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Rogers Sugar Inc. Fiscal 2019 Earnings, Price Target Update

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Rogers Sugar Inc. (RSI, RSI.DB.E, RSI.DB.F) has been in the sugar business for over 100 years and is the leading refiner, processor, distributor and marketer of sugar products in Canada. Rogers is the largest refined sugar producer in Canada and the largest maple syrup bottler in the world. The maple syrup segment was acquired during 2017 with the acquisition of LBMTC and Decacer. Lantic is the only sugar producer with operating facilities across Canada with cane refineries in Montréal and Vancouver and a sugar beet factory in Taber, Alberta. Lantic also operates a custom blending and packaging operation and a distribution center in Toronto. Sales are focused in three specific market segments: industrial, consumer, and liquid products. The domestic market represents more than 90% of total volume, sugar contributes 75% of revenues, maple syrup at 25%. The fiscal year for Rogers runs from Oct-1 to Sept-30. Domestic competition is from Redpath Sugar Ltd. and smaller regional operators and/distributors of both foreign and domestic refined sugar.

Lantic's sugar products are marketed primarily under the Rogers trade name in Western Canada, and under the Lantic trade name in Eastern Canada, and include granulated, icing, cube, yellow and brown sugars, liquid sugars and specialty syrups. Lantic is the largest refined sugar producer in Canada, with an annual capacity of 1M metric tons. Total sales volume has been averaging 650,000 metric tons per year for the past three years. Profits generated by the operating company, Lantic Inc., are paid to Rogers by way of dividends and return of capital on the common shares of Lantic, and by the payment of interest on the subordinated notes of Lantic Inc. held by Rogers, after having taken a reasonable reserve for capital expenditures and working capital. The cash received by Rogers is used to pay dividends to its shareholders. Rogers made two acquisitions in 2017. During Aug-LBMT, a maple syrup bottler, was acquired for $166.4M and in Nov-2017, Decacer, a maple syrup bottler, acquired for $43M.

The biggest concentration of maple trees is located in Québec, New Brunswick, Ontario, Vermont, Maine and New Hampshire. The production of maple syrup takes place over a period of 6 to 8 weeks during the months of March and April of each year. Canada remains the largest producer of maple syrup, with over 77% of the world's production. The U.S. is the only other major producing country in the world, producing approximately 22% of the global supply. Québec represented 71% of the world's production in 2018. There are approximately 7,300 commercial-scale maple syrup producers in Québec. The maple syrup producers in Québec are represented by the Producteurs et Productrices Acéricoles du Québec ("PPAQ"). The PPAQ generally regulates the buying and selling of bulk maple syrup. In Québec, nearly 90% of the total production of maple syrup is sold through the PPAQ to the authorized buyers, leaving only approximately 10% of the total production being sold directly by the producers to consumers or grocery stores. The authorized buyer status is renewed on an annual basis.

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