,046
—
2,104
—
—
15,211
185,879
—
—
$
—
6,799
—
—
956
—
—
—
7,755
—
—
During the current year, the Company issued a total of $97.8 million
On May 18, 2018, the Company canceled an amount of
4.75% Seventh series debentures in order to repay the Fifth series
$50.0 million that was available to be drawn under the revolving
debentures of $60.0 million and a portion of the revolving credit
credit facility which was made available on April 28, 2017 under the
facility. In fiscal 2017, the Company issued $57.5 million 5.0%
accordion feature (“Accordion Borrowings”), which had a maturity
Sixth series debentures in order to partially fund the acquisition of
date of December 31, 2018.
LBMTC. The Sixth and Seventh series debentures, which mature in
December 2024 and June 2025, respectively, have been excluded
On May 28, 2018, the Company exercised its option to extend
from the above table due to the holders’ conversion option and
the maturity date of its revolving credit facility to June 28, 2023
the Company’s option to satisfy the obligations at redemption or
under the same terms and conditions of the amended credit
maturity in shares. Interest has been included in the above table to
agreement entered into on December 20, 2017. As a result of
the date of maturity.
the amended revolving credit facility, the Second Additional
Accordion Borrowings, the Additional Accordion Borrowings and
In fiscal 2013, Lantic entered into a five-year credit agreement of
the cancellation of the Accordion Borrowings, the Company has a
$150.0 million effective June 28, 2013, replacing the $200.0 million
total of $265.0 million of available working capital from which it can
credit agreement that expired on the same date. On August 3,
borrow at prime rate, LIBOR rate or under bankers’ acceptances,
2017, the Company amended its existing revolving credit facility
plus 20 to 250 basis points, based on achieving certain financial
to partially fund the acquisition of LBMTC. The available credit
ratios. As at September 29, 2018, a total of $407.8 million have
was increased by $75.0 million by drawing additional funds under
been pledged as security for the revolving credit facility, compared
the accordion feature embedded in the revolving credit facility
to $417.9 million as at September 30, 2017, including trade
(“Additional Accordion Borrowings”). Then, on December 20,
receivables, inventories and property, plant and equipment.
2017, the Company amended, once again, its existing revolving
credit facility thereby increasing its available credit by $40.0 million
At September 29, 2018, a total of $172.0 million had been borrowed
by drawing additional funds under the accordion feature (“Second
under this facility, of which, $12.0 million was presented as current.
Additional Accordion Borrowings”) to partially fund the Decacer
acquisition.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
42
In order to fix the interest rate on a substantial portion of the expected drawdown of the revolving credit facility, the Company enters into
interest rate swap agreements. Since June 28, 2013, a number of interest rate swap agreements were put in place. The following table
provides the outstanding swap agreements as at September 29, 2018 as well as their respective value, interest rate and time period:
Fiscal year contracted
Date
Total value
Fiscal 2014
Fiscal 2015
Fiscal 2017
Fiscal 2017
Fiscal 2017
June 30, 2014 to June 28, 2019 – 2.09%
June 28, 2018 to June 28, 2020 – 1.959%
May 29, 2017 to June 28, 2022 – 1.454%
September 1, 2017 to June 28, 2022 – 1.946%
June 29, 2020 to June 29, 2022 – 1.733%
$
10,000
30,000
20,000
30,000
30,000
The interest payments that will be incurred on the future borrowings
to its forward refined sugar sales. The Company attempts to
related to this swap agreement are reflected in the contractual
meet this objective by entering into futures contracts to reduce
obligations table above.
its exposure. Such financial instruments are used to manage the
Company’s exposure to variability in fair value attributable to the
Finance and operating lease obligations relate mainly to the
firm commitment purchase price of raw sugar.
leasing of various mobile equipment, the premises of the blending
operations in Toronto and the Maple products segment operations
The Company has hedged all of its exposure to raw sugar price risk
in Granby, Québec, in British Columbia and in Vermont.
movement through March 2021.
Purchase obligations represent all open purchase orders as at
At September 29, 2018, the Company had a net short sugar position
year-end and approximately $43.5 million for sugar beets that will
of $0.4 million in net contract amounts with a current net negative
be harvested and processed in fiscal 2019 but exclude any raw sugar
contract value of $0.8 million. This short position represents the
priced against futures contracts. LBMT has $19.3 million remaining
offset of a smaller volume of sugar priced with customers than
to pay related to an agreement to purchase approximately
purchases priced from suppliers.
$38.2 million (12.8 million pounds) of maple syrup from the FPAQ.
In order to secure bulk syrup purchases, the Company issued letters
The Company uses futures contracts and swaps to help manage
of guarantee amounting to $16.0 million in favor of the FPAQ. The
its natural gas costs. At September 29, 2018, the Company had
letters of guarantee expire on March 31, 2019.
$38.9 million in natural gas derivatives, with a current contract value
A significant portion of the Company’s sales are made under fixed-
of $34.5 million.
price, forward-sales contracts, which extend up to three years. The
The Company’s activities, which result in exposure to fluctuations
Company also contracts to purchase raw cane sugar substantially
in foreign exchange rates, consist of the purchasing of raw sugar,
in advance of the time it delivers the refined sugar produced from
the selling of refined sugar and Maple products and the purchasing
the purchase. To mitigate its exposure to future price changes, the
of natural gas. The Company manages this exposure by creating
Company attempts to manage the volume of refined sugar sales
offsetting positions through the use of financial instruments. These
contracted for future delivery in relation to the volume of raw cane
instruments include forward contracts, which are commitments to
sugar contracted for future delivery, when feasible.
buy or sell at a future date, and may be settled in cash.
The Company uses derivative instruments to manage exposures
The credit risk associated with foreign exchange contracts arises
to changes in raw sugar prices, natural gas prices and foreign
from the possibility that counterparties to a foreign exchange
exchange. The Company’s objective for holding derivatives is to
contract in which the Company has an unrealized gain, fail to
minimize risk using the most efficient methods to eliminate or
perform according to the terms of the contract. The credit risk is
reduce the impacts of these exposures.
much less than the notional principal amount, being limited at any
time to the change in foreign exchange rates attributable to the
To reduce price risk, the Company’s risk management policy is to
principal amount.
manage the forward pricing of purchases of raw sugar in relation
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
43
Forward foreign exchange contracts have maturities of less than
As mentioned above, the Company had been actively working
three years and relate mostly to the U.S. currency, and from time
on solutions to reduce the air emissions footprint of the Taber
to time, the Euro currency. The counterparties to these contracts
facility. During the current fiscal year, the Company completed
are major Canadian financial institutions. The Company does not
the engineering and project design to upgrade the Taber beet
anticipate any material adverse effect on its financial position
factory to be fully compliant with the new air emissions regulations
resulting from its involvement in these types of contracts, nor does
by the start of the fiscal 2020 beet harvesting season (crop 2019).
it anticipate non-performance by the counterparties.
This solution is expected to require between $8.0 million and
$10.0 million in capital expenditures The facility obtained from
At September 29, 2018, the Company had a net $69.9 million in
Alberta Environment and Parks a variance for non-compliance of air
foreign currency forward contracts with a current contract value of
emission standards valid until May 2019.
$66.7 million.
Future commitments of approximately $19.6 million have been
As part of its normal business practice, the Company also enters
approved for completing capital expenditures presently in progress,
into multi-year supply agreements with raw sugar processors for
including the Taber air emission project.
raw cane sugar. Contract terms will state the quantity and estimated
delivery schedule of raw sugar. The price is determined at specified
The Company also has funding obligations related to its employee
periods of time before such raw sugar is delivered based upon
future benefit plans, which include defined benefit pension plans.
the value of raw sugar as traded on the ICE #11 world raw sugar
As at September 29, 2018, all of the Company’s registered defined
market. At September 29, 2018, the Company had commitments
benefit pension plans were in a deficit position. The Company
to purchase a total of 1,337,000 metric tonnes of raw sugar, of
performed actuarial evaluations for two of its three remaining
which approximately 316,000 metric tonnes had been priced, for a
pension plans as of December 31, 2016 and January 1, 2017.
total dollar commitment of $120.8 million.
The Company has no other off-balance sheet arrangements.
Board and Finance approved an amendment to the Alberta Hourly
In the first quarter of the current fiscal year, the Alberta Treasury
Capital resources
Plan. The result of this amendment is the elimination of the reserve
for future supplements, and investment earnings accumulated
As mentioned above, Lantic entered into a five-year credit
thereon, effective January 1, 2017. The Company recognized the
agreement of $150.0 million effective June 28, 2013, which has
impact of this amendment during its current fiscal year, which
been amended in fiscal 2017 and 2018 to increase its borrowing
reduced total pension plan expense by approximately $1.5 million.
capacity by requesting the Additional Accordion borrowings and
the Second Additional Accordion Borrowings, which brought the
The Company monitors its pension plan assets closely and follows
total available credit to $265.0 million. In addition, the credit facility
strict guidelines to ensure that pension fund investment portfolios
was also amended in the current year to extend its maturity to
are diversified in line with industry best practices. Nonetheless,
June 28, 2023. At September 29, 2018, $172.0 million had been
pension fund assets are not immune to market fluctuations and,
drawn from the working capital facility, $5.5 million was drawn as
as a result, the Company may be required to make additional
bank overdraft and $2.1 million in cash was also available.
cash contributions in the future. In fiscal 2018, cash contributions
to defined benefit pension plans increased by approximately
The Taber beet operation requires seasonal working capital in the
$0.6 million to $3.9 million. In total, the Company expects to incur
first half of the fiscal year, when inventory levels are high and a
cash contributions of approximately $3.7 million for fiscal 2019
substantial portion of the payments due to the Growers is made.
relating to employee defined benefit pension plans. For more
LBMT also has seasonal working capital requirements. Although
information regarding the Company’s employee benefits, please
the syrup inventory is received during the third quarter of the fiscal
refer to Note 22 of the audited consolidated financial statements.
year, its payment terms with the FPAQ requires cash payment in
the first half of the fiscal year. The Company has sufficient cash and
Cash
requirements
for working capital and other capital
availability under its line of credit to meet such requirements.
expenditures are expected to be paid from available cash resources
and funds generated from operations. Management believes that
the unused credit under the revolving facility is adequate to meet
any future cash requirements.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
44
OUTSTANDING SECURITIES
series debentures issued represents $97.75 million and may be
On May 22, 2018, the Company received approval from the Toronto
converted at the option of the holder at a conversion price of $8.85
Stock Exchange to proceed with a NCIB. Under the NCIB program,
per share (representing 11,045,197 common shares) at any time
the Company may purchase up to 1,500,000 common shares. The
prior to maturity, and cannot be redeemed prior to June 30, 2021.
NCIB program commenced on May 24, 2018 and may continue to
On or after June 30, 2021and prior to June 30, 2023, the Seventh
May 23, 2019.
series debentures may be redeemed by the Company only if the
weighted average trading price of the share, for 20 consecutive
In addition, the Company has entered into an automatic share
trading days, is at least 125% of the conversion price of $8.85.
purchase agreement with Scotia Capital Inc. in connection with the
Subsequent to June 30, 2023, the Seventh series debentures are
NCIB. Under the agreement, Scotia may acquire, at its discretion,
redeemable at a price equal to the principal amount thereof plus
common shares on the Company’s behalf during certain “black-
accrued and unpaid interest.
out” periods, subject to certain parameters as to price and number
of shares.
Following the issuance of the Seventh series debentures on
March 28 and April 3, 2018, the Company used a portion of the
During the current year, the Company purchased a total of 736,900
funds to repay the Fifth series debentures totalling $60.0 million
common shares, for a total cash consideration of $4.0 million. All
at a price equal to the principal amount thereof plus accrued and
shares purchased were cancelled. In addition, during the second
unpaid interest as of March 28, 2018. The remaining funds from the
quarter of the current year, some holders of the Fifth series
issuance of the Seventh series debentures were used to reduce a
debentures converted a total of $10 thousands into 1,388 common
portion of the amount drawn under revolving credit facility.
shares.
On July 28, 2017, a public offering was completed consisting of
5.0% Sixth series debentures, maturing December 31, 2024,
subscription receipts converted to 11,730,000 common shares on
with interest payable semi-annually in arrears on June 30 and
August 5, 2017 upon closing of the LBMTC acquisition for gross
December 31 of each year, starting December 31, 2018. The Sixth
On July 28, 2017, the Company issued $57.5 million of sixth series
proceeds of $69.2 million.
series debentures may be converted at the option of the holder
at a conversion price of $8.26 per share (representing 6,961,259
In addition, in fiscal 2017, a total of 96,500 common shares
common shares) at any time prior to maturity, and cannot be
were issued pursuant to the exercise of share options by certain
redeemed prior to December 31, 2020. On or after December 31,
executives for a total cash consideration of $0.5 million. Moreover,
2020 and prior to December 31, 2022, the sixth series debentures
some holders of the Fourth series debentures converted an amount
may be redeemed by the Company only if the weighted average
of $0.4 million into 66,922 common shares.
trading price of the share, for 20 consecutive trading days, is at least
As a result of the above movement, a total of 105,008,070 shares
31, 2022, the Sixth series debentures are redeemable at a price
were outstanding as at September 29, 2018 and November 21,
equal to the principal amount thereof plus accrued and unpaid
2018.
interest.
125% of the conversion price of $8.26. Subsequent to December
During the second quarter of fiscal 2017, further to a Special
The Fourth series debentures of $49.6 million were repaid by using
Resolution approved at the shareholders’ meeting of February 1,
the Accordion borrowings under the Company’s revolving credit
2017, the Company reduced the stated capital by $100.0 million
facility on May 1, 2017.
and the contributed surplus was increased by the same amount of
$100.0 million.
On July 1, 2005, the Company reserved and set aside for issuance a
total of 850,000 units to be allocated to key personnel. On January
On March 28, 2018, the Company issued $85.0 million of 4.75%
1, 2011, the 450,000 options outstanding under the unit option
Seventh series debentures, maturing June 30, 2025, with interest
plan were transferred to a share option plan (the “Share Option
payable semi-annually in arrears on June 30 and December
Plan”) on a one-for-one basis. Between July 2005 and March 2012,
31 of each year, starting June 30, 2018. Then, on April 3, 2018,
all these options were allocated at different times to executives of
the Company issued an additional $12.8 million Seventh series
the Company. In fiscal 2015, the number of options for common
debentures pursuant to the exercise in full of the over-allotment
shares set aside to be allocated to key personnel was increased
option granted by the Company. The total amount of the Seventh
from 450,000 to 4,000,000 common shares. On May 21, 2015,
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
45
850,000 share options were granted to the new President and CEO
CRITICAL ACCOUNTING ESTIMATES
of Lantic at a price of $4.59 per common share, representing the
The preparation of the Company’s audited consolidated financial
average market price for the five business days before the granting
statements in conformity with IFRS requires us to make estimates
of the options. On December 5, 2016, the Company granted a total
and judgements that affect the reported amounts of assets and
of 360,000 share options to certain executives at an exercise price
liabilities, net revenue and expenses, and the related disclosures.
of $6.51 under the share option plan. On December 4, 2017, a
Such estimates include the valuation of goodwill, intangible
total of 1,065,322 share options were granted at a price of $6.23
assets, identified assets and liabilities acquired in business
per common share to certain executives and senior managers.
combinations, other long-lived assets, income taxes, the provision
These shares are exercisable to a maximum of twenty percent per
for asbestos removal and pension obligations. These estimates
year, starting after the first anniversary date of the granting of the
and assumptions are based on management’s best estimates and
options and will expire after a term of ten years. Upon termination,
judgments. Management evaluates its estimates and assumptions
resignation, retirement, death or long-term disability, all shares
on an ongoing basis using historical experience, knowledge of
granted under the Share Option Plan not vested are forfeited.
economics and market factors, and various other assumptions that
management believe to be reasonable under the circumstances.
In addition, during the first quarter of the current year, a Performance
Management adjusts such estimates and assumptions when facts
Share Unit plan (“PSU”) was created and on December 4, 2017, a
and circumstances dictate. Actual results could differ from these
total of 224,761 PSUs were granted to executives. In addition, an
estimates. Changes in those estimates and assumptions are
aggregate of 10,291 PSUs were allocated as a result of the dividend
recognized in the period in which the estimates are revised. Refer
paid during the past three quarters. Therefore, an aggregate amount
to note 2 (d) to the audited consolidated financial statements for
of 235,052 PSUs are outstanding as at September 29, 2018. These
more detail.
PSUs will vest at the end of the 2017-2020 Performance Cycle
based on the achievement of total shareholder returns set by the
Human Resources and Compensation Committee (“HRCC”) and
CHANGES IN ACCOUNTING PRINCIPLES AND
the Board of Directors of the Company. If the level of achievement
PRACTICES NOT YET ADOPTED
of total shareholder returns is within the specified range, the value
A number of new standards, and amendments to standards and
to be paid-out to each participant will be equal to the result of:
interpretations, are not yet effective and have not been applied
the number of PSUs granted to the participant which have vested,
in preparing these audited consolidated financial statements. New
multiplied by the volume weighted average closing price of the
standards and amendments to standards and interpretations that
Common Shares on the Toronto Stock Exchange (the “TSX”) for
are currently under review include:
the five trading days immediately preceding the day on which the
Company shall pay the value to the participant under the PSU Plan.
• IFRS 15, Revenue from Contracts with Customers:
If the level of achievement of total shareholder returns is below the
On May 28, 2014 the IASB issued IFRS 15 Revenue from
minimum threshold, the PSU will be forfeited without any payments
Contracts with Customers.
IFRS 15 will replace
IAS 11
made.
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the Construction
In addition, during the first quarter of fiscal 2017, a Share
of Real Estate, IFRIC 18 Transfer of Assets from Customers, and
Appreciation Right (“SARs”) was created under the existing Share
SIC 31 Revenue – Barter Transactions Involving Advertising
Option Plan. On December 5, 2016, a total of 125,000 SARs were
Services. The new standard is effective for years beginning on or
issued to an executive at an exercise price of $6.51. These SARs are
after January 1, 2018. Earlier application is permitted.
exercisable twenty percent per year, starting on the first anniversary
date of the granting of the SARs and will expire after a term of
The standard contains a single model that applies to contracts
ten years. Upon termination, resignation, retirement, death or
with customers and two approaches to recognizing revenue:
long-term disability, all SARs granted under the Share Option Plan
at a point in time or over time. The model features a contract-
not vested are forfeited.
based five-step analysis of transactions to determine whether,
how much and when revenue is recognized. New estimates and
During fiscal 2018, 60,000 share options were forfeited at a price of
judgmental thresholds have been introduced, which may affect
$6.23 following the departure of a senior manager.
the amount and/or timing of revenue recognized.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
46
The new standard applies to contracts with customers. It does
their respective annual period for which they become applicable.
not apply to insurance contracts, financial instruments or lease
The extent of the impact of adoption of these new standards,
contracts, which fall in the scope of other IFRSs.
and amendments to standards and interpretations, has not yet
been determined, except for IFRS 2, IFRIC 22 and the Annual
The Company will adopt IFRS 15 in its consolidated financial
Improvements to IFRS Standards (2014-2016) Cycle, all of whom,
statements for the year beginning on September 30, 2018.
the Company does not expect the amendments to have a material
The Company does not expect the standard to have a material
impact on the consolidated financial statements. Refer to note 3 (s)
impact on the consolidated financial statements.
to the audited consolidated financial statements for more detail.
• IFRS 16, Leases:
On January 13, 2016 the IASB issued IFRS 16 Leases. The new
ENVIRONMENT
standard is effective for annual periods beginning on or after
The Company’s policy is to meet all applicable government
January 1, 2019. Earlier application is permitted for entities that
requirements with respect to environmental matters. Except for the
apply IFRS 15 Revenue from Contracts with Customers at or
non-compliance of air emission standards in Taber, management
before the date of initial adoption of IFRS 16. IFRS 16 will replace
believes that the Company is in compliance in all material respects
IAS 17, Leases.
with environmental laws and regulations and maintains an open
dialogue with regulators and the Government with respect to
This standard introduces a single lessee accounting model and
awareness and adoption of new standards.
requires a lessee to recognize assets and liabilities for all leases
with a term of more than 12 months, unless the underlying asset
As mentioned above, the Company had been actively working
is of low value. A lessee is required to recognize a right-of-use
on solutions to reduce the air emissions footprint of the Taber
asset representing its right to use the underlying asset and a
facility. During the current fiscal year, the Company completed
lease liability representing its obligation to make lease payments.
the engineering and project design to upgrade the Taber beet
factory to be fully compliant with the new air emissions regulations
This standard substantially carries forward the lessor accounting
by the start of the fiscal 2020 beet harvesting season (crop 2019).
requirements of IAS 17, while requiring enhanced disclosures to
This solution is expected to require between $8.0 million and
be provided by the lessors. Other areas of the lease accounting
$10.0 million in capital expenditures The Taber factory obtained
model have been impacted, including the definition of a lease.
from Alberta Environment and Parks a variance for non-compliance
Transitional provisions have been provided.
of air emission standards valid until May 2019.
The Company intends to adopt IFRS 16 in its consolidated
With respect to potential environmental remediation of our
financial statements for the annual period beginning on
properties, which could occur in the event of a building demolition
September 29, 2019. The Company has started reviewing the
or a sale, it is worth noting that the Vancouver facility has a lengthy
impact of the adoption of IFRS 16 and expects that certain of
history of industrial use, and fill materials have been used on the
the existing leases will require to be recognized as assets and
property in the normal course of business. No assurance can be
liabilities. However, the extent of the impact of adoption of
given that material expenditures will not be required in connection
the standard on the consolidated financial statements of the
with contamination from such industrial use or fill materials.
Company has not yet been quantified.
Similarly, the Montréal facility has a lengthy history of industrial use.
Additional new standards, and amendments to standards and
Contamination has been identified on a vacant property acquired
interpretations, include: IFRS 2, Classification and Measurement
in 2001, and the Company has been advised that additional soil
of Share-based Payment Transactions, Annual Improvements to
and ground water contamination is likely to be present. Given the
IFRS Standards (2014-2016) Cycle, IFRIC 22, Foreign Currency
industrial use of the property, and the fact that the Company does
Transactions and Advance Consideration, IFRIC 23 Uncertainty over
not intend to change the use of that property in the future, the
Income Tax Treatments, Annual Improvements to IFRS Standards
Company does not anticipate any material expenditures being
(2015-2017) Cycle and Amendments to References to the
required in the short term to deal with this contamination, unless
Conceptual Framework in IFRS Standards. The Company intends
off-property impacts are discovered. The Company has recorded a
to adopt these new standards, and amendments to standards and
provision under asset retirement obligations for this purpose and
interpretations, in its consolidated financial statements in each of
the provision is expected to be sufficient.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 47
In fiscal 2017, the Company demolished a building structure on
There can be no assurance that management of the Corporation and
the Montréal refinery property. Some contaminated soils were then
Lantic will be able to fully realize some or all of the expected benefits
detected on a portion of the now vacant section of this removed
of the acquisition of LBMT. The ability to realize these anticipated
structure, which was fully remediated in fiscal 2018. In addition, in
benefits will depend in part on successfully consolidating functions
fiscal 2018, $0.6 million was spent to remove some asbestos at its
and integrating operations, procedures and personnel in a timely
Vancouver and Taber location.
and efficient manner, as well as on Rogers’ and Lantic’s ability
to realize growth opportunities and potential operational gains
Although the Company is not aware of any specific problems at
from integrating LBMT with the Company’s and Lantic’s existing
its Toronto distribution centre, its Taber plant and any of the LBMT
business following the acquisition. Even if Rogers and Lantic are
properties, no assurance can be given that expenditures will not
able to integrate these businesses and operations successfully, this
be required to deal with known or unknown contamination at the
integration may not result in the realization of the full benefits of
property or other facilities or offices currently or formerly owned,
the growth opportunities the Company and Lantic currently expect
used or controlled by Lantic.
RISK FACTORS
within the anticipated time frame or at all. There is a risk that some
or all of the expected benefits will fail to materialize, or may not
occur within the time periods anticipated by management. The
realization of some or all of such benefits may be affected by a
The Company’s business and operations are substantially affected
number of factors, such as, but not limited to, weather impact
by many factors, including prevailing margins on refined sugar
on supply, access to markets, consumer attitudes towards natural
and its ability to market sugar and maple products competitively,
sweeteners, many of which are beyond the control of the Company.
sourcing of raw material supplies, weather conditions, operating
All of these factors could cause dilution to the Company’s earnings
costs and government programs and regulations.
per share, decrease or delay the anticipated accretive effect of the
acquisition of LBMT or cause a decrease in the market price of the
Dependence Upon Lantic
RSI Shares.
Rogers is entirely dependent upon the operations and assets
of Lantic through its ownership of securities of this company.
Unexpected Costs or Liabilities Related to the Acquisition
Accordingly, interest payments to debenture holders and dividends
Although the Company has conducted due diligence in connection
to shareholders will be dependent upon the ability of Lantic and/or
with the acquisitions of LBMTC and Decacer, an unavoidable level
LBMT to pay its interest obligations under the subordinated notes
of risk remains regarding any undisclosed or unknown liabilities
and to declare and pay dividends on or return capital in respect
of, or issues concerning, LBMT and its business. Following the
of the common shares. The terms of Lantic’s bank and other
acquisition, the Company may discover that it has acquired
indebtedness may restrict its ability to pay dividends and make
substantial undisclosed liabilities. Lantic will not be able to fully
other distributions on its shares or make payments of principal
claim indemnification from the sellers of LBMTC or Decacer, as
or interest on subordinated debt, including debt which may be
both Purchase Agreements contain indemnification limitations
held, directly or indirectly, by Rogers, in certain circumstances. In
applicable to them. Alternatively, Lantic sought insurance to cover
addition, Lantic may defer payment of interest on the subordinated
any potential liability under the Purchase Agreement of LBMTC and
notes at any given time for a period of up to 18 months.
subscribed to the representation and warranties insurance (“RWI”)
Policy, with coverage of up to $16.0 million and a deductible of $1.6
Integration Related Risks and Operational Gains
million, half of which will be assumed by the previous shareholders
The Acquisitions of LBMTC and Decacer are the only acquisitions
of LBMTC. Although Lantic has subscribed to the RWI Policy which
the Corporation has concluded in recent history. To effectively
provides for a $16.0 million coverage, the RWI Policy is subject
integrate LBMT into its own business and operations, the Company
to certain exclusions. In addition, there may be circumstances
must establish appropriate operational, administrative, finance,
for which the insurer may elect to limit such coverage or refuse
management systems and controls and marketing functions relating
to indemnify Lantic or situations for which the coverage provided
to such business and operations. This will require substantial
under the RWI Policy may not be sufficient or applicable and Lantic
attention from management. This diversion of management
may have to seek indemnifications from the previous shareholders
attention, as well as any other difficulties which the Company may
of LBMTC. The existence of any undisclosed liabilities and Lantic’s
encounter in completing the transition and integration process,
inability to claim indemnification from the previous shareholders
including difficulties in retaining key employees of LBMT, could
of LBMTC or the provider of the RWI Policy could have a material
have a material adverse impact on the Company. There can be no
adverse effect on the Company.
assurance that the Company will be successful in integrating the
business and operations of LBMT.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 48
No Assurance of Future Performance
A relatively high world raw sugar price and/or low price of corn
Historic and current performance of the business of the Company
will also reduce the competitive position of liquid sugar in Canada
and LBMT may not be indicative of success in future periods. The
as compared to HFCS which could result in the loss of HFCS
future performance of the business after the acquisition may be
substitutable business for Lantic.
influenced by economic downturns and other factors beyond the
control of the Company. As a result of these factors, the operations
Security of Raw Sugar Supply
and financial performance of the Company, including LBMT, may
There are over 185 million metric tonnes of sugar produced
be negatively affected, which may adversely affect the Company’s
worldwide. Of this, more than 55 million metric tonnes of raw cane
financial results.
sugar is traded on the world market. The Company, through its cane
refining plants, buys approximately 0.6 million metric tonnes of raw
Fluctuations in Margins and Foreign Exchange
sugar per year. Even though worldwide raw sugar supply is much
The Company’s profitability is principally affected by its margins
larger than the Company’s yearly requirements, concentration of
on domestic refined sugar sales. In turn, this price is affected
supply in certain countries like Brazil, combined with an increase in
by a variety of market factors such as competition, government
cane refining operations in certain countries, may create tightness
regulations and foreign trade policies. The Company, through
in raw sugar availability at certain times of the year. To prevent
the Canadian-specific quota, normally sells approximately 10,300
any raw sugar supply shortage, the Company normally enters into
metric tonnes of refined sugar per year in the U.S. and to Mexico
long-term supply contracts with reputable suppliers. For raw sugar
and also sells beet pulp to export customers in U.S. dollars. The
supply not under contract, significant premiums may be paid on
Company’s Taber sugar sales in Canada are priced against the
the purchase of raw sugar on a nearby basis, which may negatively
#11 world raw sugar market, which trades in U.S. dollars, while the
impact adjusted gross margins.
sugar derived from the sugar beets is paid for in Canadian dollars
to the Growers. Fluctuations in the value of the Canadian dollar will
The availability of sugar beets to be processed in Taber, Alberta
impact the profitability of these sales. Except for these sales, which
is dependent on a supply contract with the Growers, and on the
currently can only be supplied by the Company’s Taber beet plant,
Growers planting the necessary acreage every year. In the event
and sales to the U.S. under other announced specific quotas, most
that sufficient acreage is not planted in a certain year, or that the
sales are in Canada and have little exposure to foreign exchange
Company and the Growers cannot agree on a supply contract,
movements.
Fluctuations in Raw Sugar Prices
sugar beets might not be available for processing, thus requiring
transfer of products from the Company’s cane refineries to the
Prairie market, normally supplied by Taber. This would increase
Raw sugar prices are not a major determinant of the profitability of
the Company’s distribution costs and may have an impact on the
the Company’s cane sugar operations, as the price at which sugar
adjusted gross margin rate per metric tonne sold.
is both purchased and sold is related to the #11 world raw sugar
price and all transactions are hedged. In a market where world raw
Weather and Other Factors Related to Production
sugar is tight due to lower production, significant premiums may be
Sugar beets, as is the case with most other crops, are affected
charged on nearby deliveries which would have a negative impact
by weather conditions during the growing season. Additionally,
on the adjusted gross margins of the cane operations. The #11
weather conditions during the processing season could affect the
world raw sugar price can, however, impact the profitability of the
Company’s sugar extraction from beets stored for processing. A
Company’s beet operations. Sugar derived from beets is purchased
significant reduction in the quantity or quality of sugar beets
at a fixed price, plus an incentive when sugar prices rise over a
harvested due to adverse weather conditions, disease or other
certain level, and the selling price of domestic refined sugar rises
factors could result in decreased production, with negative financial
or falls in relation to the #11 world raw sugar price.
consequences to Lantic.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 49
Regulatory Regime Governing the Purchase and
adjust its resale pricing to take into account market fluctuations due
Sale of Maple Syrup in Québec
to supply and demand. LBMT’s incapacity to adjust its resale prices
Producers of maple syrup in Québec are required to operate within
upward to take into account any increase in consumer demand may
the framework provided for by the Marketing Act. Pursuant to the
affect the financial outlook of the Corporation.
Marketing Act, producers, including producers of maple syrup,
can take collective and organized control over the production
Pursuant to the Marketing Agreement, authorized buyers must buy
and marketing of their products (i.e. a joint plan). Moreover, the
Maple products from the FPAQ in barrels corresponding to the
Marketing Act empowers the marketing board responsible for
“anticipated volume”. The anticipated volume must be realistic and
administering a joint plan, that is the FPAQ in the case of maple
in line with volumes purchased in previous years. The refusal from
syrup, with the functions and role otherwise granted to the Régie
the FPAQ to accept the anticipated volume set forth by LBMT or
des marchés agricoles et alimentaires du Québec, the governing
the failure by LBMT to properly estimate the anticipated volume for
body created by the Government of Québec to regulate, among
a given year may affect the ability for LBMT to increase its reselling
other things, the agricultural and food markets in Québec. As part
capacity and may have an adverse effect on the Corporation’s
of its regulating and organizing functions, the FPAQ may establish
future consolidated revenues.
arrangements to maintain fair prices for all producers and may
manage production surpluses and their storage to stabilize the
Production of Maple Syrup Being Seasonal and
pricing of maple syrup.
Subject to Climate Change
The production of maple syrup takes place over a period of 6 to 8
Pursuant to the Sales Agency Regulation, the FPAQ is responsible
weeks during the months of March and April of each year. Maple
for the marketing of bulk maple syrup in Québec. Therefore,
syrup production is intimately tied to the weather as sap only
any container that contains 5L or more of maple syrup must be
flows when temperatures rise above freezing level during the day
marketed through the FPAQ as the exclusive selling agent for
and drop below it during the night, such temperature difference
the producers. Bulk maple syrup may be sold to the FPAQ or to
creating enough pressure to push sap out of the maple tree. Given
“authorized buyers” accredited by the FPAQ. In Québec, 85%
the sensitivity of temperature in the process of harvesting maple
of the total production of maple syrup is sold to the FPAQ or the
sap, climate change and global warming may have a material
authorized buyers, leaving only approximately 15% of the total
impact on such process as the maple syrup production season
production being sold directly by the producers to consumers or
may become shorter. Reducing the production season for maple
grocery stores. LBMTC and Decacer are an authorized buyer with
syrup may also have an impact on the level of production. Such
the FPAQ. The authorized buyer status is renewed on an annual
phenomenon may be witnessed in Québec as well as in the New
basis. There is no certainty that LBMTC and Decacer will be able to
England states, such as Vermont and Maine, where substantially all
maintain its status as an authorized buyer with the FPAQ. Failure by
of the world maple syrup is produced.
LBMTC, Decacer, the Corporation or Lantic to remain an authorized
buyer with the FPAQ will likely affect the capacity to fully supply the
In 2002, the FPAQ set up a strategic maple syrup reserve in order to
resale of maple syrup or Maple products and therefore the financial
mitigate production fluctuations imputable to weather conditions
results of the Corporation.
and prevent such fluctuations from causing maple syrup prices
to spike or drop significantly. The reserve was initially established
The FPAQ, in its capacity as bargaining and sales agent for the
to set aside a production quantity equivalent to half of the then
producers of maple syrup in Québec as well as the body empowered
annual demand. Each year, the FPAQ may organize a sale of a
to regulate and organize the production and marketing of maple
portion of its accumulated reserve. There can be no assurance that
syrup, and the bulk buyers of maple syrup, represented by the MIC
LBMT will have access to some of such reserve to offset decreases
entered into the Marketing Agreement, which is expected to be
in production due to weather conditions or that such reserve will
renewed on an annual basis. Pursuant to the Marketing Agreement,
be sufficient to cover a gap in the production in any given year.
authorized buyers must pay a minimum price to the FPAQ for any
Any decrease in production or incapacity to purchase additional
maple syrup purchased from the producers. As a result, LBMT’s
reserves from the FPAQ may affect LBMT’s supply of its sales of
ability to negotiate the purchase price of maple syrup is limited.
maple syrup and other Maple products and, ultimately, its financial
Moreover, the minimum purchase price that is applicable to the
results.
authorized buyers with the FPAQ also restricts LBMT’s ability to
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 50
Competition
need to anticipate and meet these trends and developments in
For the Sugar segment, the Company faces domestic competition
a competitive environment on a timely basis. The failure of LBMT
from Redpath Sugar Ltd. and smaller regional distributors of both
to anticipate, identify and react to shifting consumer and retail
foreign and domestic refined sugar. Differences in proximity to
customer trends and preferences through successful innovation and
various geographic areas within Canada and elsewhere result in
enhanced production capability could adversely result in reduced
differences in freight and shipping costs, which in turn affect pricing
demand for its products, which could in turn affect the financial
and competitiveness in general.
performance of the Company. There is also no guarantee that the
current favourable market trends will continue in the future.
In addition to sugar, the overall sweetener market also includes:
corn-based sweeteners, such as HFCS, an alternative liquid
Growth of LBMT’s Business Relying Substantially on Exports
sweetener, which can be substituted for liquid sugar in soft drinks
The size of the global wholesale market for maple syrup is currently
and certain other applications; and non-nutritive, high intensity
estimated at $750 million, the United States being by far the world’s
sweeteners such as aspartame, sucralose and stevia. Differences in
largest importer, followed by Japan and Germany. Despite the
functional properties and prices have tended to define the use of
increase of sales of maple products that the Canadian market has
these various sweeteners. For example, HFCS is limited to certain
experienced in recent years, the potential for growth of this industry
applications where a liquid sweetener can be used. Non-nutritive
largely relies on the international market. Moreover, over the last
sweeteners are not interchangeable in all applications. The
few years, Vermont and Maine have increased their production of
substitution of other sweeteners for sugar has occurred in certain
maple syrup and have now become competitors of Québec, which
products, such as soft drinks. We are not able to predict the
however remains the largest producer and exporter of maple syrup
availability, development or potential use of these sweeteners and
in the world. While LBMT continues to develop its selling efforts
their possible impact on the operations of the Company.
outside of Canada, including through forming new partnerships
For the Maple products segment, LBMT is among the largest
likely face high competition from other bottlers and distributers,
branded and private label maple syrup bottling and distributing
including from other Canadian and U.S. companies, for its share
companies in the world. LBMT has two major competitors in the
of the international market. Such growing competition and the
market and also competes against a multitude of smaller bottlers
incapacity for LBMT to further develop its selling efforts outside
in countries where the maple syrup market is undeveloped, it will
and distributing companies.
of Canada could adversely affect the Company’s capacity to grow
LBMT’s business and its future results. Furthermore, an incapacity to
A large majority of LBMT’s revenues are made under the private
attract increased attention on maple products or a sudden lack of
label line. The Corporation anticipates that for a foreseeable future,
interest for such products from customers outside of North America
LBMT’s relationship with its top private label customers will continue
may affect the Company’s future results.
to be key and will continue to have a material impact on its sales.
Although the Corporation considers that the relationship with its
Operating Costs
top private label customers is excellent, the loss of, or a decrease
Natural gas represents an important cost in our refining operations.
in the amount of business from, such customers, or any default in
Our Taber beet factory includes primary agricultural processing
payment on their part could significantly reduce LBMT’s sales and
and refining. As a result, Taber uses more energy in its operations
harm the Company’s operating and financial results.
than the cane facilities in Vancouver and Montréal, principally as
Consumer Habits May Change
a result of the need to heat the cossettes (sliced sugar beets) to
evaporate water from juices containing sugar, and to dry wet beet
The maple products market, both national and international, has
pulp. Changes in the costs and sources of energy may affect the
experienced some important changes over the last few years
financial results of the Company’s operations. In addition, all natural
as maple products are becoming better known and consumer
gas purchased is priced in U.S. dollars. Therefore, fluctuations in
preferences and consumption patterns have shifted to more natural
the Canadian/U.S. dollar exchange rate will also impact the cost
products. Maple syrup has typically been used, principally in North
of energy. The Company hedges a portion of its natural gas
America, as a natural alternative to traditional sweeteners and has
price exposure through the use of natural gas contracts to lessen
been served on morning meals, such as pancakes, waffles and
the impact of fluctuations in the price of natural gas. Provincial
other breakfast bakeries for decades. The offer of maple products
application of some form of carbon tax has been increasingly
has recently expanded to include, among others, maple butter and
important across Canada and for some provinces with carbon tax,
maple sugar, flakes and taffy. As a result of evolving customer trends
rates have been increasing, which could increase the overall energy
and the development of new maple products continues, LBMT will
costs for the Company.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 51
Government Regulations and Foreign Trade Policies
outdated quota rules for SCPs. If the USMCA is implemented, it will
with regards to Sugar
provide Canada a combined 19,200 metric tonnes of new access
In July 1995, Revenue Canada made a preliminary determination,
consisting of two separate tariff rate quotas; one for 9,600 metric
followed by a final determination in October 1995, that there
tonnes of Canadian origin refined beet sugar and a second for
was dumping of refined sugar from the United States, Denmark,
9,600 metric tonnes of SCPs, with more flexible rules to allow full
Germany, the United Kingdom, the Netherlands and the Republic
quota utilization. As the only producer of Canadian origin sugar, the
of Korea into Canada, and that subsidized refined sugar was
Company’s Canadian-specific sugar quota will increase from 10,300
being imported into Canada from the European Union (“EU”).
metric tonnes to 19,900 metric tonnes once the USMCA is in place.
The Canadian International Trade Tribunal (“CITT”) conducted
It is too early to determine how the SCP quota allocation will be
an inquiry and on November 6, 1995 ruled that the dumping of
administered within the Canadian refined sugar industry.
refined sugar from the United States, Denmark, Germany, the
United Kingdom and the Netherlands as well as the subsidizing
The legal text of the USMCA agreement has yet to be finalized,
from the EU was threatening material injury to the Canadian sugar
however the goal remains to finalize and sign the agreement before
industry. The ruling resulted in the imposition of protective duties
December 1, 2018 when the new elected Mexican President takes
on these unfairly traded imports.
office. It is still unknown whether the U.S. Congress will support the
deal following the democratic win in the House of Representatives.
Under Canadian laws, these duties must be reviewed every five
If the agreement is signed as expected December 1, 2018 and
years. On October 30, 2015, the CITT concluded its fourth review
receives Congressional support, it could be implemented in late
of the 1995 finding and issued its decision to continue the finding
2019 or early 2020.
against dumped and subsidized sugar from the U.S. and EU for
another five years. New CITT practice is to initiate reviews later than
The CETA entered into force provisionally on September 21, 2017.
in previous reviews so it is likely that the current duties will remain
Over 90% of CETA, including tariff reductions and new quotas,
in place as late as July 2021 and could be further extended for
went into effect upon provisional implementation.
another five years depending on the outcome of the review.
Provisional implementation of the CETA is expected to have financial
The duties on imports of U.S. and EU refined sugar are important
benefits from exports of SCPs which should contribute to the long
to Lantic and to the Canadian refined sugar industry in general
term prosperity of Canada’s sugar industry. The SCP volume is set
because they protect the market from the adverse effect of
at 30,000 metric tonnes annually from 2018 through 2021 and
unfairly traded imports from these sources. The government
is increasing in 5 year increments to reach 51,840 metric tonnes
support and trade distorting attributes of the U.S. and EU sugar
over 15 years. The quota is allocated 90% to Canadian refiners on
regimes continue to generate surplus refined sugar production
an equal share basis. Canada’s sugar industry has yet to benefit
and exports that threaten the Canadian sugar market. However,
from the new access to the EU given the October 1, 2017 removal
there is no assurance that the CITT determination in the next review
of EU domestic sugar quotas which has generated substantial
will continue the duty protection for a further five years. It is also
surplus sugar supplies and reduced market prices. Regardless,
possible that an interim review could be conducted prior to 2020
the Company is committed to ensure maximum utilization of this
if there is a material change in circumstances related to the CITT
new export opportunity in a well-developed market which will
finding.
be beneficial to the Company in the future. The Canadian Sugar
Institute is also closely monitoring developments with respect to
Negotiations towards a new NAFTA agreement were launched in
the UK Brexit on future market access opportunities for SCPs.
August 2017 with seven official rounds concluding in June 2018
when the U.S. imposed tariffs on steel and aluminum and tri-lateral
On February 4, 2016, Canada was among the 12 participating
NAFTA talks broke down. On July 31, 2018, the U.S. and Mexico
countries of the Trans-Pacific Partnership (“TPP”) to sign an
began bilateral talks focussed on auto rules but ultimately produced
agreement to liberalize trade in the region. The other TPP countries
a bilateral agreement in principle across a much broader range of
included Australia, Brunei Darussalam, Chile, Japan, Malaysia,
issues. On September 30, 2018, the three countries announced
Mexico, New Zealand, Peru, Singapore, the United States, and
they had reached a new deal: USMCA.
Vietnam. On January 23, 2017 the U.S. President signed an
executive order to withdraw the U.S. from the 12 nation TPP trade
Throughout these negotiations, the Canadian Sugar Institute (“CSI”)
deal.
advanced Canada’s sugar industry interest in securing improved
U.S. market access for Canadian sugar and SCPs and addressing
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
52
Beginning in May 2017, Ministers from the TPP countries continued
bilateral negotiations may result in substantial new duty-free imports
to meet to work towards a TPP11 agreement without the U.S.
from these countries, while not providing offsetting export market
to build on the TPP negotiated outcomes and advance trade
opportunities. The Canada-Mercosur free trade negotiations are an
liberalization and economic integration in the Asia Pacific region.
example (includes Argentina, Brazil, Paraguay and Uruguay). The
On January 23, 2018, the 11 countries concluded negotiations
real potential for significant, long-term export gains is via a global
on the Comprehensive and Progressive Agreement (“CPTPP”)
agreement through the World Trade Organization (“WTO”). The
followed by the signing on March 8, 2018. Canada’s legislation to
WTO agriculture negotiations have not advanced since they stalled
implement the agreement received Royal Assent on October 25,
in July 2008, however like-minded WTO members including Canada
2018 and Canada is now among the six countries (Mexico, Japan,
are actively collaborating to find ways to strengthen and modernize
Singapore, New Zealand, Canada and Australia) that have ratified
the WTO to ensure there remains a strong rules-based multilateral
the agreement which is the minimum needed to allow the CPTPP to
trading system in the face of rising global protectionism. Reaffirming
enter into force, now expected on December 30, 2018.
the critical value of a modernized WTO along with growing regional
integration through comprehensive and ambitious FTAs such as the
The CPTPP countries are diverse in terms of sugar policies and
CETA and CPTPP provide the best near to medium term prospect
trade but collectively may provide an opportunity to advance trade
of improved export opportunity for the Canadian sugar industry.
in refined sugar and SCPs. Lantic and the other Canadian sugar
All of these agreements involve significant input from the CSI and
refiner may benefit from new access for SCPs in Japan, and also
the Canadian sugar refiners to ensure the long-term stability of the
to Malaysia and Vietnam when they ratify the agreement, and may
Canadian refined sugar industry and its ability to support a vibrant
have a more competitive opportunity to supply these markets in
food processing industry in Canada.
the absence of the United States. Much technical work remains
to determine specific product opportunities and import quota
Foreign Trade Policies with regards to Maple products
procedures into Japan before the Company can ascertain any
LBMT’s international operations are also subject to inherent risks,
whether financial benefits will result from the CPTPP in fiscal 2019
including change in the free flow of food products between
or subsequent years.
countries, fluctuations in currency values, discriminatory fiscal
policies, unexpected changes in local regulations and laws and the
Canada now has free trade agreements in force with 13 countries,
uncertainty of enforcement of remedies in foreign jurisdictions. In
however, few beyond the NAFTA (or new USMCA), CETA and
addition, foreign jurisdictions, including the United States, LBMT’s
potentially the CPTPP offer significant market potential for Canadian
current and expected largest market, could impose tariffs, quotas,
sugar and sugar-containing products (“SCPs”). There are a number
trade barriers and other similar restrictions on LBMT’s international
of reasons why these free trade agreements (“FTAs”) have not
sales and subsidize competing agricultural products.
provided Lantic with meaningful export gains. In many cases, the
FTA country is not a logical export market, such as Jordan which is
On May 31, 2018, the United States announced the imposition
distant from Canada and closer to European suppliers or Colombia
of tariffs on imports of certain steel and aluminum products from
that is a large surplus sugar producer and exporter relative to
Canada (at the rates of 25% and 10%, respectively). In response to
Canada. FTAs with countries such as Honduras, Peru and Panama
the U.S. tariffs and following consultations with Canadians, on July 1,
are also not significant markets for high quality Canadian sugar
2018, Canada imposed countermeasures (surtaxes) against C$16.6
and negotiated outcomes provide for minimal tariff rate quota
billion in imports of steel, aluminum, and other products from the
quantities. Other more recent FTAs, including with the Republic
U.S., representing the value of 2017 Canadian exports affected by
of Korea and the Ukraine, excluded refined sugar from tariff
the U.S. tariffs. Imports of steel products face a 20% tariff while
improvements. “Rules of origin” in almost all FTAs limit Canadian
aluminum and other products including certain food products face
sugar benefits to beet sugar grown in Canada and processed at the
a 10% tariff. Maple syrup is among a wide range of food products
Taber beet factory. Some limited opportunities under the Canada-
facing the Canadian retaliatory 10% tariff. Canada views the U.S.
Costa Rica FTA are available for both refined beet and cane sugar.
tariffs on steel and aluminum as unjustified and illegal and this is
why Canada responded with a reciprocal, dollar for dollar response.
The CSI will continue to monitor Canada’s exploratory discussions
Canada and other countries are also challenging the US steel and
and formal negotiations for any meaningful developments that
aluminum tariffs using the WTO dispute settlement process. It is
may be of value to Canada’s sugar industry while also monitoring
hoped that with reaching an updated NAFTA (USMCA) agreement
potential threats. The Company continues to remain concerned
that there may be the potential to remove these reciprocal tariffs in
that the inclusion of refined sugar in Canada’s various regional and
the foreseeable future.
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 53
All of these risks could result in increased costs or decreased
emissions, contamination and spills of substances. Except for
revenues, either of which could have a material adverse effect
the non-compliance of air emission standards discussed above,
on LBMT’s financial condition and results of operations. The
management believes that the Company is in compliance in
implementation of CETA removes the duties on imported maple
all material respects with environmental laws and regulations.
syrup which could benefit the Company in additional export
However, these regulations have become progressively more
volume to the EU.
Employee Relations
The majority of the Lantic’s operations are unionized.
stringent and the Company anticipates this trend will continue,
potentially resulting in the incurrence of material costs to achieve
and maintain compliance.
As mentioned above, the Company had been actively working
During the fiscal year, a five-year labour agreement, expiring in
on solutions to reduce the air emissions footprint of the Taber
2023, was reached with the unionized employees of the Vancouver
facility. During the current fiscal year, the Company completed
refinery. The new agreement was agreed at competitive rates.
the engineering and project design to upgrade the Taber beet
factory to be fully compliant with the new air emissions regulations
The Toronto warehouse bargaining agreement expired at the end
by the start of the fiscal 2020 beet harvesting season (crop
of June 2018 and negotiations began during the fourth quarter
2019). This solution is expected to require between $8.0 million
of fiscal 2018. There can be no assurance that a new agreement
and $10.0 million in capital expenditures The Taber beet factory
will be reached or that the terms of such future agreement will be
obtained from Alberta Environment and Parks a variance for
similar to the terms of the current agreement.
non-compliance of air emission standards valid until May 2019.
LBMT’s bottling plant in Granby, Québec is under a collective
Violation of these regulations can result in fines or other penalties,
bargaining agreement, which is currently scheduled to expire in
which in certain circumstances can include clean-up costs. As
May 2023.
well, liability to characterize and clean up or otherwise deal with
contamination on or from properties owned, used or controlled
Strikes or lock-outs in future years could restrict the ability of
by the Company currently or in the past can be imposed by
the Company to service its customers in the affected regions,
environmental regulators or other third parties. No assurance can
consequently affecting the Company’s revenues.
be given that any such liabilities will not be material.
Food Safety and Consumer Health
Income Tax Matters
The Company is subject to risks that affect the food industry in
The income of the Company must be computed and is taxed in
general, including risks posed by accidental contamination,
accordance with Canadian tax laws, all of which may be changed
product tampering, consumer product liability, and the potential
in a manner that could adversely affect the amount of dividends.
costs and disruptions of a product recall. The Company actively
There can be no assurance that taxation authorities will accept the
manages these risks by maintaining strict and rigorous controls and
tax positions adopted by the Company including the determination
processes in its manufacturing facilities and distribution systems
of the amounts of federal and provincial income which could
and by maintaining prudent levels of insurance.
materially adversely affect dividends.
The Company’s facilities are subject to audit by federal health
The current corporate structure involves a significant amount of
agencies in Canada and similar institutions outside of Canada.
inter-company or similar debt, generating substantial interest
The Company also performs its own audits designed to ensure
expense, which reduces earnings and therefore income tax payable
compliance with its internal standards, which are generally at, or
at Lantic and LBMT’s level. There can be no assurance that taxation
higher than, regulatory agency standards in order to mitigate the
authorities will not seek to challenge the amount of interest
risks related to food safety.
Environmental Matters
expense deducted. If such a challenge were to succeed against
Lantic, it could materially adversely affect the amount of cash
transferred to Rogers for dividend payment. Management believes
The operations of the Company are subject to environmental
that the interest expense inherent in the structure is supportable
regulations
imposed by
federal, provincial and municipal
and reasonable in light of the terms of the debt owed by Lantic to
governments
in Canada,
including
those
relating
to
the
Rogers and LBMT to Lantic.
treatment and disposal of waste water and cooling water, air
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS
54
Management and Operation of Lantic
achieved in fiscal 2018. We will continue to monitor natural gas
The Board of Directors of Lantic is currently controlled by Lantic
market dynamics with the objective of maintaining competitive
Capital, an affiliate of Belkorp Industries. As a result, holders of
costs and minimizing natural gas cost variances.
shares have limited say in matters affecting the operations of Lantic;
if such holders are in disagreement with the decisions of the Board
The Sugar segment’s capital expenditures for fiscal 2019 are
of Directors of Lantic, they have limited recourse. The control
expected to increase compared to fiscal 2018 as the Company will
exercised by Lantic Capital over the Board of Directors of Lantic
undertake the capital project in Taber to be fully compliant with air
may make it more difficult for others to attempt to gain control of
emission standards by fiscal 2020, with spending ranging between
or influence the activities of Lantic and the Company.
$6.5 million and $8.5 million left to be spent on this specific project
OUTLOOK
Sugar
next year, as approximately $1.5 million was spent in fiscal 2018.
The remaining capital spend for the Sugar segment is expected to
be similar to fiscal 2018, including a high proportion of return on
investment capital expenditures.
After achieving excellent growth in fiscal 2018, we expect total
The harvest and beet slicing campaign started mid-September.
volume for fiscal 2019 to be comparable to fiscal 2018.
This year’s growing conditions were good and resulted in a solid
Looking at each segment, we expect the industrial market segment
in fiscal 2018. If current harvesting conditions continue and no
to slightly decrease, mainly due to timing in deliveries of existing
significant beet storage issues arise, we expect that the current
customers as a result of strong demand and increased sales volume
crop should derive approximately 125,000 metric tonnes of refined
in the last fiscal year.
sugar, which is comparable to fiscal 2018’s production volume,
crop but did not reach the record yield per acre that was achieved
even though an additional 1,000 acres were planted.
The consumer volume for next year is expected to be comparable
to fiscal 2018.
Maple products
The liquid market segment should continue to be strong and is
amounted to $18.6 million, short of management’s expectations of
expected to benefit from growth with existing and some new
$19.9 million. Given the lower than anticipated results from fiscal
customers which should more than offset the anticipated decrease
2018, management believes it is prudent to reduce expectations
in industrial volume. In addition, we have extended for an additional
with regards to the Maple products segment Adjusted EBITDA
two years the supply contract with a Western HFCS substitutable
for fiscal 2019 by approximately the same value of the fiscal 2018
The Maple products segment Adjusted EBITDA for fiscal 2018
bottler up to fiscal 2021.
shortfall and therefore, expects that Adjusted EBITDA should be
approximately $21.0 million, excluding non-recurring costs of
As for the export segment, the total volume is anticipated to
approximately $1.1 million. Although the current year’s result did not
decrease slightly for opportunistic high tier sales to the U.S. given
meet our expectations, primary due to certain loss of sales earlier
the recent rise in the #11 world raw sugar values. The Company
this year and due to the delays in implementing the operational
will continue to aggressively pursue any additional export sales
optimization of the Maple products asset footprint, management
that would be beneficial to the overall results. It is also worth
remains positive on the future outlook for this segment as the maple
commenting that the Company does not anticipate that the
syrup market growth remains strong and as such, with a sales team
additional Canada specific quota of 9,600 metric tonnes granted
that is now fully organized, we are positive that we can capture and
under the USMCA would take effect in fiscal 2019 and therefore,
participate in the market growth.
should not have any impact on the overall export volume for next
year. In addition, the long-term contract with a Mexican customer
In addition, the optimization of the Maple products segment
was also extended for an additional two years up to fiscal 2021.
footprint as well as the re-alignment of some of the production
lines will be tackled in fiscal 2019 due to the more complex nature
More than 65% of fiscal 2019’s natural gas requirements have
of the analysis that was undertaken, which resulted in a two-phase
been hedged at average prices comparable to those realized in
approach to the project. The first phase of the project was approved
fiscal 2018. Some futures positions for fiscal 2020 to 2024 have
during the third quarter of fiscal 2018, being the relocation from the
also been taken. Some of these positions are at prices higher than
current leased bottling facility in Granby to a new built for purpose
current market value, but are at the same or better levels than those
state of the art leased property. This move will allow us to better
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 55
align production flow and install a new high capacity bottling
The operational analysis at other bottling sites, with a focus on
line. The completion of the first phase is expected to occur at the
developing a more specialized and efficient asset footprint,
end of fiscal 2019, early fiscal 2020. As a result of this decision,
is continuing with the aim of completing the overall plan of the
approximately $4.5 million will be spent on return on investment
second phase in the next few months.
capital expenditures, of which, approximately $4.0 million remains
to be spent in fiscal 2019 in new equipment and leasehold
The business continues to work through the identified integration
improvements. Capital spending on the first phase is expected to
plans. While the timing and outcome of each initiative has changed
meet our normal threshold of a payback of less than five years.
since our initial forecast, our original overall integration gains are
However, approximately $1.1 million will be spent in fiscal 2019 as
achievable albeit over a modestly longer time horizon.
non-recurring costs, mostly attributable to lease payments for two
locations, moving costs and other additional miscellaneous costs.
Operational savings from the move to a new Granby facility are
expected in fiscal 2020.
2018 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 56
RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Rogers Sugar Inc. and all the information in this annual report pertaining to the
Corporation are the responsibility of the Administrator and have been approved by the Board of Directors.
The consolidated financial statements have been prepared by the Administrator in accordance with International Financial Reporting
Standards by applying the detailed accounting policies set out in the notes to the financial statements. The Administrator is of the opinion
that the consolidated financial statements were prepared based on reasonable and material criteria and using justifiable and reasonable
estimates. The Administrator has prepared the financial information presented elsewhere in the annual report and has ensured that it is
consistent with the financial statements of the Corporation.
The Administrator maintains systems of internal accounting and administrative controls of high quality, consistent with reasonable cost.
Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the
Corporation’s assets are appropriately accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that the Administrator fulfills its responsibilities for financial reporting and is ultimately
responsible for reviewing and approving the financial statements of the Corporation. The Board carries out this responsibility through its
Audit Committee.
The Audit Committee is appointed by the Board and all of its members are outside and unrelated directors. The committee meets with the
Administrator, as well as external auditors, to discuss internal controls over the financial reporting process, auditing matters and financial
reporting issues, to satisfy itself that each party is properly discharging its responsibilities and to review the annual report, the financial
statements and the external auditors’ report. The committee reports its findings to the Board for consideration when approving the financial
statements for issuance to the Shareholders. The committee also considers, for review by the Board and approval by the Shareholders, the
engagement or re-appointment of the external auditors.
The consolidated financial statements of the Corporation have been audited by KPMG LLP, the external auditors, in accordance with
Canadian generally accepted auditing standards on behalf of the Shareholders. KPMG LLP has full and free access to the Audit Committee.
John Holliday,
Manon Lacroix,
President and Chief Executive Officer
Vice President Finance, Chief Financial Officer and Secretary
Lantic Inc., Administrator
Lantic Inc., Administrator
November 21, 2018
Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except as noted and per share amounts)
57
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Rogers Sugar Inc.
We have audited the accompanying consolidated financial statements of Rogers Sugar Inc., which comprise the consolidated statements of
financial position as at September 29, 2018 and September 30, 2017, the consolidated statements of earnings and comprehensive income,
changes in shareholders’ equity and cash flows for the years ended September 29, 2018 and September 30, 2017, and notes, comprising
a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the prepara-
tion of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial state-
ments. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Rogers
Sugar Inc. as at September 29, 2018 and September 30, 2017, and of its consolidated financial performance and its consolidated cash flows
for the years ended September 29, 2018 and September 30, 2017 in accordance with International Financial Reporting Standards.
November 21, 2018
Montréal, Canada
* CPA auditor, CA, public accountancy permit No. A109612
2018 Annual Report
58
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(In thousands of dollars except per share amounts)
Consolidated statements of earnings
Revenues (note 34)
Cost of sales
Gross margin
Administration and selling expenses
Distribution expenses
Results from operating activities
Finance income (note 6)
Finance costs (note 6)
Net finance costs (note 6)
Earnings before income taxes
Income tax expense (recovery) (note 7):
Current
Deferred
Net earnings
Net earnings per share (note 29):
Basic
Diluted
For the years ended
September 29,
2018
September 30,
2017
$
805,201
674,348
130,853
32,071
14,682
46,753
84,100
(532)
17,664
17,132
66,968
17,967
272
18,239
48,729
0.46
0.43
$
682,517
605,219
77,298
25,603
10,664
36,267
41,031
(371)
10,589
10,218
30,813
13,198
(4,291)
8,907
21,906
0.23
0.22
Consolidated statements of comprehensive income
Net earnings
Other comprehensive (loss) income:
Items that are or may be reclassified subsequently to net earnings:
Cash flow hedges (note 11)
Income tax on other comprehensive (loss) income (note 7)
Foreign currency translation differences
Items that will not be reclassified to net earnings:
Defined benefit actuarial gains (note 22)
Income tax on other comprehensive income (note 7)
Other comprehensive income
Net earnings and comprehensive income for the year
For the years ended
September 29,
2018
$
48,729
September 30,
2017
$
21,906
(32)
9
506
483
6,643
(1,763)
4,880
5,363
54,092
401
(106)
(192)
103
15,866
(4,182)
11,684
11,787
33,693
The accompanying notes are an integral part of these consolidated financial statements.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
59
September 29,
2018
$
September 30,
2017*
$
ASSETS
Current assets:
Cash
Restricted cash (note 8)
Trade and other receivables (note 9)
Income taxes receivable
Inventories (note 10)
Prepaid expenses
Derivative financial instruments (note 11)
Total current assets
Non-current assets:
Restricted cash (note 8)
Property, plant and equipment (note 12)
Intangible assets (note 13)
Other assets (note 14)
Deferred tax assets (note 15)
Derivative financial instruments (note 11)
Goodwill (note 16)
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank overdraft
Revolving credit facility (note 17)
Trade and other payables (note 18)
Income taxes payable
Provisions (note 20)
Finance lease obligations (note 21)
Derivative financial instruments (note 11)
Current portion of other long-term liabilities (note 19)
Total current liabilities
Non-current liabilities:
Revolving credit facility (note 17)
Employee benefits (note 22)
Provisions (note 20)
Derivative financial instruments (note 11)
Finance lease obligations (note 21)
Convertible unsecured subordinated debentures (note 23)
Deferred tax liabilities (note 15)
Other long-term liabilities (note 19)
Total non-current liabilities
Total liabilities
Shareholders’ equity:
Share capital (note 24)
Contributed surplus
Equity portion of convertible unsecured subordinated debentures (note 23)
Deficit
Accumulated other comprehensive income
Total shareholders’ equity
Commitments (notes 26 and 27)
Contingencies (note 28)
Total liabilities and shareholders’ equity
2,101
846
81,736
—
179,325
5,304
4,011
273,323
—
208,899
38,947
985
12,976
2,072
333,007
596,886
870,209
5,469
12,000
113,777
3,506
1,006
50
1,847
773
138,428
160,000
31,494
1,199
2,720
64
142,421
44,238
—
382,136
520,564
100,639
300,436
5,085
(63,171)
6,656
349,645
870,209
*
Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
The accompanying notes are an integral part of these consolidated financial statements.
17,033
4,201
80,032
1,174
172,542
2,892
93
277,967
631
190,700
30,874
982
15,048
2,323
316,949
557,507
835,474
—
20,000
125,294
—
478
48
6,665
4,703
157,188
150,000
39,169
1,753
2,381
114
111,544
38,581
588
344,130
501,318
101,335
300,247
3,141
(71,860)
1,293
334,156
835,474
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
60
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands of dollars except number of shares)
8
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(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
(In thousands of dollars except number of shares)
61
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(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
62
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
For the years ended
September 29,
2018
$
September 30,
2017*
$
Cash flows from (used in) operating activities:
Net earnings
Adjustments for:
Depreciation of property, plant and equipment (note 5)
Amortization of intangible assets (note 5)
Changes in fair value of derivative financial instruments included in cost of sales
Income tax expense (note 7)
Pension contributions
Pension expense
Net finance costs (note 6)
Loss on disposal of property, plant and equipment (note 12)
Share-based compensation – equity settled (note 25)
Share-based compensation – cash settled (note 25)
Other
Changes in:
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Provisions (note 20)
Cash generated from operating activities:
Interest paid
Income taxes paid
Net cash flows from operating activities
Cash flows (used in) from financing activities:
Dividends paid
Increase in bank overdraft
Increase in revolving credit facility (note 17)
Issuance of convertible debentures, net of underwriting fees and
issuances costs of $4.5 million (2017 - $2.7 million) (note 23)
Repurchase of convertible debentures (note 23)
Issuance of common shares, net of underwriting fees and
issuance costs of $3.2 million (note 24)
Purchase and cancellation of shares (note 24)
Payment of financing fees (note 14)
Stock options exercised (note 25)
Net cash flows from (used in) financing activities
Cash flows used in investing activities:
Business combination, net of cash acquired and prior year adjustments (note 4)
Payment of purchase price payable
Additions to property, plant and equipment, net of proceeds on disposal
Additions to intangible assets (note 13)
Net cash used in investing activities
Effect of changes in exchange rate on cash
Net (decrease) increase in cash
Cash, beginning of year
Cash, end of year
48,729
14,716
3,758
(7,645)
18,239
(8,435)
7,403
17,132
—
189
(5)
(21)
94,060
2,205
8,962
(2,315)
(20,866)
(750)
(12,764)
81,296
(14,952)
(13,432)
52,912
(38,037)
5,469
2,000
93,238
(59,990)
—
(3,963)
(272)
—
(1,555)
(42,084)
(690)
(23,271)
(384)
(66,429)
140
(14,932)
17,033
2,101
*
Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
Supplemental cash flow information (note 30).
The accompanying notes are an integral part of these consolidated financial statements.
21,906
13,022
574
(278)
8,907
(7,324)
9,426
10,218
1
74
15
8
56,549
5,613
16,422
429
1,491
(763)
23,192
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(10,024)
(17,680)
52,037
(33,826)
—
110,000
54,786
(49,565)
65,985
—
(629)
521
147,272
(166,182)
—
(17,046)
(257)
(183,485)
(37)
15,787
1,246
17,033
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
63
1. REPORTING ENTITY
Rogers Sugar Inc. (“Rogers” or the “Company”) is a company domiciled in Canada, incorporated under the Canada Business
Corporations Act. The head office of Rogers is located at 123 Rogers Street, Vancouver, British Columbia, V6B 3V2. The consolidated
financial statements of Rogers as at September 29, 2018 and September 30, 2017 comprise Rogers and the directly and indirectly
controlled subsidiaries, Lantic Inc. (“Lantic”) and L.B. Maple Treat Corporation (“LBMT”), (together referred to as the “Company”). The
principal business activities of the Company are the refining, packaging and marketing of sugar and maple products.
The Company’s fiscal quarters end on the Saturday closest to the end of December, March, June and September. All references to 2018
and 2017 represent the years ended September 29, 2018 and September 30, 2017.
2. BASIS OF PREPARATION
(a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on November 21, 2018.
(b) Basis of measurement:
These consolidated financial statements have been prepared on the historical cost basis except for the following material items in
the consolidated statements of financial position:
(i) derivative financial instruments are measured at fair value;
(ii) cash-settled share appreciation rights and cash-settled performance share units are measured at fair value;
(iii) the defined benefit liability is recognized as the net total of the present value of the defined benefit obligation less the total
of the fair value of the plan assets and the unrecognized past service costs; and
(iv) assets and liabilities acquired in business combinations are measured at fair value at acquisition date.
(c) Functional and presentation currency:
These consolidated financial statements are presented in Canadian dollars, since it is the Company’s functional currency. All
financial information presented in Canadian dollars has been rounded to the nearest thousands, except as noted and per share
amounts.
(d) Use of estimates and judgements:
The preparation of these consolidated financial statements, in conformity with IFRS, requires management to make judgements,
estimates and assumptions about future events that affect the application of accounting policies and the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting years.
The following is a summary of areas involving a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements:
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
64
2. BASIS OF MEASUREMENT (CONTINUED)
(d) Use of estimates and judgements (continued):
(i) Embedded derivatives:
As at October 2, 2016, embedded derivatives, which related to the foreign exchange component of certain sales contracts
denominated in U.S. currency, were no longer separated from the host contract as it was determined that the U.S. dollar is
commonly used in Canada. This change in estimate was applied prospectively, as such, any contracts for which it was
determined there was an embedded derivative and that needed to be separated from the host contract as of October 1,
2016 continued to be treated as such as a transitional step to meet the new interpretation. These contracts continued to
be marked-to-market every quarter until all the volume on the contract was delivered. As at September 29, 2018, there were
no embedded derivatives outstanding.
(ii) Useful lives of property, plant and equipment:
The Company reviews estimates of the useful lives of property, plant and equipment on an annual basis and adjusts
depreciation on a prospective basis, if necessary.
(iii) Goodwill impairment:
The Company makes a number of estimates when calculating the recoverable amount of a cash-generating unit containing
goodwill using discounted future cash flows or other valuation methods. These estimates take into account the control
premium in determining the fair value less cost to sell.
(iv) Asset impairment:
The Company must assess the possibility that the carrying amounts of tangible and intangible assets may not be recoverable.
Management is required to make subjective assessments, linking the possible loss of value of assets to future economic
performance, and determine the amount of asset impairment that should be recognized, if any.
(v)
Income taxes:
The calculation of income taxes requires judgement in interpreting tax rules and regulations. Deferred income tax assets are
recorded to the extent that it is probable that there will be adequate income in the future against which they can be utilized.
(vi) Pension plans:
The cost of defined benefit pension plans is determined by means of actuarial valuations, which involve making assumptions
about discount rates, future salary increases, mortality rates and the future increases in pensions. Because of the long-term
nature of the plans, such estimates are subject to a high degree of uncertainty.
(vii) Business combinations:
Establishing the fair value of assets and liabilities, intangible assets and goodwill related to business combinations.
(viii) Consolidation:
See Note 3(a), Basis of consolidation.
Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and anticipated
measures management intends to take. These estimates and assumptions are based on management’s best estimates and
judgments. Actual results could differ from those estimates. The above estimates and assumptions are reviewed regularly. Revisions
to accounting estimates are recognized in the period in which estimates are revised and in any future years affected.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
65
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of consolidation:
(i) Subsidiaries:
The consolidated financial statements include the Company and the subsidiary it controls, Lantic Inc. (“Lantic”) and its
subsidiaries, L.B. Maple Treat Corporation (“LBMTC”), 9020-2292 Québec Inc. (“Decacer”) and Highland Sugarworks Inc.
(“Highland”) (the latter three companies together referred to as “LBMT”. Control exists where the Company is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from
the date control commences until the date that control ceases. The accounting policies of subsidiaries are aligned with the
policies adopted by the Company.
The Company owns 100% of the common shares of Lantic. Lantic Capital Inc., a wholly-owned subsidiary of Belkorp Industries
Inc., owns the two outstanding Class C shares of Lantic. These Class C shares are non-voting, have no rights to return or risk of
loss and are redeemable for a nominal value of one dollar each. The Class C shares entitle the holder to elect five of the seven
directors of Lantic but have no other voting rights at any meetings of Lantic’s shareholders except as may be required by law.
Notwithstanding Lantic Capital Inc.’s ability to elect five of the seven directors of Lantic, Lantic Capital Inc. receives no
benefits or exposure to losses from its ownership of the Class C shares. As the Class C shares are non-dividend paying and
redeemable for a nominal value of one dollar, there is no participation in future dividends or changes in value of Lantic
resulting from the ownership of the Class C shares. There is also no management fee or other form of consideration
attributable to the Class C shares. The determination of control involves a high degree of judgement. Based on all the facts
and available information, management has concluded that the Company has control of Lantic.
Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions,
are eliminated in preparing the consolidated financial statements.
(ii) Business combinations:
Business combinations are accounted for using the acquisition method when control is transferred to the Company. The
consideration transferred in the acquisition is generally measured at fair value of the assets transferred, and any debt and
equity interests issued by the Company on the date control of the acquired company are obtained. The consideration
transferred includes the fair value of any liability resulting from a contingent consideration arrangement. Contingent
consideration classified as a liability that is a financial instrument is subsequently remeasured at fair value, with any resulting
gain or loss recognized in the consolidated statements of earnings and comprehensive income.
Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed as incurred
and are included in administration and selling expenses in the consolidated statements of earnings and comprehensive
income. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are generally
measured initially at their fair values at the acquisition date.
The Company recognizes any non-controlling interest in an acquired company either at fair value or at the non-controlling
interest’s proportionate share of the acquired company’s net identifiable assets. The excess of the consideration
transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration
transferred and non-controlling interest recognized is less than the fair value of the net assets of the business acquired, a
purchase gain is recognized immediately in the consolidated statements of earnings and comprehensive income.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
66
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Foreign currency transactions:
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency
at the exchange rate in effect at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured
at fair value are translated at the rate prevailing at the date that the fair value was determined. Foreign denominated non-
monetary assets and liabilities that are measured at the historical costs are translated at the rate prevailing at the transaction date.
Revenues and expenses denominated in foreign currencies are translated into the functional currency at the rate in effect on the
dates they occur. Gains or losses resulting from these translations are recorded in net earnings of the period.
(c) Foreign operations:
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on business combinations, are
translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are
translated to Canadian dollars at the average exchange rate in effect during the reporting period.
Foreign currency differences are recognized in other comprehensive income (loss) in the accumulated foreign currency translation
differences account. When a foreign operation is disposed of in its entirety or partially such that control, significant influence
or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or
loss as part of the gain or loss on disposal. If the Company disposes of part of its interest in a subsidiary but retains control, then
the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Company disposes of only
part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative
amount is reclassified to income or loss.
(d) Cash:
Cash includes cash on hand, bank balances and bank overdraft when the latter forms an integral part of the Company’s cash
management.
(e)
Inventories:
Inventories are valued at the lower of cost and net realizable value. The cost of inventories is determined substantially on a first-in,
first-out basis and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs
incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress,
cost includes an appropriate share of production overheads based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and
selling expenses.
(f) Property, plant and equipment:
Property, plant and equipment, with the exception of land, are recorded at cost less accumulated depreciation and any
accumulated impairment losses. Land is carried at cost and is not depreciated.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes
the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their
intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing
costs on qualifying assets. Purchased software that is integral to the functionality of the related equipment is capitalized as part
of that equipment. When significant parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment. Construction-in-progress assets are
capitalized during construction and depreciation commences when the asset is available for use.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
67
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Property, plant and equipment (continued):
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is
probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured
reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and
equipment are recognized in profit or loss as incurred.
Gains and losses on disposal of items of property, plant and equipment are determined by comparing the proceeds from disposal
with the carrying amount of the property, plant and equipment and are recognized in cost of sales for assets used in production
and in administration and selling expenses for all other assets.
Depreciation related to assets used in production is recorded in cost of sales while the depreciation of all other assets is recorded
in administration and selling expenses. Depreciation is calculated on a straight-line basis, after taking into account residual values,
over the estimated useful lives of each component of an item of property, plant and equipment, since this most closely reflects the
expected pattern of consumption of the future economic benefits embodied in the asset. Significant components of individual
assets are assessed and, if a component has a useful life that is different from the remainder of that asset, then that component is
depreciated separately. The estimated useful lives are as follows:
Barrels
Buildings
Furniture and fixtures
Machinery and equipment
6 years
20 to 60 years
5 to 10 years
5 to 40 years
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the
Company will obtain ownership by the end of the lease term.
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and depreciation is adjusted on a
prospective basis, if necessary.
(g)
Intangible assets:
(i) Goodwill:
Goodwill is measured at the acquisition date as the fair value of the consideration transferred less the fair value of the net
identifiable assets of the acquired company or business activities. Goodwill is not amortized and is carried at cost less
accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
68
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Intangible assets (continued):
(ii) Other intangible assets:
Intangible assets that are acquired by the Company and have finite useful lives are initially measured at cost. Following initial
recognition, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific
asset to which it relates. All other expenditures are recognized in profit or loss as incurred.
Amortization is calculated over the cost of the asset, less its residual value. Amortization is recognized in administrative
expenses on a straight-line basis over the estimated useful lives of the intangible assets from the date that they are available
for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the
asset. Amortization of intangible assets not in service begins when they are ready for their intended use. The estimated useful
lives are as follows:
Software
Customer relationships
Other
Brand names are not amortized as they are considered to have an indefinite life.
5 to 15 years
10 years
10 years
Intangible assets with indefinite useful life are tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
For intangible assets with finite life, useful lives and residual values are reviewed at each financial year-end and amortization
is adjusted on a prospective basis, if necessary.
(h) Leased assets:
Leases for which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon
initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and present value of the minimum
lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable
to that asset.
Other leases are operating leases and the leased assets are not recognized in the Company’s consolidated statements of financial
position.
(i)
Impairment:
Non-financial assets:
The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available
for use, the recoverable amount is estimated yearly at the same time, at year-end, and whenever there is an indication that the
asset might be impaired.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
69
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
Impairment (continued):
Non-financial assets (continued):
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups
of assets (the “cash-generating unit”, or “CGU”).
The Company’s corporate assets do not generate cash inflows. If there is an indication that a corporate asset may be impaired,
then the recoverable amount is determined for the CGU to which the corporate asset belongs.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. An impairment
loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are
recognized in profit or loss. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of
any goodwill allocated to the CGU, and then to reduce the carrying amount of the other assets in the CGU on a pro rata basis.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset or group of assets.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years
are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net
of depreciation or amortization, if no impairment loss had been recognized.
(j) Employee benefits:
(i) Pension benefit plans:
The Company provides post-employment benefits through defined benefit and defined contribution plans. The Company
also sponsors Supplemental Executive Retirement Plans (“SERP”), which are neither registered nor pre-funded. Finally, the
Company sponsors defined benefit life insurance, disability plans and medical benefits for some retirees and employees.
Defined contribution plans
The Company’s obligations for contributions to employee defined contribution pension plans are recognized as employee
benefit expense in profit or loss in the years during which services are rendered by employees.
Defined benefit plans
The Company maintains some contributory defined benefit plans that provide for pensions to employees based on years of
service and the employee’s compensation. The Company’s net obligation in respect of defined benefit plans is calculated sepa
rately for each plan by estimating the amount of future benefit that employees have earned in the current and prior years,
discounting that amount and deducting the fair value of any plan assets. The discount rate is the yield at the reporting date on
AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations and that are
denominated in the same currency in which the benefits are expected to be paid.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit
method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present
value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding
requirements.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
70
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Employee benefits (continued):
(i) Pension benefit plans (continued):
Defined benefit plans (continued)
Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets
(excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other
comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability
(asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the
annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit
liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses
related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service
or the gain or loss on curtailment is recognized immediately in profit or loss. Costs related to plan settlements are recorded
at the time the Company is committed to a settlement as a separate constructive obligation. Subsequent to the Company
being committed to a settlement, the plan liability is measured at the expected settlement amount using settlement interest
rates.
(ii) Short-term employee benefits:
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognized for the amount expected to be paid under cash incentive if the Company has a present
legal or constructive obligation to pay the amount as a result of past service provided by the employee, and the obligation
can be estimated reliably.
(iii) Share-based compensation:
The Company has a Share Option Plan. Share-based payment awards are measured at fair value at the grant date, which is
recognized as a personnel expense, with a corresponding increase in contributed surplus over the vesting period, which is
normally five years. The amount recognized as an expense is adjusted to reflect the number of awards for which the related
service conditions are expected to be met. Any consideration paid by employees on exercise of share options is credited to
share capital.
(iv) Employee share purchase plan:
The Company has an Employee Share Purchase Plan that is an equity-settled share-based payment with employees; the
measurement is based on the grant-date fair value of the equity instrument granted. As such, the expense is recognized
when the employee purchases the shares.
(v) Cash-settled share appreciation rights:
The Company’s Share Option Plan allows for the issuance of Share Appreciation Rights (“SARs”) that entitles certain senior
personnel of the Company to a cash payment based on the increase in the share price of the Company’s common shares
from the grant date to the vesting date. The SARs are automatically exercised upon vesting dates if the share price of the
Company’s common shares is greater than the price on the grant date; if not, they are rolled to the next vesting date.
A liability is recognized for the services acquired and is recorded at the fair value of the SARs in other non-current payables,
except for the current portion recorded in trade and other payables, with a corresponding expense recognized in selling and
administration expenses over the period that the employees become unconditionally entitled to the payment. The fair value
of the employee benefits expense of the SARs is measured using the Black-Scholes pricing model.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
71
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Employee benefits (continued):
(v) Cash-settled share appreciation rights (continued):
Estimating fair value requires determining the most appropriate inputs to the valuation model including the expected life of
the SARs, volatility, risk-free interest rate and dividend yield and making assumptions about them. At the end of each
reporting period until the liability is settled, the fair value of the liability is remeasured, with any changes in fair value
recognized in the consolidated statements of earnings and comprehensive income of the current year.
(vi) Cash-settled performance share units:
The Company implemented a Performance Share Units plan (“PSU”) entitling certain senior personnel to a cash payment.
A liability is recognized in payables for the services acquired and is recorded at fair value based on the share price of the
Company’s Common Shares with a corresponding expense recognized in administration and selling expenses. The amount
recognized as an expense is adjusted to reflect the number of units for which the related service and performance conditions
are expected to be met, such that the amount ultimately recognized as an expense is based on the units of awards that do
meet the related service and non-market performance conditions at the vesting date. At the end of each reporting period
until the liability is settled, the fair value of the liability is re-measured, with any changes in fair value recognized in the
consolidated statement of earnings.
(vii) Termination benefits:
Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and
when the Company recognizes costs for a restructuring. If benefits are not expected to be fully settled within 12 months of
the end of the reporting period, they are discounted.
(k) Provisions:
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance costs.
(i) Asset retirement obligation:
The Company recognizes the estimated liability for future costs to be incurred in the remediation of site restoration in regards
to asbestos removal and disposal of such asbestos to a landfill for hazardous waste, and for oil, chemical and other hazardous
materials storage tanks, only when a present legal or constructive obligation has been determined and that such obligation
can be estimated reliably. Upon initial recognition of the obligation, the corresponding costs are added to the carrying
amount of the related items of property, plant and equipment and amortized as an expense over the economic life of the
asset, or earlier if a specific plan of removal exists. This obligation is reduced every year by payments incurred during the year
in relation to these items. The obligation might be increased by any required remediation to the owned assets that would be
required through enacted legislation.
(ii) Contingent liability:
A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by
the occurrence or non-occurrence of one or more uncertain future events not within the control of the Company, or a present
obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer
or use of assets, provision of services, or any other transfer of economic benefits will be required to settle the obligation, or
the amount of the obligation cannot be estimated reliably.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
72
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Financial instruments:
(i)
IFRS 9, Financial Instruments:
The Company early adopted all the requirements of IFRS 9 (2014), Financial Instruments with a date of initial application of
October 2, 2016. The standard establishes principles for the financial reporting classification and measurement of financial
assets and financial liabilities. This standard incorporates a new hedging model, which increases the scope of hedged items
eligible for hedge accounting and aligns hedge accounting more closely with risk management. This standard also amends
the impairment model by introducing a new “expected credit loss” model for calculating impairment.
This new standard also increases required disclosures about an entity’s risk management strategy, cash flows from hedging
activities and the impact of hedge accounting on the consolidated financial statements.
IFRS 9 (2014) uses a single approach to determine whether a financial asset is measured at amortized cost or fair value,
replacing the multiple rules in IAS 39, Financial instruments – Recognition and Measurement. The approach in IFRS 9 (2014)
is based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial
assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in
IFRS 9 (2014).
The following summarizes the classification and measurement changes for the Company’s non-derivative and derivative
financial assets and financial liabilities as a result of the adoption of IFRS 9 (2014).
IAS 39
IFRS 9 (2014)
Financial assets:
Cash
Restricted cash
Loans and receivables
Loans and receivables
Trade and other receivables
Loans and receivables
Income taxes recoverable
Loans and receivables
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Non-hedged derivative assets
Fair value through profit and loss
Fair value through profit or loss
Financial liabilities:
Revolving credit facility
Other financial liabilities
Trade and other payables
Other financial liabilities
Income taxes payable
Other financial liabilities
Finance lease obligations
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Convertible unsecured
subordinated debentures
Other financial liabilities
Amortized cost
Other long-term liabilities
Fair value through profit and loss
Fair value through profit or loss
Non-hedged derivative liabilities
Fair value through profit and loss
Fair value through profit or loss
With the adoption of IFRS 9 (2014), the Company’s natural gas futures and interest rate swap agreements were designated
as being effective hedging instruments.
In accordance with the transitional provisions of IFRS 9 (2014), the financial assets and financial liabilities held at October 2,
2016 were reclassified retrospectively without prior period restatement based on the new classification requirements and the
characteristics of each financial instrument at October 2, 2016.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
73
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Financial instruments (continued):
(i)
IFRS 9, Financial Instruments (continued):
The accounting for these instruments and the line item in which they are included in the balance sheet were unaffected by
the adoption of IFRS 9 (2014). The adoption of IFRS 9 (2014) did not result in any measurement adjustments to our financial
assets and financial liabilities. Our significant accounting policies for financial instruments, derivative financial instruments,
and hedging relationships have been aligned with IFRS 9 (2014). The adoption of IFRS 9 (2014) did not have a material impact
on impairment at October 2, 2016.
The Company initially recognizes financial instruments on the trade date at which the Company becomes a party to the
contractual provisions of the instrument. Financial instruments are initially measured at fair value. In the case of a financial
asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the
acquisition or issue of the financial asset or financial liability are added to or deducted from the fair value.
(ii) Financial assets:
Financial assets are classified into the following categories:
a. Financial assets measured at amortized cost:
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment
loss, if:
•
The asset is held within a business model whose objectives is to hold assets in order to collect contractual cash flows;
and
•
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of
principals and/or interest.
The Company currently classifies its cash, trade accounts receivable, and certain other current assets as assets measured
at amortized cost. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred.
The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost. The
Company has a portfolio of trade receivables at the reporting date.
The Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred,
adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses
are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its
carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest
rate. Losses are recognized in income or loss and reflected in an allowance account against trade and other receivables.
b. Financial assets measured at fair value:
These assets are measured at fair value and changes therein, including any interest are recognized in profit or loss. The
Company currently has no significant financial assets measured at fair value.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
74
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Financial instruments (continued):
(iii) Financial liabilities:
Financial liabilities are classified into the following categories:
a. Financial liabilities measured at amortized cost:
A financial liability is subsequently measured at amortized cost, using the effective interest method. The Company currently
classifies and measures short-term borrowings, trade payables and accrued liabilities, finance lease obligations, and
convertible unsecured subordinated debentures as financial liabilities measured at amortized cost.
b. Financial liabilities measured at fair value:
Financial liabilities at fair value are initially recognized at fair value and are re-measured at each reporting date with any
changes therein recognized in net earnings. The Company currently has no significant financial liabilities measured at fair
value except for other long-term liabilities.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expired.
Financial assets and liabilities are offset and the net amount is presented in the consolidated statements of financial position
when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
(iv) Fair values of financial instruments:
Financial assets and liabilities measured at fair value use a fair value hierarchy to prioritize the inputs used in measuring fair
value as follows:
Level 1 - valuation based on observable inputs such as quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - valuation techniques based on inputs that are other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly (prices) or indirectly (derived from prices); and
Level 3 - valuation techniques with observable market inputs (involves assumptions and estimates by management of how
market participants would price the asset or liability).
a. Cash:
The Company classifies its cash as amortized cost assets. Cash includes cash on hand, bank balances and bank overdraft
when the latter forms an integral part of the Company’s cash management.
b. Derivative financial instruments and hedging relationships:
The Company enters into derivative financial instruments to hedge its market risk exposures. On initial designation of the
hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including
the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be
used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of
the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be effective in
offsetting the changes in the fair value or cash flows of the respective hedged items throughout the period for which the
hedge is designated. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur
and should present an exposure to variations in cash flows that could ultimately affect reported net earnings.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
75
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Financial instruments (continued):
(iv) Fair values of financial instruments (continued):
c. Embedded derivatives:
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics,
risks of the host contract and the embedded derivative are not closely related; a separate instrument with the same terms as
the embedded derivative would meet the definition of a derivative; and the combined instrument is not measured at fair
value through profit or loss as described in note 2(d)(i).
d. Other derivatives:
When a derivative financial instrument, for example, sugar futures and at times options (“sugar contracts”), foreign exchange
forward contracts and embedded derivatives is not designated in a qualifying hedge relationship, all changes in its fair value
are recognized immediately in net earnings (marked-to-market).
e. Compound financial instruments:
The Company’s convertible unsecured subordinated debentures are accounted for as compound financial instruments. The
liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does
not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of
the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable
transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost
using the effective interest method. The equity component of a compound financial instrument is not re-measured
subsequent to initial recognition. Interest, dividends, gains and losses relating to the financial liability are recognized in profit
or loss.
f.
Financing charges:
Financing charges, which reflect the cost to obtain new financing, are offset against the debt for which they were incurred
and recognized in finance costs using the effective interest method. Financing charges for the revolving credit facility are
recorded with other assets.
g. Trade date:
The Company recognizes and derecognizes purchases and sales of derivative contracts on the trade date.
h. Share capital:
Common shares
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized
as a deduction from equity, net of any tax effects. Dividends to the equity holders are recorded in equity.
Repurchase of share capital
When share capital recognized as equity is repurchased for cancellation, the amount of the consideration paid, which includes
directly attributable costs, net of any tax effects, is recognized as a deduction from equity. The excess of the purchase price
over the carrying amount of the shares is charged to deficit.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
76
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Financial instruments (continued):
(v) Cash flow hedges:
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect
net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income
and presented in accumulated other comprehensive income as part of equity.
The amount recognized in other comprehensive income is removed and included in net earnings under the same line item
in the consolidated statements of earnings and comprehensive income as the hedged item, in the same period that the
hedged cash flows affect net earnings.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, or exercised, the
hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive
income remains in accumulated other comprehensive income until the forecasted transaction affects profit or loss.
If forecasted transaction is no longer expected to occur, then the balance in accumulated other comprehensive income is
recognized immediately in net earnings.
When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to net
earnings in the same period that the hedged item affects net earnings.
The Company has designated as hedging items its natural gas futures and its interest rate swap agreements entered into in
order to protect itself against natural gas prices and interest rate fluctuations as cash flow hedges.
(m) Revenue recognition:
Revenue is measured at the fair value of the consideration received or receivable and recognized at the time products are shipped
to customers, at which time significant risks and rewards of ownership are transferred to the customers. Revenue is recorded net
of all returns and allowances and excludes sales taxes.
Sales incentives, including volume rebates provided to customers, are estimated based on contractual agreements and historical
trends and are recognized at the time of sale as a reduction in revenue. Such rebates are primarily based on a combination of
volume purchased and achievement of specified volume levels.
(n) Lease payments:
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liabilities. The finance expense is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
(o) Finance income and finance costs:
Finance income comprises interest income on funds invested and finance costs comprise interest expense on borrowings. Changes
in the fair value of interest rate swaps are recorded initially in other comprehensive income since inception of the cash flow
hedge and transferred to finance income and finance costs in the same period that the hedged cash flows affect net earnings.
Interest expense is recorded using the effective interest method.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
77
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p)
Income taxes:
Income tax expense comprises current and deferred taxes. Current tax and deferred tax are recognized in profit or loss except to
the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or recoverable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.
Deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred taxes are not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the
extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred taxes are not recognized for
taxable temporary differences arising on the initial recognition of goodwill. Deferred taxes are measured at the tax rates that
are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which they can be utilized. In addition, the effect on deferred tax
assets or liabilities of a change in tax rates is recognized in profit or loss in the period in which the enactment or substantive
enactment takes place, except to the extent that it relates to an item recognized either in other comprehensive income or directly
in equity in the current or in a previous period. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
(q) Earnings per share:
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by
dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common
shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of
common shares outstanding, for the effects of all dilutive potential common shares from the conversion of the convertible
debentures.
(r) New standards and interpretations adopted:
(i)
IAS 7, Disclosure Initiative:
On January 7, 2016 the IASB issued Disclosure Initiative (amendments to IAS 7). The amendments apply prospectively for
annual periods beginning on or after January 1, 2017. Earlier application is permitted.
The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from
financing activities, includes both changes arising from cash flow and non-cash changes.
The Company adopted the amendments to IAS 7 in its consolidated financial statements for the annual period beginning on
October 1, 2017. The adoption of the standard did not have a material impact on the consolidated financial statements.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
78
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(r) New standards and interpretations adopted (continued):
(ii)
IAS 12, Recognition of Deferred Tax Assets for Unrealized Losses:
On January 19, 2016 the IASB issued Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12). The
amendments apply retrospectively for annual periods beginning on or after January 1, 2017. Earlier application is permitted.
The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the
carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes
in the carrying amount or expected manner of recovery of the asset. The amendments also clarify the methodology to
determine the future taxable profits used for assessing the utilization of deductible temporary differences.
The Company adopted the amendments to IAS 12 in its consolidated financial statements for the annual period beginning
on October 1, 2017. The adoption of the amendments did not have a material impact on the consolidated financial
statements.
(iii) Annual Improvements to IFRS Standards (2014-2016) Cycle:
On December 8, 2016 the IASB issued narrow-scope amendments to three standards as part of its annual improvements
process. Each of the amendments has its own specific transition requirements and effective date.
Amendments were made to the following standard:
• Clarification that IFRS 12, Disclosures of Interests in Other Entities also applies to interests that are classified as held for
sale, held for distribution, or discontinued operations, effective retrospectively for annual periods beginning on or after
January 1, 2017.
The Company adopted the amendment in its consolidated financial statements for the annual period beginning October 1,
2017. The adoption of the amendments did not have a material impact on the consolidated financial statements.
(s) New standards and interpretations not yet adopted:
A number of new standards and amendments to standards and interpretations are not yet effective for the year ending
September 29, 2018 and have not been applied in preparing these consolidated financial statements. New standards and
amendments to standards and interpretations that are currently under review include:
(i)
IFRS 2, Classification and Measurement of Share-based Payment Transactions:
On June 20, 2016, the IASB issued amendments to IFRS 2, Share-based Payment, clarifying how to account for certain types
of share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. As
a practical simplification, the amendments can be applied prospectively. Retrospective, or early application is permitted if
information is available without the use of hindsight.
The amendments provide requirements on the accounting for:
•
•
The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
Share-based payment transactions with a net settlement feature for withholding tax obligations; and
• A modification to the terms and conditions of a share-based payment that changes the classification of the transaction
from cash-settled to equity-settled.
The Company will adopt the amendments to IFRS 2 in its consolidated financial statements for the annual period beginning
on September 30, 2018. The Company does not expect the amendments to have a material impact on the consolidated
financial statements.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
79
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) New standards and interpretations not yet adopted (continued):
(ii)
IFRS 15, Revenue from Contracts with Customers:
On May 28, 2014 the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 will replace IAS 11, Construction
Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real
Estate, IFRIC 18, Transfer of Assets from Customers, and SIC 31, Revenue – Barter Transactions Involving Advertising Services.
The new standard is effective for years beginning on or after January 1, 2018. Earlier application is permitted.
The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue:
at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether,
how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may
affect the amount and/or timing of revenue recognized.
The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease
contracts, which fall in the scope of other IFRSs.
The Company will adopt IFRS 15 in its consolidated financial statements for the year beginning on September 30, 2018. The
Company does not expect the standard to have a material impact on the consolidated financial statements.
(iii)
IFRIC 22, Foreign Currency Transactions and Advance Consideration:
On December 8, 2016, the IASB issued IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration.
The Interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial
recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the
non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.
The Interpretation is applicable for annual periods beginning on or after January 1, 2018. Earlier application is permitted.
The Company will adopt the Interpretation in its consolidated financial statements for the annual period beginning on
September 30, 2018, as applicable. The Company does not expect the standard to have a material impact on the
consolidated financial statements.
(iv) Annual Improvements to IFRS Standards (2014-2016) Cycle:
On December 8, 2016 the IASB issued narrow-scope amendments to three standards as part of its annual improvements
process. Each of the amendments has its own specific transition requirements and effective date.
Amendments were made to the following standard:
•
Removal of out-dated exemptions for first-time adopters under IFRS 1, First-time Adoption of International Financial
Reporting Standards, effective for annual periods beginning on or after January 1, 2018; and
• Clarification that the election to measure an associate or joint venture at fair value under IAS 28, Investments in Associates
and Joint Ventures for investments held directly, or indirectly, through a venture capital or other qualifying entity can be
made on an investment-by-investment basis. The amendments are effective retrospectively for annual periods beginning
on or after January 1, 2018.
The Company will adopt these amendments in its consolidated financial statements for the annual period beginning
September 30, 2018. The Company does not expect the amendments to have a material impact on the consolidated
financial statements.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
80
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) New standards and interpretations not yet adopted (continued):
(v)
IFRS 16, Leases:
On January 13, 2016 the IASB issued IFRS 16, Leases. The new standard is effective for annual periods beginning on or after
January 1, 2019. Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers at
or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17, Leases.
This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all
leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize
a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make
lease payments.
This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures
to be provided by the lessors. Other areas of the lease accounting model have been impacted, including the definition of a
lease. Transitional provisions have been provided.
The Company intends to adopt IFRS 16 in its consolidated financial statements for the annual period beginning on
September 29, 2019. The Company has started reviewing the impact of the adoption of IFRS 16 and expects that certain of
the existing leases will require to be recognized as assets and liabilities. However, the extent of the impact of adoption of the
standard on the consolidated financial statements of the Company has not yet been quantified.
(vi)
IFRIC 23, Uncertainty over Income Tax Treatments:
On June 7, 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments.
The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in
which there is uncertainty over income tax treatments.
The Interpretation is applicable for annual periods beginning on or after January 1, 2019. Earlier application is permitted.
The Interpretation requires an entity to:
• Contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which
approach provides better predictions of the resolution;
•
Reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or recover) an
amount for the uncertainty; and
• Measure a tax uncertainty based on the most likely amount or expected value depending on whichever method better
predicts the amount payable (recoverable).
The Company intends to adopt the Interpretation in its consolidated financial statements for the annual period beginning on
September 29, 2019. The extent of the impact of the adoption of the Interpretation has not yet been determined.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
81
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) New standards and interpretations not yet adopted (continued):
(vii) Annual Improvements to IFRS Standards (2015-2017) Cycle:
On December 12, 2017 the IASB issued narrow-scope amendments to three standards as part of its annual improvements
process.
The amendments are effective on or after January 1, 2019, with early application permitted. Each of the amendments has its
own specific transition requirements.
Amendments were made to the following standards:
•
IFRS 3, Business Combinations and IFRS 11, Joint Arrangements – to clarify how a company accounts for increasing its
interest in a joint operation that meets the definition of a business;
•
IAS 12, Income Taxes – to clarify that all income tax consequences of dividends are recognized consistently with the
transactions that generated the distributable profits – i.e. in profit or loss, OCI, or equity; and
•
IAS 23, Borrowing Costs – to clarify that specific borrowings – i.e. funds borrowed specifically to finance the construction
of a qualifying asset – should be transferred to the general borrowings pool once the construction of the qualifying asset
has been completed.
The Company intends to adopt these amendments in its consolidated financial statements for the annual period beginning
on September 29, 2019. The extent of the impact of adoption of the amendments has not yet been determined.
(viii) Amendments to References to the Conceptual Framework in IFRS Standards:
On March 29, 2018 the IASB issued a revised version of its Conceptual Framework for Financial Reporting (the Framework),
that underpins IFRS Standards. The IASB also issued Amendments to References to the Conceptual Framework in IFRS
Standards (the Amendments) to update references in IFRS Standards to previous versions of the Conceptual Framework.
Both documents are effective from January 1, 2020 with earlier application permitted.
The Company does not intend to adopt the Amendments in its consolidated financial statements before the annual period
beginning on October 4, 2020. The extent of the impact of the change has not yet been determined.
4. BUSINESS COMBINATIONS
(a) Decacer transaction:
On November 18, 2017, the Company acquired all of the issued and outstanding shares of Decacer for a total consideration of
$43.0 million ($42.1 million net of cash acquired) (the “Decacer Transaction”). The Company financed the acquisition, including
transaction costs, with a draw-down on the Company’s $265.0 million amended credit facility (see Note 17, Revolving credit
facility).
Decacer is a major bottler and distributor of branded and private label maple syrup and maple sugar based in Dégelis, Québec.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
82
4. BUSINESS COMBINATIONS (CONTINUED)
(a) Decacer transaction (continued):
The Company has determined the fair value of the assets acquired and liabilities assumed based on management’s preliminary
best estimate of their fair values and taking into account all relevant information available at that time. As of the reporting date,
the Company had not yet completed the purchase price allocation over the identifiable net assets and goodwill. Information to
confirm the fair value of certain assets and liabilities is still to be obtained. As the Company obtains more information, the
allocation will be completed.
The following table presents the purchase price allocation based on the best information available to the Company to date:
Identifiable assets and liabilities assumed:
Cash
Trade and other receivables
Inventories
Prepaid expenses
Property, plant and equipment
Intangible assets
Trade and other payables
Income taxes payable
Deferred tax liabilities
Total net assets acquired
Total consideration transferred
Goodwill (note 16)
Revolving credit facility
Total consideration transferred
2018
$
928
3,832
15,711
96
8,132
11,307
(8,311)
(197)
(4,544)
26,954
43,012
16,058
$
43,012
43,012
The trade receivables comprise a gross amount of $3.8 million for which the full amount was expected to be collectable at the
acquisition date.
Goodwill is attributable primarily to expected synergies and assembled workforce, which were not recorded separately since they
did not meet the recognition criteria for identifiable intangible assets. Goodwill and intangible assets recorded in connection with
this acquisition are not deductible for tax purposes.
The operating results of Decacer are included in the maple products segment. If the acquisition had occurred on October 1,
2017, the consolidated results of the Company would have included additional net sales of approximately $11.7 million and
additional results from operating activities of approximately $0.3 million, based on management’s best estimates. In determining
these estimated amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have
been the same if the acquisition had occurred on October 1, 2017.
Acquisition-related costs of $0.7 million for legal fees, due diligence costs and other fees have been expensed in relation to the
above business combination. These costs have been recorded in administration and selling expenses in the consolidated
statements of earnings and comprehensive income.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
83
4. BUSINESS COMBINATIONS (CONTINUED)
(b) LBMTC transaction – adjustment to provisional amounts of prior year:
The September 30, 2017 consolidated financial statements included details of the Company’s LBMT business combination and
set out provisional fair values relating to the consideration and net assets acquired. During fiscal 2018, as additional relevant
information was obtained for the August 5, 2017 acquisition of all of the issued and outstanding shares of LBMT (“LBMT
transaction”), the Company reassessed the provisional fair values and consideration transferred during the measurement period
and adjusted the purchase price allocation as described in the table below. Changes to the total consideration reflect the
finalization of standard closing and post-closing adjustments.
The comparative information for the prior year presented in these consolidated financial statements has been revised as follows:
Identifiable assets and liabilities assumed:
Original
Adjustments
Reassesed
fair values
Cash
Restricted cash
Trade and other receivables
Income taxes recoverable
Inventories
Prepaid expenses
Property, plant and equipment
Intangible assets
Trade and other payables
Income taxes payable
Other long-term liabilities
Derivative financial instruments
Deferred tax liabilities
Total net assets acquired
Total consideration transferred
Goodwill (Note 16)
$
210
10,883
16,951
882
109,224
687
8,163
23,875
(75,914)
(718)
(11,308)
(769)
(5,952)
76,214
169,490
93,276
$
—
—
(75)
—
(587)
—
(175)
5,500
(34)
—
—
—
(1,448)
3,181
(3,098)
(6,279)
$
210
10,883
16,876
882
108,637
687
7,988
29,375
(75,948)
(718)
(11,308)
(769)
(7,400)
79,395
166,392
86,997
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
84
5. DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses were charged to the consolidated statements of earnings and comprehensive income as
follows:
Depreciation of property, plant and equipment:
Cost of sales
Administration and selling expenses
Amortization of intangible assets:
Administration and selling expenses
Total depreciation and amortization expenses
6. FINANCE INCOME AND FINANCE COSTS
Recognized in net earnings:
Net change in fair value of interest rate swaps (note 11)
Finance income
Interest expense on convertible unsecured subordinated debentures,
including accretion of $785 (2017 - $233) (note 23)
Interest on revolving credit facility
Amortization of deferred financing fees
Other interest expense
Finance costs
Net finance costs recognized in net earnings
For the years ended
September 29,
2018
September 30,
2017
$
$
14,292
424
14,716
3,758
18,474
12,605
417
13,022
574
13,596
For the years ended
September 29,
2018
September 30,
2017
$
532
532
7,691
5,374
1,422
3,177
17,664
17,132
$
371
371
5,813
3,474
781
521
10,589
10,218
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.
INCOME TAX EXPENSE (RECOVERY)
Current tax expense:
Current period
Deferred tax expense (recovery):
Recognition and reversal of temporary differences
Changes in tax rates
Deferred tax expense (recovery)
Total income tax expense
Income tax recognized in other comprehensive income:
85
For the years ended
September 29,
2018
September 30,
2017
$
$
17,967
13,198
375
(103)
272
18,239
(4,599)
308
(4,291)
8,907
September 29, 2018
September 30, 2017
For the years ended
Before tax
Tax effect
Net of tax
Before tax
Tax effect
Net of tax
$
(32)
$
9
$
(23)
$
401
$
(106)
$
295
Cash flow hedges
Defined benefit actuarial gains
6,643
(1,763)
4,880
15,866
(4,182)
11,684
Reconciliation of effective tax rate:
The provision for income taxes differs from the amount computed by applying the Canadian federal and provincial tax rates to earnings
before provision for income taxes. The reasons for the difference and the related tax effects are as follows:
Earnings before income taxes
Income taxes using the Company’s
statutory tax rate
Changes due to the following items:
Changes in tax rate
Non-deductible expenses
Other
September 29, 2018
September 30, 2017
For the years ended
%
—
26.75
(0.15)
0.23
0.41
27.24
$
66,968
17,914
(103)
156
272
18,239
%
—
26.00
1.00
2.39
(0.48)
28.91
$
30,813
8,011
308
736
(148)
8,907
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
86
8. RESTRICTED CASH
Restricted cash represents balances assumed by the Company as a result of having acquired all of the issued and outstanding shares
of LBMT. They are as a result of:
(a) On December 1, 2016, LBMT acquired all issued and outstanding Class A shares of Great Northern with $7.0 million cash
consideration (which was placed in escrow), conditionally payable in quarterly installments contingent on achieving monthly and
annual sales volume targets to a specific client for the twelve-month periods ending November 30, 2017 and November 30, 2018.
The fair value of the contingent consideration was determined to be $6.6 million and was calculated using a probability-weighted
expectation of the payment of the contingent consideration and a discount rate of 3.45% as at the acquisition date and
September 30, 2017. As at September 29, 2018, cash held in an escrow account was $0.8 million (September 30, 2017 - $3.9 million)
and the fair value of the contingent consideration payable was $0.8 million (September 30, 2017 - $4.5 million) (See Note 19,
Other long-term liabilities).
(b) On August 26, 2016, LBMT acquired all issued and outstanding common stock of Highland with $1.7 million (US $1.3 million)
as a balance of purchase price payable. Fifty percent of the balance of purchase price payable was paid on August 26, 2017 and
the remainder was paid on February 26, 2018. The fair value of the balance of purchase price payable, as at the acquisition
date and September 30, 2017, was $1.7 million (US $1.3 million) and was calculated using a discount rate of 3.14%. Under the
share purchase agreement, the amount of the balance of purchase price was placed in escrow pursuant to an escrow agreement
and, as at September 29, 2018, cash held in an escrow account and the carrying value of the balance of the purchase price payable
were nil (September 30, 2017 - $0.9 million and $0.8 million respectively) (See Note 19, Other long-term liabilities).
9. TRADE AND OTHER RECEIVABLES
Trade receivables
Less allowance for doubtful accounts
Other receivables
Initial margin deposits with commodity brokers
September 29,
2018
September 30,
2017*
$
73,794
(373)
73,421
5,505
2,810
81,736
$
72,103
(385)
71,718
4,334
3,980
80,032
*Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
The Company grants credit to its customers in the ordinary course of business.
Management believes that the Company’s exposure to credit risk and impairment losses related to trade and other receivables is
limited due to the following reasons:
–
–
There is a broad base of customers with dispersion across different market segments.
Bad debt write-offs to total revenue have been less than 0.1% for each of the last five years (averaging less than $113 per year).
Write-offs for fiscal 2018 were $0.2 million (September 30, 2017 – nominal). All bad debt write-offs are charged to administration
and selling expenses.
–
Less than 2% of trade receivables are outstanding for more than 90 days, which is comparable to September 30, 2017, while over
79% are current (less than 30 days) as at September 29, 2018 (September 30, 2017 - 84%).
Through general security agreements with its lenders, trade and other receivables have been granted as continuing collateral security
for all present and future indebtedness to the current lenders.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INVENTORIES
Raw inventory
Work in progress
Finished goods
Packaging and operating supplies
Spare parts and other
87
September 29,
2018
September 30,
2017*
$
113,134
10,460
32,491
156,085
11,074
12,166
179,325
$
111,281
10,770
29,453
151,504
9,245
11,793
172,542
*Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
Costs of sales expensed during the year were all inventorial items, except for fixed costs incurred in Taber, Alberta, after the beet slicing
campaign, and mark-to-market adjustments of derivative financial instruments.
As at September 29, 2018, inventories recognized as cost of goods sold amounted to $669.9 million (September 30, 2017 -
$579.1 million).
11. FINANCIAL INSTRUMENTS
Derivative financial instruments
Fair value estimates are made as of a specific point in time, using available information about the financial instruments. These estimates
are subjective in nature and may not be determined with precision. A three-tier fair value hierarchy prioritizes the inputs used in
measuring the fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as
unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The fair value of derivative instruments is the estimated amount that the Company would receive or pay to terminate the instruments
at the reporting date. The fair values have been determined by reference to prices available from the markets on which the instruments
trade, subject to credit adjustments as applicable. The fair values of the sugar future contracts and options are measured using Level
1 inputs, using published quoted values for these commodities. The fair values for the natural gas futures contracts, foreign exchange
forward contracts and interest rate swap contracts are measured using Level 2 inputs. The fair values for these derivative assets or liabil-
ities are estimated using industry standard valuation models.
Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based
observable inputs including interest rate curves, credit spreads, natural gas prices, foreign exchange rates, and forward and spot prices
for currencies.
The fair values of the interest rate swap have been determined by using rates published on financial capital markets.
The fair values of all derivative instruments approximate their carrying value and are recorded as separate line items on the consoli-
dated statements of financial position.
As at October 2, 2016, the Company’s natural gas futures and interest rate swap agreements were designated as cash flow hedges and
qualified for hedge accounting.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
88
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
Details of recorded gains (losses) for the year, in marking-to-market all derivative financial instruments and embedded derivatives that
are outstanding at year-end, are noted below. For sugar futures contracts (derivative financial instruments), the amounts noted below
are netted with the variation margins paid or received to/from brokers at the end of the reporting period. Natural gas forwards and
sugar futures have been marked-to-market using published quoted values for these commodities, while foreign exchange forward
contracts have been marked-to-market using rates published by the financial institution, which is a counterparty to these contracts.
The fair value of natural gas futures contracts, foreign exchange forward contracts and interest rate swap calculations includes a credit
risk adjustment for the Company’s or counterparty’s credit, as appropriate.
As at September 29, 2018 and September 30, 2017, the Company’s financial derivatives carrying values were as follows:
Financial Assets
Financial Liabilities
Current
Non-current
Current
Non-current
September 29, 2018
September 29, 2018
Derivative financial instruments measured
at fair value through profit or loss:
Sugar futures contracts
Foreign exchange forward contracts
Derivative financial instruments designated
as effective cash flow hedging instruments:
Natural gas futures contracts
Interest rate swaps
$
364
3,187
—
460
4,011
$
—
58
—
2,014
2,072
$
—
—
1,847
—
1,847
$
135
—
2,585
—
2,720
Derivative financial instruments measured
at fair value through profit or loss:
Sugar futures contracts
Foreign exchange forward contracts
Embedded derivatives
Derivative financial instruments designated
as effective cash flow hedging instruments:
Natural gas futures contracts
Interest rate swaps
Financial Assets
Financial Liabilities
Current
Non-current
Current
Non-current
September 30, 2017
September 30, 2017
$
93
—
—
—
—
93
$
$
—
1,280
—
—
1,043
2,323
—
2,712
74
3,826
53
6,665
$
37
—
—
2,344
—
2,381
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
89
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
Charged to cost of sales
Unrealized (loss) gain
Charged to finance
income
Other comprehensive
(loss) gain
Sept. 29,
2018
Sept. 30,
2017
Sept. 29,
2018
Sept. 30,
2017
Sept. 29,
2018
Sept. 30,
2017
For the years ended
$
$
$
$
$
Derivative financial instruments
measured at fair value through
profit or loss:
Sugar futures contracts
Foreign exchange forward contracts
Embedded derivatives
Derivative financial instruments
designated as effective cash flow
hedging instruments:
Natural gas futures contracts
Interest rate swap
(3,154)
1,494
51
9,311
(861)
254
2,715
—
3,018
—
1,106
(6,900)
—
—
—
—
532
532
—
—
—
—
371
371
$
—
—
—
—
—
—
(979)
947
(32)
(1,701)
2,102
401
The following table summarizes the Company’s hedging components of other comprehensive income (“OCI”) as at September 29,
2018 and September 30, 2017:
September 29, 2018
September 30, 2017
Opening OCI
Income taxes
Natural gas
futures
contracts
$
Interest
rate
swap
$
(1,701)
2,102
451
(557)
Opening OCI – net of income taxes
(1,250)
1,545
Change in fair value of derivatives
designated as cash flow hedges
Amounts reclassified to net earnings
Income taxes
1,736
(2,715)
262
1,479
(532)
(253)
Ending OCI – net of income taxes
(1,967)
2,239
Natural gas
futures
contracts
Total
Interest
rate
swap
$
401
(106)
295
3,215
(3,247)
9
272
$
—
—
—
$
—
—
—
1,317
(3,018)
451
2,473
(371)
(557)
(1,250)
1,545
Total
$
—
—
—
3,790
(3,389)
(106)
295
For the year ended September 29, 2018, the derivatives designated as cash flow hedges were considered to be fully effective and no
ineffectiveness has been recognized in net earnings.
Approximately $0.5 million of net gains presented in accumulated other comprehensive income are expected to be reclassified to net
earnings within the next twelve months.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
90
11. FINANCIAL INSTRUMENTS (CONTINUED)
For its financial assets and liabilities measured at amortized cost as at September 29, 2018 and September 30, 2017, the Company has
determined that the carrying value of its short-term financial assets and liabilities approximates their fair value because of the relatively
short period to maturity of these instruments.
The Company uses derivative financial instruments to manage its exposure to changes in raw sugar, foreign exchange, and natural
gas prices. In addition, the Company entered into interest rate swap contracts to fix a portion of the Company’s exposure to floating
interest rate debt on its short-term borrowings. The Company’s objective for holding derivatives is to minimize risk using the most
efficient methods to eliminate or reduce the impacts of these exposures.
(a) Raw sugar:
The Company’s risk management policy is to manage the forward pricing of purchases of raw sugar in relation to its forward
refined sugar sales to reduce price risk. The Company attempts to meet this objective by entering into futures contracts to reduce
its exposure. Such financial instruments are used to manage the Company’s exposure to variability in fair value attributable to the
committed purchase price of raw sugar. The pricing mechanisms of futures contracts and the respective forecasted raw sugar
purchase transactions are the same.
The Company's raw sugar futures contracts as well as the fair value of these contracts relating to purchases or sales of raw sugar
as at September 29, 2018 and September 30, 2017 are as follows:
September 29, 2018
September 30, 2017
Original
futures
contracts
value
Current
contract
value
Fair
value
gain/(loss)
Original
futures
contracts
value
Current
contract
value
Fair
value
gain/(loss)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
61,500
86,326
8,567
361
51,794
76,767
7,962
357
(9,706)
(9,559)
(605)
(4)
114,184
103,927
(10,257)
75,166
18,114
56
72,290
17,765
54
(2,876)
(349)
(2)
156,754
136,880
(19,874)
207,520
194,036
(13,484)
(56,761)
(52,898)
3,863
(111,228)
(103,311)
(81,107)
(66,426)
14,681
(73,971)
(67,402)
(19,167)
(18,199)
—
—
968
—
(22,808)
(22,568)
(18)
(18)
(157,035)
(137,523)
19,512
(208,025)
(193,299)
Purchases
0 - 6 months
6 - 12 months
12 - 24 months
Over 24 months
Sales
0 - 6 months
6 -12 months
12 - 24 months
Over 24 months
Net position
(281)
(643)
(362)
(505)
737
Foreign exchange rate at the end
of the period
Net value (CA$)
Margin call payment (receipt)
at year-end
Net asset (CA$)
1.2918
(468)
697
229
7,917
6,569
240
—
14,726
1,242
1.2476
1,550
(1,494)
56
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
91
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
(a) Raw sugar (continued):
All sugar futures contracts are traded through a large exchange clearing house on the New York Intercontinental Exchange.
Regulation of the U.S. futures industry is primarily self-regulation, with the role of the Federal Commodity Futures Trading
Commission being principally an oversight role to determine that self-regulation is continuous and effective.
The exchange clearing house used is one of the world’s largest capitalized financial institutions with excellent long-term credit
ratings. Daily cash settlements are mandatory (margin calls) for resulting gains and/or losses from futures trading for each
customer’s account. Due to the above, the Company does not anticipate a credit risk from the raw sugar futures derivative
instruments.
(b) Natural gas:
The Company uses natural gas contracts to help manage its costs of natural gas. The Company monitors its positions and the
credit ratings of its counterparties and does not anticipate losses due to counterparty’s non-performance. The Company's natural
gas contracts as well as the fair value of these contracts relating to purchases of natural gas are as follows:
September 29, 2018
September 30, 2017
Original
futures
contracts
value
Current
contract
value
Fair
value
gain/(loss)
Original
futures
contracts
value
Current
contract
value
Fair
value
gain/(loss)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
5,044
6,821
6,495
11,775
30,135
3,614
6,332
5,814
10,944
26,704
4,955
5,580
5,774
11,706
28,015
1,888
4,276
5,610
11,296
23,070
(1,430)
(489)
(681)
(831)
(3,431)
1.2918
(4,432)
(3,067)
(1,304)
(164)
(410)
(4,945)
1.2476
(6,170)
Purchases
Less than 1 year
1 to 2 years
2 to 3 years
3 years and over
Foreign exchange rate at the end
of the period
Net liability (CA$)
The forecasted purchases of natural gas, the hedged items, are used for calculating the hedge ineffectiveness. No ineffectiveness
was recognized in net earnings as the change in value of the hedging instrument for calculating ineffectiveness was the same or
smaller as the change in value of the hedged items used for calculating the ineffectiveness.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
92
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
(c) Foreign exchange contracts:
The Company's activities, which result in exposure to fluctuations in foreign currency exchange rates, consist of the purchasing
of raw sugar, the selling of refined sugar and maple products, the purchase of natural gas and purchases of property, plant and
equipment. The Company manages this exposure by creating offsetting positions through the use of financial instruments. These
instruments include forward contracts, which are commitments to buy or sell U.S. dollars or euros at a future date, and may be
settled in cash.
The credit risk associated with foreign exchange contracts arises from the possibility that a counterparty to a foreign exchange
contract, in which the Company has an unrealized gain, fails to perform according to the terms of the contract. The credit risk is
much less than the notional principal amount, being limited at any time to the change in foreign exchange rates attributable to
the principal amount.
Forward foreign exchange contracts have maturities of less than four years and relate mostly to U.S. currency, and from time to
time, euro currency. The counterparties to these contracts are major Canadian financial institutions. The Company does not
anticipate any material adverse effect on its financial position resulting from its involvement in these types of contracts, nor does
it anticipate non-performance by the counterparties.
The Company's foreign currency forward contracts relating to the purchase of raw sugar, the sale of refined sugar, the purchase
of natural gas and purchases of property, plant and equipment for the sugar segment are detailed below. In addition, for the
maple products segment, the Company hedges its exposure to fluctuations in foreign currency related to its anticipated cash flows
from sales to specific U.S. customers, using a foreign exchange forward contract.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
93
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
(c) Foreign exchange contracts (continued):
September 29, 2018
Original
contract
value
(US$/EUR)
68,896
6,769
1,040
76,705
(95,188)
(2,590)
(1,330)
(99,108)
(22,403)
Original
contract
value
(CA$)
88,515
8,696
1,341
98,552
(124,766)
(3,410)
(1,707)
(129,883)
(31,331)
Current
contract
value
(CA$)
87,153
6,408
1,355
94,916
(121,181)
(1,061)
(1,726)
(123,968)
(29,052)
1,606
2,108
2,058
(26,878)
(25,272)
(35,303)
(33,195)
(34,632)
(32,574)
Fair
value
gain/(loss)
(CA$)
(1,362)
(2,288)
14
(3,636)
3,585
2,349
(19)
5,915
2,279
(50)
671
621
SUGAR
Purchases U.S. dollars
Less than 1 year
1 to 2 years
2 to 3 years
Sales U.S. dollars
Less than 1 year
1 to 2 years
2 to 3 years
Total U.S. dollars - Sugar
MAPLE PRODUCTS
Purchases U.S. dollars
Less than 1 year
Sales U.S. dollars
Less than 1 year
Total U.S. dollars - Maple
Total U.S. dollars
(47,675)
(64,526)
(61,626)
2,900
MAPLE PRODUCTS
Purchases Euro dollars
Less than 1 year
Sales Euro dollars
Less than 1 year
1 to 2 years
Total Euro dollars - Maple
364
554
509
(3,631)
(92)
(3,723)
(3,359)
(5,827)
(144)
(5,971)
(5,417)
(5,439)
(142)
(5,581)
(5,072)
(45)
388
2
390
345
Total Foreign Exchange
(51,034)
(69,943)
(66,698)
3,245
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
94
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
(c) Foreign exchange contracts (continued):
SUGAR
Purchases U.S. dollars
Less than 1 year
1 to 2 years
2 to 3 years
Sales U.S. dollars
Less than 1 year
1 to 2 years
2 to 3 years
Original
contract
value
(US$)
94,575
12,320
233
107,128
(119,837)
(13,463)
(783)
(134,083)
Original
contract
value
(CA$)
122,561
15,552
294
138,407
(151,973)
(18,190)
(1,080)
(171,243)
September 30, 2017
Fair
value
gain/(loss)
(CA$)
(4,551)
(172)
(2)
(4,725)
2,444
1,355
99
3,898
Current
contract
value
(CA$)
118,010
15,380
292
133,682
(149,529)
(16,835)
(981)
(167,345)
Total U.S. dollars - Sugar
(26,955)
(32,836)
(33,663)
(827)
MAPLE PRODUCTS
Sales U.S. dollars
Less than 1 year
(5,962)
(8,049)
(8,654)
(605)
Total U.S. dollars
(32,917)
(40,885)
(42,317)
(1,432)
(d)
Interest rate swap agreements:
In order to fix the interest rate on a substantial portion of the expected drawdown of the revolving credit facility, the Company
enters into interest rate swap agreements. The outstanding swap agreements by maturity are as follows:
Fiscal year contracted
Date
Fiscal 2014
Fiscal 2015
Fiscal 2017
Fiscal 2017
Fiscal 2017
June 30, 2014 to June 28, 2019 – 2.09%
June 28, 2018 to June 28, 2020 – 1.959%
May 29, 2017 to June 28, 2022 – 1.454%
September 1, 2017 to June 28, 2022 – 1.946%
June 29, 2020 to June 29, 2022 – 1.733%
Total value
$
10,000
30,000
20,000
30,000
30,000
The counterparties to these swap agreements are major Canadian financial institutions. The Company does not anticipate any
material adverse effect on its financial position resulting from its involvement in these types of swap agreements, nor does it
anticipate non-performance by the counterparties. As at September 29, 2018, the fair value of the swap agreements amounted to
an asset of $2.5 million (September 30, 2017 - asset of $1.0 million).
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
95
11. FINANCIAL INSTRUMENTS (CONTINUED)
Derivative financial instruments (continued)
(d)
Interest rate swap agreements (continued):
The forecasted interest payments, the hedged items, are used for calculating the hedge ineffectiveness. No ineffectiveness was
recognized in net earnings as the change in value of the hedging instrument for calculating ineffectiveness was the same or smaller
as the change in value of the hedged items used for calculating the ineffectiveness.
Risks
The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of
risks at year-end.
(a) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligation. The Company believes it has limited credit risk other than those explained in Note 9, Trade and other
receivables and Note 11, Financial instruments.
(b) Currency risk:
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the
foreign exchange rate. The Company’s significant cash flow exposure to foreign currency is due mainly to the following:
–
–
–
–
–
sales in U.S. dollars for both the sugar and maple products segments;
purchases of natural gas;
sales of by-products;
Taber refined sugar and by-products sales;
ocean freight; and
– purchases of property, plant and equipment for both the sugar and maple products segments.
The Company mitigates its exposure to foreign currency by entering into forward exchange contracts (see Note 11, Financial
instruments; Derivative financial instruments, (c) Foreign exchange contracts).
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
96
11. FINANCIAL INSTRUMENTS (CONTINUED)
Risks (continued)
(b) Currency risk (continued):
The Company had the following significant foreign currency exposures at year-end:
Financial instruments measured at amortized cost:
Cash
Trade and other receivables, including initial margin deposits
Trade and other payables
Financial instruments at fair value through profit or loss:
Raw sugar futures sales contracts
Raw sugar futures purchases contracts
Balance of purchase price payable
Natural gas contracts
Fair value loss or (gain) on futures contracts
Total exposure from above
Forward exchange contracts
Gross exposure
September 29,
2018
September 30,
2017
(US$)
(US$)
1,672
21,440
(3,560)
19,552
157,035
(156,754)
—
(30,135)
362
(29,492)
(9,940)
(47,675)
(57,615)
8,454
15,851
(3,004)
21,301
208,025
(207,520)
(659)
(28,015)
(1,242)
(29,411)
(8,110)
(32,917)
(41,027)
As at September 29, 2018, the U.S./Can. exchange rate was $1.2918 (September 30, 2017 - $1.2476).
Based on the above gross exposure at year-end, and assuming that all other variables remain constant, in particular the price
of raw sugar and natural gas, a 5-cent increase in the Canadian dollar would result in an increase in net earnings of $2.1 million,
(September 30, 2017 - increase of $1.5 million) while a 5-cent decrease would have an equal but opposite effect on net earnings.
Management believes that the impact on the gross exposure is not representative as it needs to be adjusted for the following
transactions, which are not recorded on the consolidated statements of financial position as at year-end but were committed
during the fiscal year, and will be accounted for as the physical transactions occur:
Gross exposure as per above
Sugar purchases priced not received
Committed future sales in U.S. dollars
Ocean freight
Other
Net exposure
September 29,
2018
September 30,
2017
(US$)
(57,615)
(93,516)
111,698
(15)
(592)
(US$)
(41,027)
(98,341)
117,736
(142)
(284)
(40,040)
(22,058)
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
97
11. FINANCIAL INSTRUMENTS (CONTINUED)
Risks (continued)
(b) Currency risk (continued):
The net exposure is due mainly to the Company’s policy not to hedge its foreign exchange exposure on natural gas futures
contracts with maturities exceeding 12 months. The impact of a 5-cent increase in the Canadian dollar would result in an increase
of net earnings by $1.5 million in 2018 (September 30, 2017 - increase of $0.8 million) while a decrease would have an equal but
opposite effect on net earnings.
The Company did not have a Euro foreign exchange currency exposure at year-end seeing as the forward exchange contracts
were equal to the futures sales and purchases.
Raw sugar futures sales contracts represent, in large part, futures contracts entered into when sugar is priced by a raw sugar
supplier. As both the raw sugar futures sales contracts and the sugar purchases priced not received are in U.S. dollars, there is no
need to economically hedge the currency, hence the reason for the adjustment for sugar purchases priced not received.
Included in other is the Taber sales formula for refined sugar, which is based on the raw sugar value that trades in U.S. dollars. As
all beet sugar is paid in Canadian dollars, the raw sugar value within the Taber sales contracts is in U.S. dollars and therefore needs
to be economically hedged for currency exposure.
Some sales are transacted in U.S. dollars. For these sales, the raw sugar value is not hedged, as the corresponding futures contract
is also in U.S. dollars. Only the U.S. dollar refined sugar margin and ocean freight contribution are economically hedged for the
currency exposure.
Ocean freight for raw sugar is denominated in U.S. dollars and therefore forward exchange contracts are used to cover the foreign
exchange exposure.
(c)
Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates.
As at September 29, 2018, the Company has a short-term cash borrowing of $12.0 million (September 30, 2017 - $20.0 million)
and a long-term cash borrowing of $160.0 million (September 30, 2017 - $150.0 million). The Company normally enters into a
30- or 90-day bankers’ acceptance for an amount varying between $100.0 million to $175.0 million of the borrowings, and will
borrow either under prime rate loans or shorter term bankers’ acceptances for any other borrowings.
To mitigate the risk in future cash flows due to interest rate fluctuations, the Company enters into interest rate swap agreements
from time to time (see Note 11, Financial Instruments, Derivative financial instruments, (d) interest rate swap agreements). All other
borrowings over and above the aggregate notional amount of the swap agreements are therefore exposed to interest rate
fluctuations.
For the year ended September 29, 2018, if interest rates had been 50 basis points higher, considering all borrowings not covered
by the interest rate swap agreements, net earnings would have been $0.5 million lower (September 30, 2017 - $0.3 million lower)
while a decrease would have an equal but opposite effect on net earnings.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
98
11. FINANCIAL INSTRUMENTS (CONTINUED)
Risks (continued)
(d) Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The following are the contractual
maturities of financial liabilities, including estimated interest payments:
Carrying Contractual
cash flows
amount
$
$
0 to 6
months
$
6 to 12
months
$
Non-derivative financial liabilities:
Revolving credit facility
172,000
172,000
12,000
Trade and other payables
113,777
113,777
113,777
Finance lease obligations
114
121
28
285,891
285,898
125,805
—
—
28
28
September 29, 2018
12 to 24
months
After 24
months
$
—
—
56
56
$
160,000
—
9
160,009
Derivative financial instruments
measured at fair value through
profit or loss:
Sugar futures contracts (net) (i)
(229)
831
1,426
(13,359)
13,224
(460)
Forward exchange
contracts (net) (i)
(3,245)
(69,943)
(75,765)
1,046
5,142
Other long-term liabilities
773
773
773
—
—
(366)
—
Derivative financial instruments
designated as effective cash flow
hedging instruments:
Natural gas contracts (i)
4,432
38,928
Interest on swap agreements
(2,474)
5,505
3,070
837
(743)
(23,906)
(69,659)
285,148
261,992
56,146
3,446
783
(8,084)
(8,056)
8,811
1,445
28,622
28,678
23,601
2,440
25,215
185,224
(i) Based on notional amounts as presented above.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS (CONTINUED)
Risks (continued)
(d) Liquidity risk (continued):
99
Carrying Contractual
cash flows
amount
$
$
0 to 6
months
$
6 to 12
months
$
12 to 24
months
$
After 24
months
$
September 30, 2017*
Non-derivative financial liabilities:
Revolving credit facility
170,000
170,000
20,000
Trade and other payables
125,294
125,294
125,294
Finance lease obligations
162
178
28
295,456
295,472
145,322
—
—
28
28
50,000
100,000
—
56
—
66
50,056
100,066
Derivative financial instruments
measured at fair value through
profit or loss:
Sugar futures contracts (net) (i)
(56)
(920)
(769)
(6,098)
5,992
(45)
Forward exchange
contracts (net) (i)
Other long-term liabilities
Derivative financial instruments
designated as effective cash flow
hedging instruments:
Natural gas contracts (i)
Interest on swap agreements
1,432
5,291
(40,885)
(52,869)
5,291
2,852
15,408
1,851
(2,638)
588
(786)
—
6,170
(990)
11,847
34,952
7,206
5,644
307,303
301,116
3,254
855
(46,677)
98,645
2,928
846
14,935
14,963
6,962
1,619
12,523
62,579
21,808
3,886
24,863
124,929
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
(i) Based on notional amounts as presented above.
The convertible unsecured subordinated debentures of $155.3 million have been excluded from the above due to the Company’s
option to satisfy the obligations at redemption or maturity in shares.
The Company borrows under its revolving credit facility (see Note 17, Revolving credit facility). It is the Company’s intention to
keep a debt level under its revolving credit facility between $100.0 million to $175.0 million. All other non-derivative financial
liabilities are expected to be financed through the collection of trade and other receivables and cash flows generated from
operations.
Derivative financial instruments for raw sugar, natural gas and forward exchange contracts are expected to be financed from the
working capital of the Company.
As at September 29, 2018, the Company had an unused available line of credit of $93.0 million (September 30, 2017 -
$105.0 million), a cash balance of $2.1 million (September 30, 2017 - $17.0 million) and an overdraft balance of $5.5 million
(September 30, 2017 – nil).
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
100
11. FINANCIAL INSTRUMENTS (CONTINUED)
Risks (continued)
(e) Commodity price risk:
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in commodity prices.
There are two types of commodity contracts, which are entered into by the Company:
(i) Sugar:
In order to protect itself against fluctuations of the world raw sugar market, the Company follows a rigorous hedging program
for all purchases of raw cane sugar and sales of refined sugar. Anytime raw sugar is priced by a sugar supplier, a corresponding
sugar futures contract is sold for the same quantity, period and underlying value. Anytime refined sugar is priced by a
customer, the corresponding volume of raw sugar is purchased for the same quantity, period and underlying value. The
Company’s policy is to cover all raw cane purchases and refined sugar sales as they are priced by the Company’s suppliers
and customers. On a daily basis, the Company monitors all net sugar futures contract positions against the physical priced
purchases and sales commitments to ensure that appropriate hedge positions are in place.
For the Company’s beet operation, the Board of Directors approved an economic pre-hedge, using sugar futures contracts,
of some of the beet sugar sales that will occur in the future, provided there is a contract in place with the Alberta Sugar Beet
Growers to grow sugar beets.
The Board of Directors also approved a trading book up to a maximum of 25,000 metric tonnes of sugar derivative contracts.
The Board reviews on a quarterly basis the results achieved.
(ii) Natural gas:
In order to mitigate the overall price risks in the purchase of natural gas for use in the manufacturing operations, the Board
approved the use of natural gas futures contracts. Natural gas futures contracts cannot be entered into for speculative
reasons. The Board reviews on a quarterly basis the position of the natural gas contracts.
As at September 29, 2018, the Company had the following commodity contracts:
Sugar futures contracts
Natural gas contracts
Current
average
value
Current
contract
value
Current
average
value
Current
contract
value
Contracts
(US$)
(US$)
(10,000 MM BTU)
(US$)
(US$)
Volume
(M.T.)
542,119
252.49
136,880
1,090
24.50
26,704
(541,154)
254.13
(137,523)
—
—
—
965
n/a
(643)
1,090
24.50
26,704
1.2918
(831)
1.2918
34,496
Purchases
Sales
Foreign exchange rate at the end
of the period
Net value CA$
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
101
11. FINANCIAL INSTRUMENTS (CONTINUED)
Risks (continued)
(e) Commodity price risk (continued):
(ii) Natural gas (continued):
As at September 30, 2017, the Company had the following commodity contracts:
Sugar futures contracts
Natural gas contracts
Volume
(M.T.)
614,005
(609,839)
4,166
Current
average
value
Current
contract
value
Current
average
value
Current
contract
value
Contracts
(US$)
(US$)
(10,000 MM BTU)
(US$)
(US$)
316.02
316.97
n/a
194,036
(193,299)
737
912
—
912
25.30
23,070
—
—
25.30
23,070
1.2476
920
1.2476
28,782
Purchases
Sales
Foreign exchange rate at the end
of the period
Net value CA$
If, on September 29, 2018, the raw sugar value would have increased by US$0.05 per pound (being approximately US$110.0 per
metric tonne), and all other variables remained constant, the impact on net earnings would have been an increase of approximately
$0.1 million (calculated only on the point-in-time exposure on September 29, 2018) (September 30, 2017 - increase of $0.4 million
for US$0.05 per pound increase). If the raw sugar value would have decreased by US$0.02 per pound (being approximately
US$44.00 per metric tonne), and all other variables remained constant, the impact on net earnings would have been a decrease
of approximately $0.1 million (September 30, 2017 - decrease of $0.3 million for US$0.03 decrease).
Except for the beet pre-hedge, management believes that the above is not representative, as the Company has physical raw sugar
purchases and refined sugar selling contracts that would offset most gains or losses realized from such decrease or increase in the
commodity value, when such contracts are liquidated. The Company had no beet pre-hedge contracts as at September 29, 2018
nor September 30, 2017. If, on September 29, 2018, the natural gas market price would have increased by US$1.00, and all other
variables remained constant, net earnings would have increased by $10.4 million (September 30, 2017 - increase of $8.4 million)
as a result of the change in fair value of our natural gas futures. If the natural gas value would have decreased by US$1.00, and
all other variables remained constant, net earnings would have decreased by $10.4 million (September 30, 2017 - decrease of
$8.4 million).
Management believes that this impact for natural gas is not representative as this variance will mostly offset when the actual
natural gas is purchased and used. At such time, a gain or loss on the liquidation of the natural gas contracts would mostly offset
the same increase or decrease in the actual physical transaction.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102
11. FINANCIAL INSTRUMENTS (CONTINUED)
Fair values of financial instruments
The fair values of derivative instruments are the estimated amount that the Company would receive or pay to terminate the instruments
at the reporting date. The fair values have been determined by reference to prices available from the markets on which the instruments
trade, subject to credit adjustments as applicable. The fair values of all derivative instruments approximate their carrying value and are
recorded as separate line items on the consolidated statements of financial position.
The following describes the fair value determinations of financial instruments:
i) Cash: due to the short-term maturity of these instruments, the carrying amount approximates fair value.
ii) Restricted cash: the carrying amount approximates fair value.
iii) Trade and other receivables and trade and other payables: the carrying amount approximates fair value due to the short-term
maturity of these instruments.
iv) Borrowing under the revolving credit facility: the carrying amount approximates fair value as the borrowings bear interest at
variable rates.
v) The fair values for the derivative assets and liabilities are estimated using industry standard valuation models. Where applicable,
these models project future cash flows and discount the future amounts to a present value using market-based observable inputs
including interest rate curves, credit spreads, natural gas prices, foreign exchange rates, and forward and spot prices for currencies.
vi) The fair value of convertible unsecured subordinated debentures was based upon market quotes for the identical instruments. The
fair value of the conversion option has been marked-to-market using a model with various inputs.
vii) See Note 21, Finance lease obligations.
viii) The fair value of the contingent consideration was discounted and calculated using a probability-weighted expectation (see
Note 8, Restricted cash).
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
103
11. FINANCIAL INSTRUMENTS (CONTINUED)
Fair values of financial instruments (continued)
The following tables provide a comparison of carrying and fair values for each classification of financial instruments at year-end, and
show a level within the fair values hierarchy in which they have been classified.
Fair values
hierarchy level
September 29, 2018
Fair
values
Carrying
values
$
$
September 30, 2017*
Carrying
values
$
Fair
values
$
Level 1
Level 2
229
3,245
229
3,245
56
—
56
—
FINANCIAL ASSETS:
Derivative financial instruments measured
at fair value through profit or loss:
Sugar futures contracts
Foreign exchange forward contracts
Derivative financial instruments designated
as effective cash flow hedging instruments:
Interest rate swap
Level 2
2,474
2,474
990
990
Financial assets recorded at amortized cost:
Cash
Restricted cash
Trade and other receivables
Income taxes recoverable
Total financial assets
FINANCIAL LIABILITIES:
Derivative financial instruments measured
at fair value through profit or loss:
Foreign exchange forward contracts
Embedded derivatives
Derivative financial instruments designated
as effective cash flow hedging instruments:
Level 1
Level 1
n/a
n/a
2,101
846
2,101
846
81,736
81,736
—
—
17,033
4,832
80,032
1,174
17,033
4,832
80,032
1,174
90,631
90,631
104,117
104,117
Level 2
Level 2
—
—
—
—
1,432
74
1,432
74
Natural gas futures contracts
Level 2
4,432
4,432
6,170
6,170
Financial liabilities recorded at amortized cost:
Bank overdraft
Revolving credit facility
Trade and other payables
Income taxes payable
Finance lease obligations
Other long-term liabilities
Convertible unsecured
subordinated debentures
Total financial liabilities
Level 1
5,469
5,469
—
—
n/a
n/a
n/a
n/a
Level 3
172,000
172,000
170,000
170,000
113,777
113,777
125,294
125,294
3,506
3,506
114
773
114
773
—
162
—
162
5,291
5,291
Level 1
142,421
157,464
111,544
121,469
442,492
457,535
419,967
429,892
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
104
12. PROPERTY, PLANT AND EQUIPMENT
Machinery
and
equipment
Buildings
Furniture
and
fixtures
Barrels
Construction
in
progress
Finance
leases
$
$
$
$
$
$
Land
$
Total
$
Cost or deemed cost
Balance at
October 1, 2016
17,748
62,722
259,965
—
6,981
440
6,004
353,860
Additions through
business combination*
201
2,198
3,046
2,240
—
—
—
—
—
1,711
—
—
55
6,994
—
—
—
—
139
2
408
163
1
—
(2)
(184)
(16)
(3)
—
(3)
1
17,055
(9,113)
—
—
7,988
17,113
—
(186)
(22)
17,949
66,631
270,044
2,237
7,528
417
13,947
378,753
4,616
1,771
—
3,490
17,242
—
349
—
29
110
572
—
15
3
1
—
6
—
5
—
8,132
22,524
24,760
(21,304)
—
—
24
18,089
73,468
293,688
2,589
8,240
428
15,167
411,669
21,130
150,333
1,429
10,878
—
—
59
—
3,523
607
(2)
243
49
(183)
(10)
(2)
—
(1)
—
—
—
—
—
—
175,229
13,022
(185)
(13)
22,559
161,201
57
4,128
108
—
188,053
1,725
11,807
412
709
—
1
—
—
63
—
—
14,716
—
1
—
24,284
173,009
469
4,837
171
—
202,770
Additions through
business combination
140
3,347
Additions
Transfers
Disposals
Effect of movements in
exchange rate
Balance at
September 30, 2017
Additions
Transfers
Effects of movements
in exchange rate
Balance at
September 29, 2018
Depreciation
Balance at
October 1, 2016
Depreciation for the year
Disposals
Effect of movements in
exchange rate
Balance at
September 30, 2017
Depreciation for the year
Effect of movements
in exchange rate
Balance at
September 29, 2018
Net carrying amounts
—
—
—
—
—
—
—
—
—
—
At September 30, 2017 *
17,949
44,072
108,843
At September 29, 2018
18,089
49,184
120,679
2,180
2,120
3,400
3,403
309
257
13,947
190,700
15,167
208,899
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
There were no impairment losses during fiscal 2018 and 2017.
All property, plant and equipment have been pledged as security for the revolving credit facility (see Note 17, Revolving credit facility).
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
105
13. INTANGIBLE ASSETS
Cost
Balance at October 1, 2016
Additions through business combinations*
Additions
Effect of movements in exchange rate
Balance at September 30, 2017
Customer
Software relationships
$
3,368
255
257
—
$
—
25,260
—
(57)
Brand
names(1)
$
—
3,860
—
(10)
Other
$
284
—
—
—
Total
$
3,652
29,375
257
(67)
3,880
25,203
3,850
284
33,217
Additions through business combinations
Additions
Effect of movements in exchange rate
87
94
—
9,220
2,000
—
119
—
21
Balance at September 29, 2018
4,061
34,542
5,871
Amortization
Balance at October 1, 2016
Amortization for the year
Balance at September 30, 2017
Amortization for the year
Balance at September 29, 2018
Net carrying amounts
At September 30, 2017*
At September 29, 2018
1,648
194
1,842
317
2,159
—
352
352
3,395
3,747
—
—
—
—
—
2,038
1,902
24,851
30,795
3,850
5,871
Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
*
(1) Indefinite life
—
290
—
574
121
28
149
46
195
135
379
11,307
384
140
45,048
1,769
574
2,343
3,758
6,101
30,874
38,947
14. OTHER ASSETS
Deferred financing charges, net
Other
September 29,
2018
September 30,
2017
$
975
10
985
$
979
3
982
Deferred financing charges represent the fees and costs related to the negotiation of the 5-year credit agreement. Borrowings under
the revolving credit facility are short term in nature and can be repaid at any time. Therefore, deferred financing charges are presented
separately and not applied against the debt (see Note 17, Revolving credit facility).
On December 20, 2017, the Company paid $0.1 million in financing fees to amend its existing revolving credit facility by drawing addi-
tional funds under the accordion feature (see Note 17, Revolving credit facility). Then, on May 28, 2018, the Company exercised its
option to extend the maturity date of its revolving credit facility to June 28, 2023 under the same terms and conditions of the amended
credit agreement entered into on December 20, 2017. An amount of $0.2 million was paid in financing fees, bringing the total paid to
$0.3 million in fiscal 2018 (see Note 17, Revolving credit facility).
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
106
14. OTHER ASSETS (CONTINUED)
These fees, along with the outstanding balance of the previously deferred financing charges, are amortized over the extended life of
the revolving credit facility, which now matures on June 28, 2023.
15. DEFERRED TAX ASSETS AND LIABILITIES
The deferred tax assets (liabilities) comprise the following temporary differences:
Assets:
Employee benefits
Derivative financial instruments
Losses carried forward
Provisions
Intangibles
Other
Liabilities:
Property, plant and equipment
Derivative financial instruments
Goodwill
Deferred financing charges
Intangibles
Other
Net assets (liabilities):
Property, plant and equipment
Intangibles
Employee benefits
Derivative financial instruments
Losses carried forward
Goodwill
Provisions
Deferred financing charges
Other
September 29,
2018
September 30,
2017*
$
$
8,330
1,299
1,518
583
41
1,205
12,976
(29,260)
(1,517)
(2,509)
(417)
(8,694)
(1,841)
(44,238)
(29,260)
(8,653)
8,330
(218)
1,518
(2,509)
583
(417)
(636)
10,279
2,022
110
585
36
2,016
15,048
(27,763)
(668)
(2,418)
(337)
(6,497)
(898)
(38,581)
(27,763)
(6,461)
10,279
1,354
110
(2,418)
585
(337)
1,118
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
(31,262)
(23,533)
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)
The movement in temporary differences during the current years is as follows:
107
Balance Recognized
Recognized
in other
in profit comprehensive
income
(loss)
September 30,
2017*
Property, plant and equipment
Intangibles
Employee benefits
$
(27,763)
(6,461)
10,279
$
76
779
(186)
Derivative financial instruments
1,354
(1,581)
Losses carried forward
110
1,408
Goodwill
Provisions
Deferred financing charges
Other
(2,418)
585
(337)
1,118
(23,533)
(91)
(2)
(80)
(595)
(272)
$
—
—
(1,763)
9
—
—
—
—
—
(1,754)
Recognized
in equity
$
—
—
—
—
—
—
—
—
(1,159)
(1,159)
Acquired
Balance
in business September 29,
2018
combination
$
(1,573)
(2,971)
—
—
—
—
—
—
—
$
(29,260)
(8,653)
8,330
(218)
1,518
(2,509)
583
(417)
(636)
(4,544)
(31,262)
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
Balance
October 1,
2016
Recognized
in profit
(loss)
Recognized
in other
comprehensive
income
Recognized
in equity
$
Property, plant and equipment
(27,024)
Intangibles
Employee benefits
—
13,977
$
(74)
819
484
Derivative financial instruments
(2,175)
3,430
Losses carried forward
Goodwill
Provisions
Deferred financing charges
Other
—
(2,295)
791
(323)
761
110
(36)
(206)
(901)
665
$
—
—
(4,182)
(106)
—
—
—
—
—
(16,288)
4,291
(4,288)
$
—
—
—
—
—
—
—
838
(686)
152
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
Acquired
Balance
in business September 30,
combination*
$
(665)
(7,280)
—
205
—
(87)
—
49
378
2017*
$
(27,763)
(6,461)
10,279
1,354
110
(2,418)
585
(337)
1,118
(7,400)
(23,533)
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
108
16. GOODWILL
Balance, beginning of year
Adjustment of prior year purchase price allocation
Additions through business combination
Balance, end of year
September 29,
2018
September 30,
2017
$
316,949
—
16,058
333,007
$
229,952
(6,279)
93,276
316,949
Recoverability of cash generating units (“CGU”):
For the purpose of impairment testing, goodwill and intangibles with indefinite useful life are allocated to the Company’s operating
segments, which represent the lowest level within the Company at which the goodwill and intangibles are monitored for internal
management purposes, as follows:
Sugar:
Goodwill
Maple products:
Goodwill
Brand names
September 29,
2018
September 30,
2017
$
$
229,952
229,952
103,055
5,871
338,878
86,997*
3,850*
320,799
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations)
In assessing whether goodwill and indefinite life intangible assets are impaired, the carrying amount of the segments (including
goodwill and indefinite life intangible assets) are compared to their recoverable amount. The recoverable amounts of segments are
based on the higher of the value in use and fair value less costs of disposal.
The Company performed the annual impairment review for goodwill and indefinite life intangible assets as at September 29, 2018,
and the estimated recoverable amounts exceeded the carrying amounts of the segments and, as a result, there was no impairment
identified.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
109
16. GOODWILL (CONTINUED)
SUGAR SEGMENT
The recoverable amount was based on value in use. The key assumptions used in the estimation of the recoverable amount are set out
below. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industries and
have been based on historical data from both external and internal sources.
Pre-tax discount rate
Terminal growth rate
Budgeted EBITDA growth rate (average of next 5 years)
2018
%
10.6
2.0
0.6
The discount rate was a pre-tax measure estimated based on historical industry weighted-average cost of capital adjusted for impacts
on risk and taxes.
The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was
based on management's best estimate of the long-term compound annual EBITDA growth rate, consistent with the assumptions that
a market participant would make.
Budgeted EBITDA was estimated taking into account past experience, adjusted as follows:
•
Revenue growth for the first year was projected taking into account the budgeted sales volumes, and the following years taking
into account the average growth levels experienced over the past 5 years and the estimated sales volumes and price growth for
the next five years. It was assumed that the sales price would increase in line with forecasted inflation over the next five years.
Management has identified the two key assumptions that could cause the carrying amount to exceed the recoverable amount. The
following table shows the amount by which these two assumptions would need to change individually for the estimated recoverable
amount to be equal to the carrying amount.
Pre-tax discount rate
Budgeted EBITDA growth rate
2018
%
3.9
(2.8)
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110
16. GOODWILL (CONTINUED)
MAPLE PRODUCTS SEGMENT
The recoverable amount was based on value in use. The key assumptions used in the estimation of the recoverable amount are set out
below. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industries and
have been based on historical data from both external and internal sources.
Pre-tax discount rate
Terminal growth rate
Budgeted EBITDA growth rate (average of next 5 years)
2018
%
13.6
3.0
7.9
The discount rate was a pre-tax measure estimated based on historical industry weighted-average cost of capital adjusted for impacts
on risk and taxes.
The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was
based on management's best estimate of the long-term compound annual EBITDA growth rate, consistent with the assumptions that
a market participant would make.
Budgeted EBITDA was estimated taking into account past experience, adjusted as follows:
•
Revenue growth for the first year was projected taking into account the budgeted sales volumes, and the following years taking
into account the average growth levels experienced in the past and the estimated sales volumes and price growth for the next five
years. It was assumed that the sales price would increase in line with forecasted inflation over the next five years.
• Costs savings related to ongoing return on investment capital projects.
Management has identified the two key assumptions that could cause the carrying amount to exceed the recoverable amount. The
following table shows the amount by which these two assumptions would need to change individually for the estimated recoverable
amount to be equal to the carrying amount.
Pre-tax discount rate
Budgeted EBITDA growth rate
2018
%
0.2
(0.4)
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
111
17. REVOLVING CREDIT FACILITY
On December 20, 2017, the Company amended its existing revolving credit facility thereby increasing its available credit by
$40.0 million by drawing additional funds under the accordion feature embedded in the revolving credit facility (“Additional Accordion
Borrowings”). A total of $0.1 million was paid in financing fees (see Note 14, Other assets).
On May 18, 2018, the Company reduced and canceled an amount of $50.0 million that was drawn under the accordion (“Accordion
Borrowings”) on April 28, 2017. In 2017, the funds from the Accordion borrowings were used to repay the Fourth series convertible
unsecured subordinated debentures (“Fourth series debentures”) on May 1, 2017.
On May 28, 2018, the Company exercised its option to extend the maturity date of its revolving credit facility to June 28, 2023 under
the same terms and conditions of the amended credit agreement entered into on December 20, 2017. An amount of $0.2 million was
paid in financing fees (see Note 14, Other assets).
On August 3, 2017, the Company amended its existing revolving credit facility in line with the acquisition of LBMT. The available credit
was increased by $75.0 million by drawing additional funds under the accordion feature embedded in the revolving credit facility
(“Additional LBMT Accordion Borrowings”).
As a result of the amended revolving credit facility, the Additional Accordion Borrowings and the Additional LBMT Accordion
Borrowings, the Company has a total of $265.0 million of available working capital from which it can borrow at prime rate, LIBOR rate
or under bankers’ acceptances, plus 20 to 250 basis points, based on achieving certain financial ratios.
Certain assets of the Company, including trade receivables, inventories and property, plant and equipment, have been pledged
as security for the revolving credit facility. As at September 29, 2018, a total of $407.8 million of assets are pledged as security
(September 30, 2017 - $417.9 million).
The following amounts were outstanding as at:
Outstanding amount on revolving credit facility:
Current
Non-current
September 29,
2018
September 30,
2017
$
$
12,000
160,000
172,000
20,000
150,000
170,000
As at September 29, 2018, an amount of $160.0 million is shown as non-current as we don’t expect it to be repaid within the next
12 months.
The carrying value of the revolving credit facility approximates fair value as the borrowings bear interest at variable rates.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112
18. TRADE AND OTHER PAYABLES
Trade payables
Other non-trade payables
Personnel-related liabilities
Dividends payable to shareholders
September 29,
September 30,
2018
$
91,675
2,754
9,897
9,451
113,777
2017*
$
101,605
3,692
10,480
9,517
125,294
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
Considering that Maple products syrup is harvested once a year, the Federation des producteurs acericoles du Quebec (“FPAQ”)
offers to authorized purchasers the possibility to pay their purchases over the course of the year (ending in February). Once the syrup
is graded, the Company must pay 30% of the cost of the syrup on the 15th of the following month. The outstanding balance bears
interest (prime + 1%) and is paid in four monthly installments (November, December, January and February). Included in trade payables
is an amount of $61.8 million as of September 29, 2018 (September 30, 2017 - $70.9 million).
During the year, more than 85% of the maple syrup purchases were made from the FPAQ.
Personnel-related liabilities represent the Company’s obligation to its current and former employees that are expected to be settled
within one year from the reporting period as salary and accrued vacation.
The Company’s exposure to currency and liquidity risks related to trade and other payables is disclosed in Note 11, Financial instruments.
19. OTHER LONG-TERM LIABILITIES
September 29, 2018
September 30, 2017
Contingent
consideration
payable
Balance of
purchase
price
payable
$
4,469
—
190
—
$
822
—
8
30
Total
$
5,291
—
198
30
Contingent
consideration
payable
Balance of
purchase
price
payable
$
—
$
—
Total
$
—
5,573
5,735
11,308
22
—
9
(12)
31
(12)
(3,886)
(860)
(4,746)
(1,126)
(4,910)
(6,036)
773
773
—
773
—
—
—
—
773
773
—
773
4,469
822
5,291
3,881
588
4,469
822
—
822
4,703
588
5,291
Opening balance
Business acquisition (Note 4)
Accretion expense
Foreign exchange adjustment
Payment made
Closing balance
Presented as:
Current
Non-current
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. PROVISIONS
Opening balance
Additions
Provisions used during the period
Closing balance
Presented as:
Current
Non-current
113
September 29,
2018
September 30,
2017
$
2,231
724
(750)
2,205
1,006
1,199
2,205
$
2,994
—
(763)
2,231
478
1,753
2,231
Provisions are comprised of asset retirement obligations, which represent the future cost the Company estimated to incur for the
removal of asbestos in the operating facilities and for oil, chemical and other hazardous materials storage tanks for which the Company
has been able to identify the costs.
The estimate of the total liability for future asset retirement obligations is subject to change, based on amendments to laws and regu-
lations and as new information concerning the Company’s operations becomes available. Future changes, if any, to the estimated total
liability as a result of amended requirements, laws, regulations and operating assumptions would be recognized prospectively as a
change in estimate, when applicable.
21. FINANCE LEASE OBLIGATIONS
The Company leases moveable equipment. The leases substantially transfer all the usage benefits of such equipment to the Company.
These leases have an interest rate of 5.65% with maturity dates in fiscal 2020.
The outstanding liabilities are as follows:
Finance lease obligations
September 29, 2018
September 30, 2017
Carrying
values
$
114
Fair
values
$
114
Carrying
values
$
162
Fair
values
$
162
The finance lease obligations are payable as follows:
September 29, 2018
September 30, 2017
Future
minimum
lease
payments
$
55
66
121
Present
value of
minimum
lease
payments
$
50
64
114
Future
minimum
lease
payments
$
56
122
178
Interest
$
5
2
7
Present
value of
minimum
lease
payments
$
48
114
162
Interest
$
8
8
16
Less than one year
Between one and five years
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
114
22. EMPLOYEE BENEFITS
The Company sponsors defined benefit pension plans for its employees (“Pension benefit plans”), as well as health care benefits,
medical plans and life insurance coverage (“Other benefit plans”).
The following table presents a reconciliation of the pension obligations, the plan assets and the funded status of the benefit plans:
Fair value of plan assets:
Pension benefit plans
Defined benefit obligation:
Pension benefit plans
Other benefit plans
Funded status:
Pension benefit plans
Other benefit plans
Experience adjustment arising on plan liabilities
Experience adjustment arising on plan assets
September 29,
2018
September 30,
2017
$
$
104,362
100,450
120,650
15,206
135,856
(16,288)
(15,206)
(31,494)
(4,911)
1,732
121,886
17,733
139,619
(21,436)
(17,733)
(39,169)
(13,296)
2,570
The Company has determined that, in accordance with the terms and conditions of the defined benefit pension plans, and in accor-
dance with statutory requirements (such as minimum funding requirements) of the plans of the respective jurisdictions, the present
value of refunds or reductions in the future contributions is not lower than the balance of the total fair value of the plan assets less
the total present value of the obligations. As such, no decrease in the defined benefit asset is necessary as at September 29, 2018
(September 30, 2017 - no decrease in defined benefit asset).
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
115
22. EMPLOYEE BENEFITS (CONTINUED)
The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes at year-end. The most
recent actuarial valuations of the pension plans for funding purposes were as of December 31, 2016 and the next required valuations
will be as of December 31, 2019.
The asset allocation of the major categories in the plan was as follows:
Equity instruments
Government bonds
Cash and short-term securities
September 29, 2018
September 30, 2017
%
60.9
36.6
2.5
100.0
$
63,557
38,196
2,609
104,362
%
63.6
34.8
1.6
100.0
$
63,886
34,957
1,607
100,450
The pension committee prepares the documentation relating to the management of asset allocation, reviews the investment policy and
recommends it to the Board of Directors for approval in the event of material changes to the policy. Semi-annually monitoring of the
asset allocation of the pension benefit plans allows the pension committee to ensure that the limits of asset allocation of the pension
benefit plans are respected.
Based on historical data, contributions to the defined benefit pension plans in fiscal 2019 are expected to be approximately $3.7 million.
The pension plan exposes the Company to the following risks:
(i)
Investment risk:
The defined benefit obligation is calculated using a discount rate. If the fund returns are lower than the discount rate, a deficit is
created.
(ii)
Interest rate risk:
Variation in bond rates will affect the value of the defined benefit obligation.
(iii)
Inflation risk:
The defined benefit obligation is calculated assuming a certain level of inflation. An actual inflation higher than expected will have
the effect of increasing the value of the defined benefit obligation.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
116
22. EMPLOYEE BENEFITS (CONTINUED)
Movement in the present value of the defined benefit obligations is as follows:
For the years ended
September 29, 2018
Pension
benefit
plans
$
Other
benefit
plans
$
Total
$
Pension
benefit
plans
$
September 30, 2017
Other
benefit
plans
$
Total
$
121,886
17,733
139,619
126,972
22,994
149,966
2,388
(1,478)
10
4,528
1,003
(4,512)
282
—
(56)
652
—
—
2,670
(1,478)
(46)
5,180
1,003
2,724
—
17
4,166
961
(4,512)
(4,243)
468
—
(62)
740
—
—
3,192
—
(45)
4,906
961
(4,243)
(1,037)
(632)
(1,669)
(1,073)
(749)
(1,822)
—
(2,427)
(2,427)
651
(3,744)
(3,093)
(814)
(210)
(1,024)
(9,532)
(2,417)
(11,949)
(1,324)
(136)
(1,460)
1,243
503
1,746
120,650
15,206
135,856
121,886
17,733
139,619
Movement in the present value of
the defined benefit obligation:
Defined benefit obligation,
beginning of the year
Current service cost
Past service costs
Re-measurements of other
long-term benefits
Interest cost
Employee contributions
Benefit payments from plan
Benefit payments
from employer
Actuarial (gains) losses
arising from changes in
demographic assumptions
Actuarial gains arising
from changes in financial
assumptions
Actuarial (gains) losses arising
from member experience
Defined benefit obligation,
end of year
Movement in the fair value
of plan assets:
Fair value of plan assets,
beginning of the year
Interest income
100,450
3,835
—
—
100,450
3,835
97,033
3,212
Return on plan assets
(excluding interest income)
Employer contributions
Employee contributions
Benefit payments from plan
Benefit payments from employer
Plan expenses
Fair value of plan assets,
end of year
1,732
3,251
1,003
(4,512)
(1,037)
(360)
104,362
—
632
—
—
(632)
—
—
1,732
3,883
1,003
(4,512)
(1,669)
(360)
2,570
2,583
961
(4,243)
(1,073)
(593)
104,362
100,450
—
—
—
749
—
—
(749)
—
—
97,033
3,212
2,570
3,332
961
(4,243)
(1,822)
(593)
100,450
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
117
22. EMPLOYEE BENEFITS (CONTINUED)
On October 16, 2017, the Alberta Treasury Board and Finance approved an amendment to the Alberta Hourly Plan which led to the
elimination of the reserve for future supplements, and investment earnings accumulated thereon, effective January 1, 2017. As a result,
during the first quarter of fiscal 2018, a $1.5 million pension income was recorded.
The net defined benefit obligation can be allocated to the plans’ participants as follows:
September 29, 2018
Pension
benefit plans
Other
benefit plans
September 30, 2017
Pension
benefit plans
Other
benefit plans
Active plan participants
Retired plan members
Deferred plan participants
Other
45.8
49.9
1.3
3.0
100.0
41.6
58.4
—
—
100.0
44.4
50.1
5.5
—
100.0
The Company’s defined benefit pension expense was as follows:
September 29, 2018
Pension
benefit
plans
$
Other
benefit
plans
$
2,388
(1,478)
360
693
10
1,973
282
—
—
652
(56)
878
For the years ended
Pension
benefit
plans
$
2,724
—
593
954
17
4,288
Total
$
2,670
(1,478)
360
1,345
(46)
2,851
September 30, 2017
Other
benefit
plans
$
468
—
—
740
(62)
1,146
1,435
555
1,990
3,730
715
4,445
538
1,973
323
878
861
2,851
558
4,288
431
1,146
989
5,434
Pension costs recognized in
net earnings:
Current service cost
Past service cost
Expenses related to the
pension benefits plans
Net interest cost
Re-measurements of other
long-term benefits
Pension expense
Recognized in:
Cost of sales
Administration and
selling expenses
42.3
57.7
—
—
100.0
Total
$
3,192
—
593
1,694
(45)
5,434
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
118
22. EMPLOYEE BENEFITS (CONTINUED)
The following table presents the change in the actuarial gains and losses recognized in other comprehensive income:
For the years ended
September 29, 2018
Pension
benefit
plans
$
Other
benefit
plans
$
Total
$
Pension
benefit
plans
$
September 30, 2017
Other
benefit
plans
$
Total
$
4,040
(3,870)
(6,181)
(2,773)
(2,141)
(6,643)
14,248
(523)
13,725
(10,208)
(5,658)
(15,866)
170
(8,954)
(8,784)
4,040
(6,181)
(2,141)
(2,843)
(2,037)
(4,880)
(7,518)
(4,166)
(11,684)
Cumulative amount in income at
the beginning of the year
Recognized during the year
Cumulative amount in income at
the end of the year
Recognized during the year,
net of tax
Principal actuarial assumptions used were as follows:
September 29, 2018
September 30, 2017
For the years ended
Pension
benefit
plans
%
3.90
2.20
3.85
2.20
Other
benefit
plans
%
3.90
3.00
3.85
3.00
Pension
benefit
plans
%
3.85
3.00
3.35
3.00
Other
benefit
plans
%
3.85
3.00
3.35
3.00
Company’s defined benefit obligation:
Discount rate
Rate of compensation increase
Net benefit plan expense:
Discount rate
Rate of compensation increase
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
119
22. EMPLOYEE BENEFITS (CONTINUED)
Assumptions regarding future mortality are based on published statistics and mortality tables. The current longevities underlying the
value of the liabilities in the defined benefit plans are as follows:
Longevity at age 65 for current pensioners:
Males
Females
Longevity at age 65 for members aged 45:
Males
Females
September 29,
2018
September 30,
2017
21.9
24.6
23.4
26.0
21.8
24.5
23.3
25.9
The assumed health care cost trend rate as at September 29, 2018 was 5.73% (September 30, 2017 - 5.6%), decreasing uniformly to
4.00% in 2040 (September 30, 2017 - 4.43% in 2034) and remaining at that level thereafter.
The following table outlines the key assumptions for the year ended September 29, 2018 and the sensitivity of a percentage change
in each of these assumptions on the defined benefit plan obligations and the net defined benefit plan costs.
The sensitivity analysis provided in the table is hypothetical and should be used with caution. The sensitivities of each key assumption
have been calculated independently of any changes in other key assumptions. Actual experience may result in changes in a number of
key assumptions simultaneously. Changes in one factor may result in changes in another, which could amplify or reduce the impact of
such assumptions.
(Decrease) increase in Company’s defined benefit obligation:
Discount rate
Impact of increase of 1%
Impact of decrease of 1%
Rate of compensation increase
Impact of increase of 0.5%
Impact of decrease of 0.5%
Mortality
99% of expected rate
For the year ended September 29, 2018
Pension
benefit
plans
$
Other
benefit
plans
$
Total
$
(15,069)
19,005
(1,827)
2,287
(16,896)
21,292
856
(845)
267
4
(4)
56
860
(849)
323
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percent-
age-point change in assumed health care cost trend would have the following effects:
Effect on the defined benefit obligations
Increase
$
1,926
Decrease
$
(1,572)
As at September 29, 2018, the weighted average duration of the defined benefit obligation amounts to 14.1 years (September 30,
2017 - 14.1 years).
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
120
23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES
The outstanding convertible debentures are as follows:
Non-current
Fifth series (i)
Sixth series (ii)
Seventh series (iii)
Total face value
Less net deferred financing fees
Less equity component (i), (iii), (iii)
Accretion expense on equity component
September 29,
September 30,
2018
$
—
57,500
97,750
155,250
(6,488)
(6,930)
589
2017
$
60,000
57,500
—
117,500
(3,121)
(3,826)
991
Total carrying value - non-current
142,421
111,544
(i) Fifth series:
On December 16, 2011, the Company issued $60.0 million Fifth series, 5.75% convertible unsecured subordinated debentures
(“Fifth series debentures”), maturing on December 31, 2018, with interest payable semi-annually in arrears on June 30 and
December 31 of each year, starting June 29, 2012. The debentures may be converted at the option of the holder at a
conversion price of $7.20 per share (representing 8,333,333 common shares) at any time prior to maturity, and cannot be redeemed
prior to December 31, 2014.
The Company allocated $1.2 million of the Fifth series debentures into an equity component. During the year, the Company
recorded $243 (September 30, 2017 - $187) in finance costs for the accretion of the Fifth series debentures.
The Company incurred issuance costs of $2.7 million, which are netted against the convertible debenture liability.
On March 28, 2018, a portion of the net proceeds from the issuance of the Seventh series, 4.75% convertible unsecured
subordinated debentures (“Seventh series debentures”) was used to redeem the Fifth series debentures. The total amount
redeemed was $59,990 as an amount of $10 was converted to 1,388 common shares by holders of the convertible debentures.
(ii) Sixth series:
On July 28, 2017, the Company issued $57.5 million Sixth series, 5.00% convertible unsecured subordinated debentures (“Sixth
series debentures”), maturing on December 31, 2024, with interest payable semi-annually in arrears on June 30 and December 31
of each year, starting on December 31, 2017. The debentures may be converted at the option of the holder at a conversion price
of $8.26 per share (representing 6,961,259 common shares) at any time prior to maturity, and cannot be redeemed prior to
December 31, 2020.
On or after December 31, 2020 and prior to December 31, 2022, the debentures may be redeemed by the Company, at a price
equal to the principal amount plus accrued and unpaid interest, only if the current market price on the day preceding the date
on which the notice is given is at least 125% of the conversion price of $8.26. Subsequent to December 31, 2022, the debentures
are redeemable at a price equal to the principal amount thereof plus accrued unpaid interest.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
121
23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES (CONTINUED)
(ii) Sixth series (continued):
On redemption or at maturity, the Company will repay the indebtedness of the convertible debentures by paying an amount equal
to the principal amount of the outstanding convertible debentures, together with accrued and unpaid interest thereon.
The Company may, at its option, elect to satisfy its obligation to repay the principal amount of the convertible debentures, which
are to be redeemed or which have matured, by issuing shares to the holders of the convertible debentures. The number of shares
to be issued will be determined by dividing $1,000 (one thousand) of principal amount of the convertible debentures by 95% of
the then current market price on the day preceding the date fixed for redemption or the maturity date, as the case may be.
The Company allocated $2.6 million of the Sixth series debentures into an equity component (net of tax an amount of $2.0 million).
During the year, the Company recorded $287 (September 30, 2017– $46) in finance costs for the accretion of the Sixth series
debentures.
The Company incurred underwriting fees and issuance costs of $2.7 million, which are netted against the convertible debenture
liability.
The fair value of the Sixth series convertible unsecured subordinated debentures is measured based on Level 1 of the three-tier fair
value hierarchy and was based upon market quotes for the identical instruments. The fair value as at September 29, 2018 was
approximately $59.2 million (September 30, 2017 – $59.4 million).
(iii) Seventh series:
On March 28, 2018, in connection with a bought deal offering filed on March 21, 2018, the Company issued 85,000 Seventh series
debentures, maturing on June 30, 2025 and bears interest of 4.75%, with interest payable semi-annually in arrears on June 30 and
December 31 of each year, commencing on June 30, 2018 for gross proceeds of $85.0 million. Then, on April 3, 2018, the
Company issued an additional 12,750 Seventh series debentures pursuant to the exercise in full of the over-allotment option
granted by the Company for gross proceeds of $12.8 million. As a result of the over-allotment, the total amount outstanding
under the Seventh series is $97,750. The debentures may be converted at the option of the holder at a conversion price of $8.85
per share (representing 11,045,197 common shares) at any time prior to maturity, and cannot be redeemed by the Company prior
to June 30, 2021.
On or after June 30, 2021 and prior to June 30, 2023, the debentures will be redeemable in whole or in part from time to time at
the option of the Company on not more than 60 days and not less than 30 days prior notice at a price equal to the principal
amount thereof plus accrued and unpaid interest, provided that the weighted average trading price of the common shares, for the
20 consecutive trading days ending on the fifth trading day preceding the day prior to the date upon which the notice of
redemption is given is at least 125% of the conversion price of $8.85 per Debenture Share. On or after June 30, 2023 and prior to
the maturity date, the debentures may be redeemed at a price equal to the principal amount thereof plus accrued and unpaid
interest.
On redemption or on the maturity date, the Company may, at its option, elect to satisfy its obligation to pay the principal amount
of the outstanding debentures by issuing and delivering to the holders of the debentures that number of debenture shares
obtained by dividing the principal amount of the outstanding debentures which are to be redeemed or which have matured by
95% of the weighted average trading price of the RSI Shares on the Toronto Stock Exchange for the 20 consecutive trading days
ending on the fifth trading day preceding the date fixed for redemption or on the maturity date, as the case may be.
On redemption or on the maturity date, the Company will repay the indebtedness of the convertible debentures by paying an
amount equal to the principal amount of the outstanding debentures, together with accrued and unpaid interest thereon.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
122
23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES (CONTINUED)
(iii) Seventh series (continued):
The Company allocated $4.3 million ($3.1 million net of tax) of the Seventh series debentures into an equity component. During
the period, the Company recorded $255 in finance costs for the accretion of the Seventh series debentures.
The Company incurred underwriting fees and issuance costs of $4.5 million, which are netted against the convertible debenture
liability.
The fair value of the Seventh series convertible unsecured subordinated debentures is measured based on Level 1 of the three-
tier fair value hierarchy and was based upon market quotes for the identical instruments. The fair value as at September 29, 2018
was approximately $98.2 million.
24. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY
During the second quarter of fiscal 2018, a total of $10 of the Fifth series debentures was converted by holders of the securities for
a total of 1,388 common shares. This conversion is a non-cash transaction and therefore not reflected in the audited consolidated
financial statement of cash flow. See Note 23, Convertible unsecured subordinated debentures.
On May 22, 2018, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid
(“NCIB”). Under the NCIB, the Company may purchase up to 1,500,000 common shares. The NCIB commenced on May 24, 2018 and
may continue to May 23, 2019. During the year, the Company purchased 736,900 common shares having a book value of $706 for a
total cash consideration of $3,963. The excess of the purchase price over the book value of the shares in the amount of $3,257 was
charged to deficit. All shares purchased were cancelled.
In addition, the Company entered into an automatic share purchase agreement with Scotia Capital Inc. in connection with the NCIB.
Under the agreement, Scotia may acquire, at its discretion, common shares on the Company’s behalf during certain “black-out”
periods, subject to certain parameters as to price and number of shares.
During fiscal 2017, a total of 96,500 common shares were issued pursuant to the exercise of share options under the Share Option Plan.
See note 25, Share-based compensation.
During fiscal 2017, further to a special resolution approved at the shareholders’ meeting of February 1, 2017, the Company reduced
the stated capital by $100.0 million and the contributed surplus was increased by the same amount of $100.0 million.
During fiscal 2017, a total of $435 of the Fourth series debentures was converted by holders of the securities for a total of 66,922
common shares.
On August 5, 2017, the Company acquired all of the issued and outstanding shares of LBMT for a total consideration of $166.4 million
(see Note 4, Business combinations). As part of the financing, a public offering was completed on July 28, 2017 consisting of subscrip-
tion receipts (converted to 11,730,000 common shares upon closing of the transaction) for gross proceeds of $69.2 million ($66.8 million
net of underwriting commissions and professional fees of $3.2 million and deferred tax of $0.8 million).
As of September 29, 2018, a total of 105,008,070 common shares (September 30, 2017- 105,743,582) were outstanding.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED)
The Company declared a quarterly dividend of $0.09 per share for fiscal years 2018 and 2017. The following dividends were declared
123
by the Company:
Dividends
Contributed surplus:
For the years ended
September 29,
2018
September 30,
2017
$
37,971
$
34,896
The contributed surplus account is used to record amounts arising on the issue of equity-settled share-based payment awards (see
Note 25, Share-based compensation).
Capital management:
The Company's objectives when managing capital are:
–
To ensure proper capital investment is done in the manufacturing infrastructure to provide stability and competitiveness of the
operations;
–
To have stability in the dividends paid to shareholders;
–
To have appropriate cash reserves on hand to protect the level of dividends made to shareholders;
–
To maintain an appropriate debt level so that there is no financial constraint on the use of capital;
–
To have an appropriate line of credit, and;
–
To repurchase shares or convertible debentures when trading values do not reflect fair values.
The Company typically invests in its operations between $15.0 million and $20.0 million yearly in capital expenditures. Management
believes that these investments, combined with approximately $30.0 million spent on average annually on maintenance expenses,
allow for the stability of the manufacturing operations and improve its cost competitiveness through new technology or process
procedures.
The Board of Directors aims to ensure proper cash reserves are in place to maintain the current dividend level. Dividends to share-
holders will only be raised after the Directors have carefully assessed a variety of factors that include the overall competitive landscape,
volume and selling margin sustainability, the operating performance and capital requirements of the manufacturing plants and the
sustainability of any increase.
The Company has a $265.0 million revolving credit facility. The Company estimates to use between $100.0 million and $175.0 million
of its revolving credit facility to finance its normal operations during the year.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
124
24. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED)
Capital management (continued):
The Company monitors, on a quarterly basis, the ratio of total debt to earnings before interest, income taxes, depreciation and amorti-
zation, adjusted for the impact of all derivative financial instruments (“adjusted EBITDA”) of the operating company. Through required
lenders’ covenants, the debt ratio must be kept below 4:1 in order not to have restrictions on interest payments from Lantic to the
Company up to a year after an acquisition and below 3.5:1 thereafter. At year-end, the operating company’s debt ratio was below
1.60:1 for fiscal 2018 and below 1.50:1 for fiscal 2017.
Having satisfied the above factors, if cash is available, it will be used to repurchase the Company’s shares and convertible debentures
when the Board of Directors considers that the current trading range does not reflect the fair trading value of the Company’s shares.
As such, the Company puts in place a NCIB from time to time.
The Company does not use equity ratios to manage its capital requirements.
25. SHARE-BASED COMPENSATION
(a) Equity-settled share-based compensation:
The Company has reserved and set aside for issuance an aggregate of 4,000,000 common shares (September 30, 2017 - 4,000,000
common shares) at a price equal to the average market price of transactions during the last five trading days prior to the grant
date. Options are exercisable to a maximum of 20% of the optioned shares per year, starting after the first anniversary date of
the granting of the options and will expire after a term of ten years. Upon termination, resignation, retirement, death or long-term
disability, all share options granted under the Share Option Plan not vested shall be forfeited.
On December 4, 2017, a total of 1,065,322 share options were granted at a price of $6.23 per common share to certain executives
and senior managers. During fiscal 2018, a total of 60,000 share options were forfeited following the departure of a senior
manager.
During fiscal 2017, a total of 360,000 share options were granted at a price of $6.51 per common share to certain executives. In
addition, during fiscal 2017, a total of 96,500 common shares were issued pursuant to the exercise of share options under the
Share Option Plan for total cash proceeds of $521, which was recorded to share capital as well as an ascribed value from
contributed surplus of $28.
Compensation expense is amortized over the vesting period of the corresponding optioned shares and is expensed in the
administration and selling expenses with an offsetting credit to contributed surplus. An expense of $189 was incurred for the year
ended September 29, 2018 (September 30, 2017 - $74).
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. SHARE-BASED COMPENSATION (CONTINUED)
(a) Equity-settled share-based compensation (continued):
The following table summarizes information about the Share Option Plan as of September 29, 2018:
Exercise
price
per option
$4.59
$5.61
$6.23
$6.51
Outstanding
number of
options at
September 30,
2017
830,000
80,000
Options
granted
during
the period
—
—
Options
forfeited
during
the period
Outstanding
number of
options at
September 29,
2018
Weighted
average
remaining
life
(in years)
—
—
830,000
80,000
—
1,065,322
(60,000)
1,005,322
360,000
—
—
360,000
1,270,000
1,065,322
(60,000)
2,275,322
6.65
3.45
9.35
8.17
n/a
125
Number of
options
exercisable
490,000
80,000
—
72,000
642,000
The following table summarizes information about the Share Option Plan as of September 30, 2017:
Exercise
price
per option
$4.59
$5.61
$6.51
Outstanding
number of
options at
October 1,
2016
850,000
156,500
—
1,006,500
Options
granted
during
the period
—
—
360,000
360,000
Options
exercised
during
the period
(20,000)
(76,500)
—
Outstanding
number of
options at
September 30,
2017
830,000
80,000
360,000
(96,500)
1,270,000
Weighted
average
remaining
life
(in years)
7.65
4.45
9.17
n/a
Number of
options
exercisable
150,000
80,000
—
230,000
Options outstanding held by key management personnel amounted to 1,655,322 options as at September 29, 2018 and 1,270,000
options as at September 30, 2017 (see Note 31, Key management personnel).
The measurement date fair values were measured based on the Black-Scholes option pricing model. Expected volatility is
estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values of the share-
based payment plans granted in the first quarter of fiscal 2018 are the following:
Total fair value of options at grant date
Share price at grant date
Exercise price
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
$373
$6.31
$6.23
16.194% to 17.640%
4 to 6 years
5.71%
Weighted average risk-free interest rate (based on government bonds)
1.647% to 1.760%
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
126
25. SHARE-BASED COMPENSATION (CONTINUED)
(b) Cash-settled share-based compensation:
i)
Share Appreciation Rights (“SAR”):
During the first quarter of fiscal 2017, a SAR plan was created under the existing Share Option Plan that entitle the grantee to
a cash payment based on the increase in the share price of the Company’s common shares from the grant date to the
settlement date. During the first quarter of fiscal 2017, a total of 125,000 SARs were granted at a price of $6.51 to an
executive.
Compensation expense is amortized over the vesting period of the corresponding optioned shares and is expensed in the
administration and selling expenses with an offsetting debit / credit to liability. A gain on fair value change of $5 was
recorded for the year ended September 29, 2018 (September 30, 2017 – an expense of $15). The liabilities arising from the
SARs as at September 29, 2018 were $10 (September 30, 2017 - $15).
The following table summarizes information about the SARs as of September 29, 2018:
Outstanding
number of
units at
September 30,
2017
Share price
per unit
Units
granted
during
the period
Units
exercised
during
the period
Units
forfeited
during
the period
Outstanding
number of
units at
September 29,
2018
Number
of units
exercisable
$6.51
125,000
—
—
—
125,000
25,000
The following table summarizes information about the Share Option Plan as of September 30, 2017:
Outstanding
number of
units at
October 1,
2016
Units
granted
during
the period
Units
exercised
during
the period
Units
forfeited
during
the period
Outstanding
number of
units at
September 30,
2017
Number
of units
exercisable
Share price
per unit
$6.51
—
125,000
—
—
125,000
—
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
127
25. SHARE-BASED COMPENSATION (CONTINUED)
(b) Cash-settled share-based compensation (continued):
i)
Share Appreciation Rights (“SAR”) (continued):
The fair values at the measurement date were measured based on the Black-Scholes option pricing model. Expected volatility
is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values of the
SARs granted are the following:
Options granted December 5, 2016
Total fair value of options
Share price
Exercise price
Grant date
Measurement date as at
September 29, 2018
$53
$6.63
$6.51
$15
$5.47
$6.51
Expected volatility (weighted average volatility)
16.520% to 18.670%
15.197% to 17.246%
Option life (expected weighted average life)
Expected dividends
Weighted average risk-free interest rate (based on
government bonds)
2 to 6 years
5.43%
4 to 8 years
6.58%
0.740% to 1.160%
2.32% to 2.42%
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the SARs is
indicative of future trends, which may not necessarily be the actual outcome.
ii) Performance Share Units (“PSU”):
During the first quarter of fiscal 2018, a PSU plan was created for executives that entitle them to a cash payment, with an
aggregate of 224,761 PSUs having been granted by the Company at a share price of $6.31. In addition, an aggregate of
10,291 PSUs at a weighted-average share price of $6.01 were allocated as a result of the dividend paid during the last four
quarters, as the participants also receive dividend equivalents paid in the form of PSU’s. As at September 29, 2018, an
aggregate of 235,052 PSUs are outstanding.
These PSUs will vest at the end of the 2017-2020 Performance Cycle based on the achievement of total shareholder returns
set by the Human Resources and Compensation Committee (“HRCC”) and the Board of Directors of the Company. Following
the end of a Performance Cycle, the Board of Directors of the Company will determine, and to the extent only that the
Vesting Conditions include financial conditions, concurrently with the release of the Company’s financial and/or operational
results for the fiscal year ended at the end of the Performance Cycle, whether the Vesting Conditions for the PSUs granted
to a participant relating to such Performance Cycle have been achieved. Depending on the achievement of the Vesting
Conditions, between 0% and 200% of the PSUs will become vested.
The Board of Directors of the Company has the discretion to determine that all or a portion of the PSUs granted to a
participant for which the Vesting Conditions have not been achieved shall vest to such participant.
The value to be paid-out to each participant will be equal to the result of: the number of PSUs granted to the participant
which have vested, multiplied by the volume weighted average closing price of the Common Shares on the Toronto Stock
Exchange (the “TSX”) for the five trading days immediately preceding the day on which the Company shall pay the value to
the participant under the PSU Plan, and such date will in no event occur after December 31 of the third calendar year
following the calendar year in which the PSUs are granted.
An expense of nil was recorded for the period ending September 29, 2018 (September 30, 2017 – not applicable) in
administration and selling expenses. The liabilities arising from the PSUs as at September 29, 2018 was nil.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
128
26. OPERATING LEASES
The Company has financial commitments for minimum lease payments under operating leases for various mobile equipment and the
premises for the sugar and maple product segments. Non-cancellable operating lease rentals are payable as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
September 29, 2018
September 30, 2017
$
2,581
5,128
956
8,665
$
1,988
3,770
188
5,946
For the year ended September 29, 2018, an amount of $3.9 million was recognized as an expense in net earnings with respect to
operating leases (September 30, 2017 - $2.9 million).
27. COMMITMENTS
As at September 29, 2018, the Company had commitments to purchase a total of 1,337,000 metric tonnes of raw cane sugar
(September 30, 2017 - 1,708,000), of which 316,128 metric tonnes had been priced (September 30, 2017 – 286,000), for a total dollar
commitment of $120.8 million (September 30, 2017 - $122.7 million). In addition, the Company has a commitment of approximately
$43.5 million (September 30, 2017 - $43.1 million) for sugar beets to be harvested and processed in fiscal 2019.
A subsidiary of the Company has $19.3 million (September 30, 2017 - $2.5 million) remaining to pay related to an agreement to
purchase approximately $38.2 million (12.8 million pounds) (September 30, 2017 - $4.0 million; 1.5 million pounds) of maple syrup
from the FPAQ. In order to secure bulk syrup purchases, the Company issued letters of guarantee for a total amount of $16.0 million
in favor of the FPAQ (September 30, 2017 - $12.5 million). The letters of guarantee expire on March 31, 2019.
During the year ended September 29, 2018, the Company entered into capital commitments to complete its capital projects for a total
value of $19.6 million (September 30, 2017 - $6.3 million).
The Taber beet sugar processing facility was established in 1950. Over the past few years, the Company has been actively working on
solutions to reduce the air emissions footprint of the facility. The Taber facility obtained from Alberta Environment and Parks a variance
for non-compliance of air emission standards valid until May 2019. As at the third quarter of fiscal 2018, the Company completed the
engineering and project design to upgrade the Taber beet factory to be fully compliant with the new air emissions regulations. This
solution is expected to require between $8.0 million to $10.0 million in capital expenditures of which, approximately $7.0 million to
$9.0 million will be spent in fiscal 2019.
28. CONTINGENCIES
The Company is subject to laws and regulations concerning the environment and to the risk of environmental liability inherent to its
activities relating to its past and present operations.
The Company, in the normal course of business, becomes involved from time to time in litigation and claims. While the final outcome
with respect to claims and legal proceedings pending as at September 29, 2018 cannot be predicted with certainty, management
believes that no provision was required and that the financial impact, if any, from claims related to normal business activities will not be
material.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29. EARNINGS PER SHARE
Reconciliation between basic and diluted earnings per share is as follows:
Basic earnings per share:
Net earnings
129
For the years ended
September 29,
2018
September 30,
2017
$
$
48,729
21,906
Weighted average number of shares outstanding
105,600,860
96,027,566
Basic earnings per share
Diluted earnings per share:
Net earnings
Plus impact of convertible unsecured subordinated debentures and share options
Weighted average number of shares outstanding:
Basic weighted average number of shares outstanding
Plus impact of convertible unsecured subordinated debentures and share options
0.46
0.23
48,729
5,694
54,423
21,906
467
22,373
105,600,860
22,173,123
96,027,566
7,197,978
127,773,983
103,225,544
Diluted earnings per share
0.43
0.22
As at September 29, 2018, the 862,661 share options were excluded from the calculation of diluted earnings per share as they were
deemed anti-dilutive. As at September 30, 2017, the Fifth series debentures, representing 8,333,333 common shares were excluded
from the calculation of diluted earnings per share as they were deemed anti-dilutive.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
130
30. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash transactions:
Additions of property, plant and equipment and intangible
assets included in trade and other payables
Investment tax credit included in income taxes payable
September 29,
2018
September 30
2017
$
1,041
—
$
247
—
October 1,
2016
$
135
220
31. KEY MANAGEMENT PERSONNEL
The Board of Directors as well as the executive team, which include the President and all the Vice-Presidents, are deemed to be key
management personnel of the Company. The following is the compensation expense for key management personnel:
Salaries and short-term benefits
Attendance fees for members of the Board of Directors
Post-employment benefits
Share-based compensation (note 25)
32. PERSONNEL EXPENSES
Wages, salaries and employee benefits
Expenses related to defined benefit plans (1) (note 22)
Expenses related to defined contributions plans
Share-based compensation (note 25)
For the years ended
September 29,
2018
September 30,
2017
$
2,763
907
120
184
3,974
$
3,603
627
164
89
4,483
For the years ended
September 29,
2018
September 30,
2017
$
83,688
2,851
4,552
184
91,275
$
72,674
5,434
3,992
89
82,189
(1) On October 16, 2017, the Alberta Treasury Board and Finance approved an amendment to the Alberta Hourly Plan which led to the elimination of the reserve
for future supplements, and investment earnings accumulated thereon, effective January 1, 2017. As a result, during fiscal 2018, a $1.5 million pension income
was recorded.
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32. PERSONNEL EXPENSES (CONTINUED)
The personnel expenses were charged to the consolidated statements of earnings and comprehensive income or capitalized in the
consolidated statements of financial position as follows:
131
Cost of sales
Administration and selling expenses
Distribution expenses
Property, plant and equipment
For the years ended
September 29,
2018
September 30,
2017
$
72,173
17,234
1,434
90,841
434
91,275
$
66,941
13,255
1,564
81,760
429
82,189
33. RELATED PARTIES
Lantic has outstanding redeemable Class B shares of $44.5 million that are retractable and can be settled at Lantic’s option by delivery
of a note receivable from Belkorp Industries Inc., having the same value. The note receivable bears no interest and has no fixed terms of
repayment. The Class B shares are entitled to vote, but on a pro rata basis at a meeting of shareholders of Lantic. Under the terms of a
voting trust agreement between Belkorp Industries Inc. and Rogers, Rogers is entitled to vote the Class B shares so long as they remain
outstanding. Due to the fact that Lantic has the intent and the legal right to settle the note receivable with the redeemable preferred
shares, these amounts have been offset and, therefore, are not presented on the consolidated statements of financial position.
Belkorp Industries Inc. also controls, through Lantic Capital, the two Lantic Class C shares issued and outstanding. The Class C shares
entitle Lantic Capital to elect five of the seven directors of Lantic, but have no other voting rights at any meetings of shareholders of
Lantic, except as may be required by law.
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132
34. SEGMENTED INFORMATION
The Company has two operating and reportable segments, sugar and maple products. The principal business activity of the sugar
segment is the refining, packaging and marketing of sugar products. The Maple products segment processes pure maple syrup
and related maple products. The reportable segments are managed independently as they require different technology and capital
resources. Performance is measured based on the segments’ gross margins and results from operating activities. These measures are
included in the internal management reports that are reviewed by the Company’s President and CEO, and management believes that
such information is the most relevant in the evaluation of the results of the segments.
Transactions between reportable segments are interest receivable (payable), which are eliminated upon consolidation.
Revenues
Cost of sales
Gross margin
Depreciation and amortization
Results from operating activities
Additions to property, plant and
equipment and intangible assets
Total assets
Total liabilities
For the year ended September 29, 2018
Sugar
$
601,958
499,380
102,578
13,495
72,102
Maple
products
$
203,243
174,968
28,275
4,979
13,352
Corporate and
eliminations
$
—
—
—
—
(1,354)
Total
$
805,201
674,348
130,853
18,474
84,100
23,352
1,792
—
25,144
For the year ended September 29, 2018
Sugar
$
742,993
(899,026)
Maple
products
$
292,232
(248,871)
Corporate and
eliminations
$
(165,016)
627,333
Total
$
870,209
(520,564)
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34. SEGMENTED INFORMATION (CONTINUED)
Revenues
Cost of sales
Gross margin
Depreciation and amortization
Results from operating activities
Additions to property, plant and
equipment and intangible assets
Total assets
Total liabilities
Sugar
$
655,851
582,143
73,708
13,105
41,247
17,306
Sugar
$
744,311
(918,313)
133
For the year ended September 30, 2017
Maple
products
Corporate and
eliminations
$
26,666
23,076
3,590
491
948
64
$
—
—
—
—
(1,164)
Total
$
682,517
605,219
77,298
13,596
41,031
—
17,370
For the year ended September 30, 2017*
Maple
products
$
255,538
(212,129)
Corporate and
eliminations
$
(164,375)
629,124
Total
$
835,474
(501,318)
* Includes adjustment of prior year purchase price allocation (see Note 4, Business combinations and Note 16, Goodwill).
Revenues were derived from customers in the following geographic areas:
Canada
United States
Other
For the years ended
September 29,
2018
September 30,
2017
$
613,213
112,642
79,346
805,201
$
624,992
50,055
7,470
682,517
(In thousands of dollars except as noted and per share amounts)2018 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
134
ROGERS SUGAR INC.
Corporate Information
DIRECTORS
M. Dallas H. Ross, (1) (3)
Chairman and CEO
Kinetic Capital Limited Partnership
Dean Bergmame, (2) (3)
Director
William S. Maslechko, (3)
Partner
Burnet, Duckworth & Palmer LLP
Daniel Lafrance, (1) (2)
Director
Gary Collins, (2)
Senior Advisor
Lazard Group
(1) Nominees to Board of Directors of Lantic Inc.
(2) Audit Committee Members
(3) Nominating and Governance Committee Members
LEGAL COUNSEL
Davies, Ward, Phillips & Vineberg
Montreal, Quebec
TRADING SYMBOL
RSI
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
ANNUAL MEETING
The annual meeting of Shareholders
to be held at 9:00 AM (Pacific Time)
January 31, 2019 at the
Vancouver Marriott Pinnacle Downtown
1128 West Hastings St.
Vancouver, British Columbia
V6E 4R5
Tel: (604) 684-1128
ADMINISTRATIVE OFFICE
4026 Notre-Dame Street East
Montreal, Quebec
H1W 2K3
Tel: (514) 527-8686
Fax: (514) 527-8406
REGISTRAR & TRANSFER AGENT
Computershare Investor Services Inc.
Toronto, Ontario
AUDITORS
KPMG LLP
Montreal, Quebec
INVESTOR RELATIONS
Manon Lacroix
Tel: (514) 940-4350
Fax: (514) 527-1610
WEBSITE
lanticrogers.com
(In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LANTIC INC.
Corporate Information — Management
DIRECTORS OF LANTIC INC.
M. Dallas H. Ross, (1)
Chairman & CEO
Kinetic Capital Limited Partnership
AUDITORS
KPMG LLP
Montreal, Quebec
Gary Collins, (2)
Senior Advisor
Lazard Group
Michael Heskin, (2)
Vice President Finance and CFO
Belkorp Industries Inc.
Donald G. Jewell,
Managing Partner
RIO Industrial
Daniel Lafrance, (1) (2)
Director
John Holliday,
President and Chief Executive Officer
Lantic Inc.
(1) Rogers Sugar Inc. Nominees
(2) Audit Committee Members
OFFICERS
John Holliday,
President and Chief Executive Officer
Patrick Dionne,
Vice President, Operations and
Supply Chain
Diana R. Discepola,
Director of Finance
Jean-François Khalil,
Vice President,
Human Resources
Manon Lacroix,
Vice President Finance,
Chief Financial Officer
and Secretary
Michael Walton,
Vice President, Sales and Marketing
MANAGEMENT OFFICE
4026 Notre-Dame Street East
Montreal, Quebec
H1W 2K3
Tel: (514) 527-8686
Fax-General: (514) 527-8406
Fax-Administration: (514) 527-1610
PLANT ADDRESSES
123 Rogers Street,
Vancouver, British Columbia
V6B 3N2
Western Operation
Operations Manager: Gary Mustvedt
Tel: (604) 253-1131
Fax: (604) 253-2517
5405 – 64th Street
Taber, Alberta
T1G 2C4
Western Operations
Operations Manager:
Andrew Llewelyn-Jones
Tel: (403) 223-3535
Fax: (403) 223-9699
230 Midwest Road
Scarborough, Ontario
M1P 3A9
Plant Manager: David Saulnier
Tel: (416) 757-8787
Fax: (416) 757-2315
4026 Notre-Dame Street East
Montreal, Quebec
H1W 2K3
Plant Manager: Serge Allaire
Tel: (514) 527-8686
Fax-Gen.: (514) 527-8406
BOTTLING FACILITIES
L.B. Maple Treat
1037 boul. Industriel,
Granby, Québec
J2J 2B8
Great Northern
331 rue Principale,
Saint-Honoré-de-Shenley, Québec
G0M 1V0
Décacer
21 rue Industrielle,
Dégelis, Québec
G5T 2J8
Highland Sugarworks
PO Box 58, Websterville
Vermont, 05678, USA
Designed and written by
MaisonBrison Communications
Printed in Canada
LanticRogers.com