Ed Makin - President and CEO Manon Lacroix - VP, Finance

Michael Van Aelst - TD Securities Christine Healy - Scotia Bank Stephen MacLeod - BMO Capital Markets

Thank you, operator and good afternoon, ladies and gentlemen. Joining me today for this conference call is Manon Lacroix, Vice President of Finance.

In keeping with our usual format, I'll start by commenting briefly on some of the highlights for the quarter. Thereafter, I will then turn the call over to Manon who will review the financials in more detail and talk about the outlook for the remainder of the fiscal year.

As the operator said, we will then open up the phone lines to answer any questions you might have. Turning first to our volumes.

We sold approximately 9,700 tons less this past quarter versus last year’s comparable quarter. The decrease in volume occurred in all domestic segments of our business and export sales were also slightly lower.

Industrial sales decreased by 4,100 tons and our consumer volumes were low by 1,700 tons. Volume suffered in both categories due to timing of deliveries.

Liquid volume also decreased by 3,600 tons as one year contract to an important HFCS substitutable customer was completed mid 2014 and not renewed. Exports decreased by approximately 300 tons.

With the current impacts between the United States and Mexico, on sugar we do not anticipate any extraordinary access to the U.S. this year.

In addition, Mexico now has a sizable surplus to deal with and will likely remain close to Rogers until a resolution to the trade dispute is found. For the quarter our adjusted gross margin increased by $0.5 million when compared to last year.

Our adjusted EBIT was $17.7 million which was comparable to the first quarter of 2014. On a per metric ton basis, our adjusted gross margin rate increased by approximately $13 per metric ton.

The increase in the margin rate was due to lower operating costs. With the work force reduction of the Montreal refinery announced in September labor costs were reduced by $1.3 million in the first quarter.

In addition, lower energy cost amounted to approximately $800,000. Finally, during the first quarter of 2014, maintenance and refining cost in Vancouver were higher by approximately $1 million due to an unusual chemical breakdown that occurred at the end of fiscal 2013 but continued to impact the refinery throughout October 2014.

For the quarter free cash flow amounted to $14.8 million as compared to $13.6 million in fiscal 2014. The increase in free cash flow was mostly due to lower income taxes paid due to timing offset somewhat by higher capital expenditures and higher interest paid.

During the quarter the company declared the dividend of $0.09 for common shares for total amount of $8.5 million. And finally, Taber beet harvest and subsequent slicing campaign is expected to be completed into early February.

In total despite lower acres, we expect to produce approximately 85,000 tons of refined sugar from this year's crop [indiscernible] is completed later on in the spring and that concludes my brief remarks and I will now turn the call over to Manon.

Thank you, Ed. I will now go over the first quarter results in more detail.

Adjusted gross margin for the quarter was $25.3 million, compared to $24.8 million last year, an increase of $0.5 million. On a per ton basis, adjusted gross margin was approximately $166 per metric ton, compared to approximately $153 per metric ton for the comparable quarter, an improvement of approximately $13 per metric ton.

The increase in adjusted gross margin per metric ton is as a result of a reduction in operating cost. As Ed just mentioned, Lantic announced a work force reduction of 59 employees in September 2014 following a process improvements announced at the Montreal refinery.

As a result labor costs for the first quarter of the year were reduced by approximately $1.3 million when compared to the same period last year. Energy cost is a second element that contributed to a reduction in operating cost and is divided into two components.

First, the company announced at year end that we were able to secure a firm gas supply contract for the Montreal refinery. Last year the company had an interruptible gas supply contract and we incurred approximately $400,000 in incremental auxiliary natural gas and oil while our supply was interrupted.

Second, energy cost decreased by an additional $400,000 due to a reduction in natural gas prices during the first quarter of the current year. Therefore, in total the reduction in energy cost for the company amounted to $800,000 for the first quarter of 2015 when compared to the first quarter of 2014.

Finally, you might recall that the first quarter of fiscal 2014 included onetime event that led to additional maintenance cost of approximately $1 million following an unusual boiler breakdown at the Vancouver refinery. Also once the problem was resolved, additional labor cost were incurred to catch up on lost production.

This breakdown combined with the Montreal labor reduction and the energy cost savings amounted to $3.1 million reduction in operating cost. As I just indicated, adjusted gross margin increased by $0.5 million compared to the first quarter of 2014.

The reduction in operating cost more than offset the decrease in gross margin due to a reduction in sales volumes compared to the first quarter of last year which was just explained by Ed and broadly relates to timing and deliveries. Administration and selling expenses increased by $800,000 which is mostly due to high consulting fees relating to the completion of the productivity improvement analysis at the Montreal refinery.

Therefore adjusted EBIT for the quarter was $17.7 million compared to $17.9 million last year. When we exclude the mark to market loss on the interest rate swap, finance cost for the quarter were $300,000 higher in the same period last year due to higher average debt level during the quarter when compared to last year.

Inventories were higher throughout the quarter versus last year due to higher beat inventory carry over and timing in our sugar vessel deliveries which increase the debt level. I will now turn to the outlook for fiscal 2015.Total sales volume in fiscal 2015 is expected to decrease slightly from the level of fiscal 2014.

As we mentioned at the beginning of the call, industrial and consumer volumes were down for the quarter due to timing, but we expect volume in both segments to end the year slightly above last year's level. We anticipate liquid volume to decrease by approximately 10,000 metric ton in fiscal 2015 when compared to fiscal 2014 as an HFCS substitutable business was not renewed.

The export segment is also expected to decrease by approximately 4,000 metric ton due to a reduction in the Canada specific quarter and lower allocation on the global quota. The company expects significant savings in fiscal 2015 with regard to labor and energy cost.

The productivity improvement analysis at the Montreal refinery is expected to generate labor savings of approximately $5 million when compared to fiscal 2014. With regards to energy cost, the company expects savings in total of approximately $3 million into fiscal 2015 when compared to the last year.

The conversion from interruptible gas contract to a firm gas contract is expected to reduce energy cost by approximately $1.8 million. In addition, the remaining $1.2 million in energy cost reduction is anticipated to come as a result of decline in natural gas prices.

The company has hedge approximately 75% of its gas consumptions requirements. Any un-hedged requirement will be purchased on the spot market.

Also the company hedged the currency on the U.S. dollar value of the natural gas current hedged.

However, we expect the savings to be generally offset by lower adjusted gross margin due to the combination of lower sales volume and lower selling margins to the market conditions. Another important factor is the company will not benefit in fiscal 2015 from $1.9 million of profit recorded as a result of a decision to bring in a vessel early in advance of our need in order to capitalize unfavorable spreads on the number 11.

Administration and selling costs are expected to be lower in fiscal 2015 considering the non recurrence of expenses related to the productivity improvement analysis and of a non-cash pension expense in fiscal 2014. With that I would like to turn the call back to the operator for the question session.

Hi, good afternoon. So, few questions.

First of all you talked about the competitive environment intensifying pushing down the margins this year. So, can you give us a sense as to what percentage of your business is contracted for fiscal 2015 so that we have a comfort level that you have a good grasp and where those margins are going to be?

Yes Michael. That's correct it sounds right off the bat, I mean, yes the market is always competitive.

We are not saying that there is a significant decrease in margin because of the competitiveness. I think in the last conference call that we had I think I indicated that most of our business is already contracted full for this year and that still applies.

In fact if anything gets almost all done at the stage of the game, we are willing to the year, and through 2015, and actually going quite far into 2016 a lot of this is already done and that's – so we don't really see anything extraordinary affecting us because the market is typically competitive and we don't see that letting up but we are not seeing any thing that is extraordinary at this stage. It's sort of the odd firefight here and there and that always happens.

So, you talked about $8 million of savings year-over-year from the labor and energy. So if competition is not that big then that means you are seeing most of that drop because of lower volumes that are only going down a little bit?

Partially on the volume side but I think after taking into account obviously the labor saving component as well so you let everything out we will be positive, all things being equal to last year overall.

Also you need to remember that last quarter of fiscal 2014, we had $1.9 million profit and that will not reoccur this year so hopefully part of the equation why we are saying that it will be basically the same as it had last year.

And Michael, just to complete the story I mean on the volume basis, we do shortening on our two main accounts on the consumer side and on the industrial segment, the lower volumes are anticipated to be fully recovered and then for the balance of the year, one item there we knew and we expressed right off the bat was obviously on the liquid side which the contract was not renewed mid 2014. So that's the area when we talk about volume being down a little bit, that's the area that we expect to offset the positive elsewhere and that business will not b replaced.

And the consulting fees are they done now what's left over in Q1?

Yes, we are done now. That project is completed.

Okay and now the CEO search going?

It is progressing. I think my announced date of departure of March 31 is basically still intact.

And we will make announcements or an announcement in the near future but it is well underway and in the final stages.

Finally, on the GPP, I am a little confused on that one because I think I read in your annual report that you said it could be a negative, but I think in prior conference call you have talked about it as possibly a positive of it because there is a – it could eliminate a barriers to other markets. Are you hearing something in the negotiations that might have changed?

Well, I mean, I would like to know the reference to the negative because we actually GPP has been positive. So, Michael if you can send that page or the reference to the point where you may have made a mistake in that but certainly anything that we view related to TPP should be a positive, any access to protected market is got to be a positive for us.

So, we might have inadvertently said something that we didn’t intend, but if it is we will make a corrector on that going forward.

I will read it, I might have just read it wrong.

Okay. But we definitely view TPP both with access potential to let's say United States or Japan or any other countries for that matter that would have been positive because right now they are all close to us.

Alright. Thank you.

Michael thanks.

Hi guys.

Hi Christine.

I guess first off I just wanted to clarify something from your release, the industrial volumes have declined there of 4,100 tons and you said it was due to delivery timing, is that largely because just the timing of the holidays and shipments got out in January and December you would expect that volume will be booked in the second quarter?

The volume is already booked Christine. I think what happened we had several industrial accounts that either took a holiday earlier than we expected or switched supplies unexpectedly, but we fully expect to make that volume up in a little bit more through the balance of the year.

Okay perfect. Thanks for clarifying that.

And then on the exports, you guys took up your guidance a little bit from the last quarter I am just wondering if that was in relation with the weaker Canadian dollar and you are seeing some impact there on the volume side?

I think that obviously helps a little bit. We are seeing a very, very small volume changes here and there but they were starting to get inquires which is good.

And yes, I do think the weaker Canadian dollar is having a bit of an impact but hopefully we can capitalize on going forward.

Okay. And then just one last one for Manon, what's your outlook for the tax rates of the year?

Do you expect it to be somewhere in 24% in 2014?

We don't expect any change on the tax rates.

Okay. Great.

Thanks guys.

Thank you.

Thank you. Good evening.

Hi Stephen.

I just wanted to circle back around on the consumer volumes, I think do you also expect to have a bounce back in consumer volumes in the coming quarters as well or is it something that sort of ramps up through the year?

I think throughout the year Stephen is more where we are focused right now. You end up with promotional activities that come and go throughout the year.

So you do get blips up and down. But I think with the impact of what we had we should offset and actually do even a little bit better going forward.

So everything related to the 1,900 tones or 1,700 whatever the number was should be offset and again a little bit better as we go forward throughout the year.

Okay, great. And then, in terms of the admin and selling fees, was the increase mostly due to the consulting fees like the Delta the amount that you recognized in the quarter?

Yes, it’s going through that. Yes.

Yes. Okay.

And then, can you just talk a little bit about selling margins in the quarter and what you expect going forward, I mean have you – do you expect telling margins to sort of decline on the year-over-year basis from where we are today or is this a good proxy for the year given that you have already contracted all your volumes?

Yes, Stephen we normally don't give guidance on that sort of discussion I mean for obvious competitive reasons and so I think we prefer not to answer that question.

And then on the Taber volumes, are you pretty well matched with Taber volumes versus demand or do you see need us to warehouse some of the volumes?

Probably we will have to warehouses a little bit if the number turns out to be 85,000, 90,000 tons it's obviously in gas. We still haven’t finished, we haven’t processed I think as yet.

But, we always need some outside warehousing and this year it won't be any exception we will still need a little bit this year as well.

Okay. That's great.

Thank you very much.

Thanks Stephen.

Hi there. I just took a look at the annual part and you are right, I read it wrong on the GPP that you probably talk about as positive.

I think I just looked at the comments on the regional and bilateral negotiation that you say you are concerned about. Can you – I don't know a lot about those, can you explain what those concerns are?

Well, I think anytime we get into, first of all thank you for the clarification, just going back and routing through our words. But, I think any time you get into bilateral trade negotiations again, Canada is an open market our rates of duty for the fine sugar are very low, it's not amongst the lowest in the world, so we are always concerned anytime we get into discussions or the government gets into the discussion with other governments that somehow what little protection we have is traded off into something else.

We do not have anything specific there we would hang our head to say we are concerned, but anytime there is opened discussion with other entities, other countries, you need to make sure. I would say that the track record of the government certainly under [CETA] hopefully under TPP has been a remarkable switch and change from where we have come from with the likes of Costa Rica and what not.

So, I am hoping and the company is hoping that the blueprint that we have set using TPP as the guide post will be the model that we will go forward if that’s the case, then we are in good hands and that's all we are saying is we need to continue to monitor that.

Okay. So, was this more of just a big picture comment or is there specific negotiations though that are?

You are right, the big picture comment Michael more than anything, specific.

Alright, thank you.

Operator, there are no further questions. I would just like to thank everybody for calling in today and we look forward to updating you in the next three months period on the next quarter.

Thank you all and good night.

Thank you.