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Edited Transcript of SPB.TO earnings conference call or presentation 9-May-19 8:00pm GMT

Q1 2019 Superior Plus Corp Earnings Call

CALGARY May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Superior Plus Corp earnings conference call or presentation Thursday, May 9, 2019 at 8:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Beth Summers

Superior Plus Corp. - Executive VP & CFO

* Luc Desjardins

Superior Plus Corp. - President, CEO & Director

* Rob Dorran

Superior Plus Corp. - VP of IR & Treasurer

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Conference Call Participants

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* David Francis Newman

Desjardins Securities Inc., Research Division - Analyst

* Elias A. Foscolos

Industrial Alliance Securities Inc., Research Division - Equity Research Analyst

* Jacob Jonathan Bout

CIBC Capital Markets, Research Division - MD of Institutional Equity Research

* Patrick Kenny

National Bank Financial, Inc., Research Division - Research Analyst

* Raveel Afzaal

Canaccord Genuity Limited, Research Division - Analyst

* Robin Fiedler

BMO Capital Markets Equity Research - Senior Associate

* Steven P. Hansen

Raymond James Ltd., Research Division - SVP

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Superior Plus 2019 First Quarter Results Conference Call. (Operator Instructions)

I will now like to hand the call over to Mr. Rob Dorran, VP IR and Treasurer. You may begin.

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Rob Dorran, Superior Plus Corp. - VP of IR & Treasurer [2]

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Thank you, Amanda. Good afternoon, everyone, and welcome to Superior Plus' Conference Call and Webcast to review our 2019 First Quarter Results.

I'm Rob Dorran, VP IR and Treasurer. Joining me today is Luc Desjardins, President and CEO; Beth Summers, Executive VP and CFO; and Darren Hribar, Senior VP and Chief Legal Officer.

For this call, Luc will start with some opening remarks on the first quarter and 2019 year-to-date accomplishments, and then Beth will provide a high-level review of our financial results for the first quarter, our updated 2019 guidance as well as our debt reduction progress. Following their prepared remarks, we will open up the line for questions.

Please note, there is an accompanying presentation available on our website for the call. You can access the presentation in the Investor Relations section of the Superior Plus website.

Before I turn the call to Luc, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Superior's current expectations, estimates, judgments, projections and risks.

Further, some of the information provided refers to non-GAAP measures. Please refer to the first quarter MD&A posted on SEDAR and our website today for further details on forward-looking information and non-GAAP measures. We adopted IFRS 16 in the first quarter, which had an impact on our reported results, most notably an increase in our adjusted EBITDA of $9.2 million compared to the prior year quarter.

I would encourage listeners to review the MD&A as it includes more detail on the impact of IFRS 16 and other financial information for the first quarter, as we won't be going over each financial metric on today's call.

This will allow us to move more quickly into the question-and-answer period. I'll now turn the call over to Luc.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [3]

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Well, thank you, Rob. And good afternoon, everyone. Thank you to those who were able to attend our AGM today in person or by webcast. These are very exciting times for us at Superior. Overall, I'm pleased we've achieved another record quarter with adjusted EBITDA of $240 million, which was $87 million higher than the prior year quarter, primarily due to the contribution from NGL acquisition and the tuck-in acquisition completed in the U.S. in 2018 as well as our execution on the integration and realized synergy on NGL, which are ahead of plan.

The adoption of IFRS 16 has a $9 million impact on EBITDA, so excluding that impact, adjusted EBITDA was $72 million higher than quarter 1 2018. Our team has done a great job on executing on the NGL integration and we realized $5.7 million in synergy in the first quarter. We now expect to exit 2019 with U.S. $20 million of run rate synergies, which is a full year ahead of our previous expectation.

As we previously communicated, the synergy I expect from supply chain efficiency, margin management improvement and operational cost saving, the timing to deliver on the synergies has accelerated as a result of the supply chain, sales and marketing initiative been implemented quicker than we had first anticipated. The Canadian propane distribution business also had a good quarter, and they are substantially done with most of the CanWest integration.

We expect to realize the remaining $4 million in run rate synergy exiting the third quarter of 2019. We're however, facing some headwinds in Western Canada, with the decline in oilfield and other commercial activity related to that region. This has been reflected in our EBITDA guidance for 2019.

The UPE acquisition, California has been performing well and exceeded our expectation for the first quarter. As you probably know, California will become one of our growth area for Superior in the years to come. In Specialty Chemicals, our chlor-alkali market have been weaker to start the year, which is impacting our expectations for the remainder of the year. Caustic soda pricing is expected to be flat to modestly lower for the second quarter and improving in the third quarter, based on export market fundamentals. We aren't directly impacted by the caustic soda import and export market due to the location of our plant, but a weaker export market out of the Gulf Coast does have an indirect impact on North American caustic soda market. The market of hydrochloric acid was weaker than expected as well but is expected to improve with an increase in drilling activity in the U.S.

The sodium chlorate segment continued to be stable in 2018 -- compared to 2018, and we have increased our operating rates and export volume to offset all the cost that we incur, electricity and inflation.

On the business development side, we were busy during early part of 2019. We acquired the retail propane distribution assets of Phelps in upstate New York on April 1, and we acquired a share of Sheldon Gas Company on May 3. The Phelps acquisition is our exiting -- existing footprint in New York, so there is great opportunity on synergies. Phelps also has a rail terminal asset and the wholesale propane capability, so there are further supply chain opportunity utilizing our expertise with these assets in the Northeast USA.

The Sheldon Gas acquisition is also exciting, as it is our first retail distribution propane acquisition in California market. California is the largest propane market in U.S., so we see great potential there to expand our footprint and provide the California market with our industry-leading digital and customer-centric strategy. Sheldon also has a majority ownership in the Sheldon United Terminal, a terminal Superior obtained minority interest with its acquisition of United Pacific Energy. This acquisition allows us to strategically grow our retail footprint in California in the months and years to come.

We have spent $47 million so far in 2019 on Phelps and Sheldon Gas, which leaves us with an additional $50-plus million of our current annual targeted run rate for acquisition. The pipeline for acquisition in the U.S. on the East Coast and the West Coast is very robust, so we see further upside in our growth strategy, executing on the roll-up and realizing synergy from our sales and marketing, operational cost improvement and supply chain efficiency.

We are in a great position to deliver on our Evolution 2020 goal ahead of plan with an expected $230 million increase in EBITDA from operational compared to 2016, excluding the impact IFRS 16.

Now let's -- I'll turn the call over to Beth to discuss the financial results.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [4]

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Thank you, Luc, and good afternoon, everyone.

The first quarter was another record quarter for Superior, as Luc highlighted. Adjusted EBITDA for the first quarter was $239.9 million, $87.3 million higher than the prior year quarter, primarily due to increased EBITDA from operations in the U.S. propane distribution business related to the acquisition of NGL.

Consolidated adjusted operating cash flow, or AOCF, per share before transaction and other costs was $1.21 per share, which was $0.24 higher than the prior year quarter due to an increase in adjusted EBITDA, partially offset by increased interest expense and the impact of a higher weighted average shares outstanding.

Interest expense increased due to the higher average debt level. Debt levels in the weighted average shares outstanding were higher in the first quarter, primarily due to the debt and equity financing completed in 2018 to finance the NGL acquisition.

Superior incurred $5 million in transaction and other costs in the first quarter, which was $2.4 million lower than the prior year quarter. Transaction and other costs incurred in the first quarter were primarily related to integration activities for the NGL acquisition and costs associated with the tuck-in acquisition.

As Rob discussed earlier, we adopted IFRS 16 as of January 1, 2019. The impact to our adjusted EBITDA was an increase of $9.2 million, as expenses related to operating leases are now reclassified as a reduction in long-term liabilities.

Our total debt also increased by $170.8 million due to the reclassification of operating leases as debt. Our consolidated debt, which is used for the calculation of our debt covenants under the credit facility, excludes the impact of IFRS 16. The credit facility EBITDA, which is used for debt covenants under the credit facility and note indentures, also excludes the impact of IFRS 16.

We made great progress in debt reduction in the first quarter. Our borrowing under the credit facility was $69.2 million lower at March 31, 2019, as compared to December 31, 2018 largely due to cash from operating activities available to repay debt. Senior debt to credit facility EBITDA as at March 31, 2019, was 3.9x, which is 0.3x lower than 4.2x as at year-end.

We've introduced the new terms, senior debt and credit facility EBITDA, as these non-GAAP measures -- financial measures are used for covenant purposes and are more useful for comparative purposes to the prior year debt and leverage ratios.

We've also changed the segmentation of the Energy Distribution business to Canadian propane distribution and U.S. propane distribution. As the 2 businesses are now of a size to be reported as separate segments, and the customer mix and drivers of the businesses are different. The Canadian propane distribution business includes our retail and wholesale propane distribution and marketing business in Canada as well as the wholesale propane business in California. The U.S. propane distribution business includes all the retail propane distribution business in the U.S.

Turning now to individual business results. Canadian propane distribution EBITDA from operations for the first quarter was $87.3 million compared to $79.9 million in the prior year quarter, a $4.4 million increase, primarily due to contribution from the UPE acquisition in California, colder weather in Canada and realized synergies from the CanWest acquisition. This was partially offset by lower oil field volume and the impact from the divested branches required under our agreement with the Competition Bureau as part of the CanWest acquisition.

Canadian propane distribution gross profit increased $5.9 million primarily due to higher wholesale volumes, partially offset by lower average margins, lower other services gross profit and lower oil field volumes.

Sales volumes increased 192 million liters, driven primarily by incremental wholesale volumes from UPE, partially offset by lower oil field volumes and the impact from the divested branches in 2018.

Oil field volumes were 21 million liters lower due to the impact from the decline in Western Canadian oil and gas activity as well as the impact from the divested branches. Residential, commercial and industrial volumes were relatively flat as the increased volumes due to colder weather and organic growth initiatives were offset by the impact of the divested branches.

Average unit margins were $0.159 per liter compared to $0.192 per liter in the prior year quarter, primarily due to a higher proportion of low margin wholesale volumes related to the UPE acquisition.

Average retail margins, which include all lines of business except wholesale were modestly higher than the prior year quarter. Other services gross profit was modestly lower than the prior year quarter due to lower equipment rentals from oilfield customers related to reduced activity.

Operating expenses excluding depreciation and amortization were $67.5 million, an increase of $1.5 million, primarily due to incremental expenses from UPE, partially offset by the benefit from realized synergies related to CanWest.

U.S. propane distribution EBITDA from operations for the first quarter was $125.4 million compared to $40.6 million in the prior year quarter, an $84.8 million increase, primarily due to contribution from the NGL acquisition and tuck-in acquisitions, realized synergies from the NGL acquisition and modestly colder weather in some parts of the Eastern U.S. This was partially offset by lower wholesale distillate volumes and contribution from the divested wholesale distillate business.

U.S. Propane distribution gross profit increased $119.9 million, primarily due to higher residential volumes, higher average unit margins and higher other services gross profit, partially offset by lower wholesale volumes.

Sales volumes increased 93 million liters, driven primarily by incremental residential volumes from NGL and the tuck-in acquisition, partially offset by lower wholesale volumes from the divested wholesale distillate assets and business.

Average unit margins were $0.396 per liter compared to $0.203 per liter in the prior year quarter, primarily due to a higher proportion of residential sales volumes, lower wholesale volumes and realized synergies related to margin management and supply chain efficiencies.

Other services gross profit was $6.7 million higher than the prior year quarter due to incremental service revenue from the NGL acquisition. Operating expenses excluding depreciation, amortization and transaction costs were $177.1 million, an increase of $134.3 million, primarily due to incremental expenses from NGL and the tuck-in acquisition, partially offset by the impact from the divested wholesale distillate business.

Canadian propane distribution EBITDA from operations for 2019 is anticipated to be higher than 2018 due to the incremental synergies from Canwest, the full year contribution from UPE and the impact of adopting IFRS 16.

U.S. propane distribution EBITDA from operations for 2019 is anticipated to be higher than 2018 due to the full year contribution from NGL, incremental synergies from NGL and the impact of adopting IFRS 16.

Now turning to Specialty Chemicals. EBITDA from operations for the first quarter was $39.6 million, an increase of $1.5 million compared to the prior year quarter, driven primarily by the impact of IFRS 16 and modestly higher gross profit, partially offset by higher freight costs.

Gross profit was higher than the prior year quarter, primarily due to an increase in higher average sales prices and the impact of the weaker Canadian dollar on the translation of U.S.-denominated revenue, partially offset by modestly lower sales volumes and higher production costs.

Selling, distribution and administrative costs, excluding the impact of depreciation and amortization, were modestly higher than the prior year quarter, as increased freight costs and the impact of the weaker Canadian dollar on the translation of U.S.-denominated expenses were partially offset by the impact of IFRS 16.

Specialty Chemicals 2019 EBITDA from operations is anticipated to be higher than 2018, primarily due to the impact of adopting IFRS 16, partially offset by lower chlor-alkali results.

Lastly, the corporate results and the adjusted EBITDA guidance. Corporate costs were $5.6 million, which was modestly lower than the prior year quarter. Superior incurred a realized loss on foreign exchange hedging contract of $3.8 million as the average U.S.-CAD rate for the quarter was higher than our average -- our average hedged rate.

Interest expense was $26.5 million, $13.4 million higher than the prior year quarter due to increased average debt and effective interest rates. Debt was higher due primarily to the acquisition of NGL and tuck-in acquisitions completed in 2018.

Current cash income taxes were modestly higher than the prior year quarter. Due to the impact of IFRS 16 and our strong momentum in the U.S. propane distribution business to start the year, we're increasing our adjusted EBITDA guidance from $445 million to $495 million to $490 million to $530 million, which implies a midpoint of $510 million, which is a $40 million increase from our previous guidance.

With that, I'd like to turn the call over for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jacob Bout of CIBC.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [2]

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What are your thoughts right now strategically about the Specialty Chemicals division?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [3]

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Well, it's continuity of what we've said in the last year. It's been quite good and solid for us. We anticipate with the chlorate new volume and contract that we have in Canada as well as in Europe and on the export market, that the years to come will show some growth. On the chlor-alkali side, pricing has been affected, the volume in Gulf, and you have, I'm sure, understanding and perspective on that. And the market is anticipating the second half that those price in caustic to come back. It's a good business, very solid. We see some upside with some project that we have internally and some additional sales that we're exporting on chlorate. So quite good solid business.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [4]

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Right. Specifically, what I was trying to get at was how are you thinking about the possible divestment of the Specialty Chemicals?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [5]

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Jacob, you need to speak a bit louder or you're far from the phone. We're not hearing you or maybe it's on our side, we need to bring it up a bit.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [6]

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How are you thinking about the divestment of Specialty Chemicals?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [7]

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Yes, not thinking about that at this stage. We're -- of course, we're excited with the energy group, with all the acquisition. And immediately, we gained a lot of profit by running those business better. So a good momentum there, lots of acquisition in works. It's not on our agenda at this stage to talk about chemical and think about the chemical to sell it. As you know, every year, which we do, and we've had those plus and minus discussion with our Board every year in September once a year. There's been a lot of investors and analysts that are mentioning that. We took note, and we wanted to bring it to our Board in September and say this is what we're hearing, the market's saying that. Doesn't mean management is in favor of doing anything. But the discussion with the Board will take place in September, and for us, we appreciate the chemical cash flow. We appreciate the momentum we have, so we're not excited to look at business that we're doing well with and so hard to buy a business and improve it and do well that when we have one -- we sold what we didn't appreciate as a business, and this one, we do, so for the moment, we're keeping it.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [8]

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And then I wanted to ask a question about propane margins. So Canada, moving a little lower; U.S., moving higher with the acquisitions that they've done. So in Canada, that $0.159 per liter, $0.16 per liter. Is that kind of a new normalized run rate and then similarly for the U.S, the close to $0.40 a liter, and then how should we think about the seasonality?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [9]

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Yes, I think from the Canadian perspective, thinking about it going forward somewhere between $0.14 to $0.17 is the range that you could -- you should expect. Again, we're -- if you took out UPE or the impact of UPE where there was a lot of wholesale volume, we would've been sitting at roughly $0.18 this quarter just to give you a little bit of a sense there. So I think that $0.14 to $0.17 is the way to think about it going forward. On the U.S. side, there is a seasonal impact. So as you're looking at the margins in this quarter, the way to think about it on an annual basis is somewhere between $0.30 to $0.34.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [10]

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Okay. And then the IFRS impact on an annual basis and then by division, can you help us out with that at all?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [11]

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I mean I think the way to generally think about it is going forward somewhere $7 million to $8 million. So if you want to think about it from a whole year perspective, $30 million is not a bad range to think about. And then from a business perspective, the split if you want to think about it, it's basically sort of a 1/3, 2/3 basis. So if that -- if you're looking at it in that range of $30 million, $20 million of it would be chemicals, $10 million of it would be Energy Distribution.

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Operator [12]

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Our next question comes from the line of Steve Hansen of Raymond James.

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Steven P. Hansen, Raymond James Ltd., Research Division - SVP [13]

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Just a quick one on the pipeline. Luc, I think you gave us a bit of color there. But I'm just trying to get a sense for your relative preference right now, West Coast, East Coast. It sounds like there's sort of this trade-off between newer opportunities in California, which sound pretty rich but then you've got the ability to backfill and get better concentrations and sort of build network density, I guess, on the East Coast. How do you think about the trade-off between those 2 in the relative pipeline as it sits today?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [14]

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I'd like to do both. I think we can grow in West Coast and get the momentum going. We're going there next week to visit with an association industry over hundreds of distributor, and we have different one-on-one going on. It's exciting time for us to open up that region. We've already acquired 2 businesses. United Pacific and recently another distributor. And on the East Coast, continuing our path to add on acquisitions, so there's no shortage of acquisition. We've done quite a lot in 2018, 2 so far this year. We started by saying 4, 5 a year, a couple of years ago. We're now up to 8 a year and one day, it'll be more than that. So and I -- we're not going to think that oh, we're not doing in the West Coast because we have East Coast opportunity. Good business is a good business. California is a great market. Margins are good, it's very solid, sustainable, so we're very excited to get involved in another piece of the propane North American market.

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Steven P. Hansen, Raymond James Ltd., Research Division - SVP [15]

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Very helpful. And just on the same sort of tangent. Is there -- is it safe to assume that the wholesale opportunity has been attacked at this point the UPE assets that you got. Like you don't need any additional wholesale assets at this point, it's primarily retail focused?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [16]

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That's a good question. Because sometimes when we acquired, there is also some wholesale opportunities. So we're going to do that. The Sheldon, that we acquired in California was offering, we bought the other 50% of a site that we already own 50%. And then we have a distribution leg that comes with that, which is great. So I think down the road, if we think strategically, where we want to be, I would say the wholesale, we probably want to keep it around the 10% of overall EBITDA as a business. And we'll come up with -- since we've already achieved our 2020 plan, in the fall, we're going to work on the -- what's going to happen here in the next 4, 5 years, and we'll present that. But think down the road, we don't want the wholesale to become a 1/3 of our business. We want to keep it. It helps us, it helps our propane distribution. If it's a bit more than that, we're good. As an overall percentage of the mix, maybe 10% of EBITDA.

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Operator [17]

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And our next question comes from the line of David Newman of Desjardins.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [18]

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Now that you're moving into barbecue season, besides lounging by the pool, what's your plan with respect to rollout of the sensors? And Luc, I know you're pretty excited about the sensor program, and now you're kind of really galloping forward here on the synergies. Is this something the sensors could be layered on top of that in terms of synergies? I know you have a big plan there. So what are you going to do this summer I guess is that -- what's your summer plan?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [19]

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Summer is going to be big because we're -- if we ticked off Canada, we're probably going to install 35,000 or so. We -- as you remember, in the summer, we usually take our truck drivers and reduction of staff, and we've engaged them this year and say whoever can stay for that period of 3 months, they're going to install additional sensors, so thousands of -- 35,000 is the minimum we're going to install this summer, and we are starting in the -- to do the same in the States. So the digital strategy helps simplify things, makes us more efficient, better delivery fill rate. We're going to keep going.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [20]

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So I would assume that since NGL, you were able to get ahead of plan on the synergies that's allowed you to kind of maybe look at the digital strategy in the U.S. a little quicker. Is that safe to say?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [21]

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Absolutely. I won't give you a number today but when we talked about the $20 million, there was 3 different big buckets, and they're marching on extremely well. There is more opportunity in the business we acquired to do better with it. And those millions -- those millions by next year and the year after are going to come, and then we'll acquire more business and get them -- I have a rule of thumb these days, that everything we buy in energy, we're going to make it 15% to 25% better, bottom line.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [22]

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Okay. And this is over and above the synergies on the acquisitions. So this is incremental to that and if you take the whole enchilada and all of North America, is that what you're saying is that this could be on the EBITDA impact in sensors, once you're completely done, what will be that impact on EBITDA?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [23]

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For the whole business in North America, we haven't figured that yet because the U.S. plan is -- we haven't figured that one. I know, Beth, if something comes to your mind, and...

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [24]

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Yes, I think the challenge with the question is the path to get all of the full benefits out of the sensors were -- because Canada is so much further advanced in being on a single platform and all of the business on a single platform, getting the benefits from logistics and all the way through to the stickiness of the customers, there's a very clear line of sight. In the U.S, putting the sensors in place now, there are benefits, but you don't have that same benefit because the -- after we've done the acquisitions, and even the NGL platform are on multiple systems. So as part of bringing the business together, we need to bring them onto a common platform then layer this -- then with those sensors, we can get the full benefits. So it can roll right through more effectively to the logistics efficiencies.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [25]

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That's kind of the second wave, which is not on our game plan for a bit of installation of sensor obviously, but as a big, big massive number, it's more of a -- I'll take 2 to 3 years, 2 to 3 summer, we get there.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [26]

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Okay. And then the last question for me is with UGI buying the remainder of Amerigas and obviously the termination of their MLP structure, what do you think the competitive landscape might look like in the U.S. for some of the tuck-ins? I mean they seem to be obviously a much better balance sheet now that they can actually tackle tuck-ins again with UGI backing, so what's your view on how this might shake out on the competitive landscape?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [27]

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Yes, good question. I've listened to what they've had to say last week and read it, and they're talking about growth in the midstream, and they're talking secondly about growth in Europe. And then they say potentially as a third opportunity later on, Canadian -- U.S. propane. So it didn't seem to be on their top priority. I think the -- so there, I don't know how they are going to unfold and come to the table for acquisition, but I can tell you from meeting one-to-one that tons of distributor in the state, I would say more than 50% would not want to sell to them.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [28]

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Okay. And you don't see valuations creeping up at all, Luc?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [29]

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Not for the near future. If it comes in 2, 3 years, we'll certainly talk about it, but I don't see it in the near future.

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Operator [30]

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Our next question comes from the line of Joel Jackson of BMO Capital Markets.

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Robin Fiedler, BMO Capital Markets Equity Research - Senior Associate [31]

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This is Robin on for Joel. So just on the $40 million midpoint guidance increase. So with $30 million of that coming from IFRS and then the increased NGLs synergies or acceleration of the realization, that part seems to cover the rest or maybe even a bit more. So were there any reductions or offsets anywhere else since the last guidance? And are the recent acquisitions that were done in early April included in this range?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [32]

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Yes, so the headwinds or as you're saying, some of the offsets, there's really 2 areas whereas we look at it, there's a little bit more risk and one is on the chemical side. And I think when we were originally looking, we would've thought that Alunorte was going to come back sooner. And since it appears that it's going to be in the second half of the year where that will start having a benefit again to the caustic, impact on both the volume and the pricing, our -- because that's being extended out, there's a little bit of an offset there from what we see. The other area, which we have built into the forecast now is around the headwinds in oilfield in Canada where we saw, I'm going to say, probably a bit of a larger decline than we originally expected to see in the first quarter. And from our perspective, we don't necessarily see that turning around until later in the year. So we built that in as well.

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Robin Fiedler, BMO Capital Markets Equity Research - Senior Associate [33]

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Great. And were the April acquisitions in the range?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [34]

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Yes, they would be in there. The one thing is you have to recall when you put in acquisition in the forecast and you acquire it, mean it's been acquired after the first quarter, and that's where the bulk of the reality is, a lot of the earnings and then you're going through Q2, Q3, which for these types of acquisitions, which are highly residential in nature are very close to 0 EBITDA in the next few quarters. So the impact's quite small.

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Robin Fiedler, BMO Capital Markets Equity Research - Senior Associate [35]

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Yes, I thought maybe the Q4 would add something but yes, it sounds marginal.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [36]

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It does but they're also quite small acquisitions. So from an overall EBITDA perspective, it isn't a large number.

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Robin Fiedler, BMO Capital Markets Equity Research - Senior Associate [37]

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Fair enough. And just a final question. Can you provide a little bit more color on the Spec Chem business and how it's progressing into Q2, particularly on chlor-alkali and chlorate volumes and maybe if you could provide some Q2 EBITDA guidance at least on a sequential or maybe year-over-year basis.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [38]

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I mean I kind of missed a little bit the punch of the question. Did you get it, somebody here?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [39]

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So let me -- so...

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Robin Fiedler, BMO Capital Markets Equity Research - Senior Associate [40]

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So...

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [41]

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Yes, sorry, go ahead.

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Robin Fiedler, BMO Capital Markets Equity Research - Senior Associate [42]

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Just how the Specialty Chemicals business is progressing into Q2 on volumes and if you can provide some guidance for Q2 on sequential or year-over-year basis?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [43]

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Yes, I think from our perspective, I mean we wouldn't normally provide specific Q2 guidance. That being said, from what we're seeing in the market, similar to what I talked about previously, caustic, where we think we've already seen some of the headwinds, our expectation as we move into Q2 is that it would be basically consistent. From an HCL perspective, with some of the rig count slowdowns and what we've seen in the U.S, we would anticipate probably having a little bit more volume around, so from an HCL perspective, seeing the volumes and potentially that pricing having some pressure so being consistent to modestly lower. And then on the chlorate side, we would actually expect from our perspective to see chlorate increasing a little bit, on a modest basis but increasing a little bit. So that's how we would see some of the key changes I'd say on the Specialty Chemicals side.

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Operator [44]

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Our next question comes from the line of Patrick Kenny of National Bank.

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Patrick Kenny, National Bank Financial, Inc., Research Division - Research Analyst [45]

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Luc, Beth and Rob. On the realized synergies, first with the run rate of USD $20 million from NGL coming in a year sooner than expected. I just wanted to confirm that this is purely a function of being able to implement your supply chain initiatives quicker than expected? Or does that imply that you're discovering additional synergies over and above your initial expectations, and that we should expect run rate synergies to be somewhere north of USD $20 million by say late 2020?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [46]

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I think you're on the right track there. So the $20 million -- first, I think I got to explain that when you have a bucket of synergies, sometimes you could address them quickly, fast, so we realized that in the state, they weren't running the business as good as we thought. And when we thought of $20 million, we felt comfortable, we went in deep, we start to introduce our Superior way operational effectiveness, while we got lot of lift of that. And then we look at price and say what's the market by region, we do an intelligence study in every region, we said, "Well there's room here, and we won't lose any customer because we want to grow 2%, 3%." We address that. And then on the supply chain, many millions more than we thought were available. We couldn't address it when we bought them up to March this year because they were already covered and signed up for a year, but now we redid all of those supply, and additional millions are coming our way. When we look at that, we say okay. It's not like the Canwest where you have to during the summer close an operation because you have total overlap then you need 2 summers to do the work. There were more things we could address immediately. It does, when we start to look at the forecast next year, it does bring on the question was asked about sensors and other stuff, it certainly does bring to us additional profitability than the $20 million synergy that we will put in place for next year.

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Patrick Kenny, National Bank Financial, Inc., Research Division - Research Analyst [47]

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Okay. That's perfect. And then on the Canwest synergies, you're already on track to exceed your initial $20 million assumption at the time of the acquisition. But as you said, oil and gas volumes are probably coming in much lower than you had initially expected also. So just wanted to confirm that the all-in realized EBITDA multiple on the Canwest acquisition is still coming down to that 6x to 7x range, including the impact from the lower sales volumes.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [48]

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Yes. When we do our $20 million, we take the picture of the business as it is when we acquire it. Remember we had to sell some of the branch, which we did. And then the $20 million, we think we have $2 million, $3 million left to do this summer and then we're done. And it's really $20 million of costs. It's really number of technician, truck drivers, number of location, many offices that are not needed because they're duplication. Then from overall volume, I think we would have had an extraordinary year if the volume would have grown the way everybody was forecasting. There was some growth in the oil market. That decline is bringing us less volume overall for the overall business. Our business, which were already big and then our business that we acquired from Canwest. We have not lost a customer. We even gained a few customer because of our service we offered to that market. Their each individual customer volume is way down, and it's kind of a, I don't want to go into politics but it's kind of a bad feeling that Alberta opportunity for this country is not getting explored in properly, and I think it affects everybody, even the one that are in the East and don't look at that. It's too bad for everybody.

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Patrick Kenny, National Bank Financial, Inc., Research Division - Research Analyst [49]

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Agreed. And then just last question if I could on the balance sheet. Given your agenda to keep the chemicals business. Could you just provide an update on when you expect to reach your long-term target, that EBITDA ratio of 3x? Are we looking at into 2020, or is it more of a 24- to 36-month outlook?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [50]

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Yes, I think, the reality is, the end of 2020, with the acquisitions that we've done, we would anticipate sort of to be between that 3x to 3.5x, but to actually hit that long-term target would be more like a 24-month period of time.

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Operator [51]

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Our next question comes from the line of Elias Foscolos of Industrial Alliance.

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Elias A. Foscolos, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [52]

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I got a few questions. First one will be related to the Sheldon acquisition as I've been trying to learn about the California propane market. Would it be fair to say that, that's about 1% to 2% of the residential market in California?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [53]

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We'll need a bit of time to get to that. We didn't prepare for that question. So how much does Sheldon represent? It's very small, that's for sure because they -- half the business is also wholesale propane. So...

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [54]

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Yes, I mean, I think we don't have that statistic with us. So maybe the best thing is we'll take that one offline. But I guess your question was overall the size and whether it was small, then yes, I mean I think off the top of our head, it's likely less than 1%, but we'll take a look.

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Elias A. Foscolos, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [55]

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Really, that's what I was driving that, Beth, what -- how much more runway is there?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [56]

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Yes, if it's relative size, that's a small acquisition.

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Elias A. Foscolos, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [57]

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Okay. So sort of cascading from that question a bit further, in our minds -- in my mind, I should say, I have this $100 million of tuck-in acquisitions and so how should I, maybe, think about this, as you've got a second front right now for acquisitions? Should we think about $100 million maybe, and you're going to cherry pick the best acquisitions and stick within that, or has the pie expanded now with this that perhaps that range is a little too low going forward?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [58]

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Yes, there's no doubt that the range is low for the opportunity. We're going to be more selective, and we are being selective because we're -- we have 4x leverage, we're not concerned as a management team about 4x, but it seems like the world is, so we're kind of going to be more selective, and we won't overpay. Not that we'll overpay if we had lot of money and that's not going to happen, but it's something that the number of opportunity are going to be more, and we're getting organized to say okay, how do we address that and if the return are great, in the years to come, we'll have to also find solution or deleverage. When we deleverage, we'll do some more acquisition than the 8 a year. So it's a good question. We don't have the full solution for it at this stage. Not bad considering that...

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Elias A. Foscolos, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [59]

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Yes, I appreciate that because with the 2 acquisitions at ballpark $50 million, not saying everyone will be the same size, but it looks like the runway has gotten longer or wider in a sense for you, and I'm just wondering how you're trying to live within the criteria or if the criteria is just strictly economics, and will make it work in the end, so...

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [60]

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Yes, good point. Thank you.

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Operator [61]

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Our next question is from the line of Raveel Afzaal of Canaccord Genuity.

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Raveel Afzaal, Canaccord Genuity Limited, Research Division - Analyst [62]

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Just on the chlorate pricing, sodium chlorate, it looks like you guys are getting some bump-up on the pricing over there. Can you speak a little bit about that? What type of pricing increases you're seeing? And what we could see in 2020 with respect to pricing increases over there?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [63]

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On chlorate?

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Raveel Afzaal, Canaccord Genuity Limited, Research Division - Analyst [64]

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Yes, sodium chlorate, yes.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [65]

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Okay.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [66]

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Yes, so from a chlorate perspective, to think from on a year-over-year basis, if you're thinking about it from a Q1 to Q1, we saw roughly a 7% increase from a pricing perspective and then from a Q1, like moving from Q4 to Q1, we saw some increase as well. More modest, roughly 2% increase. So that's linked to some of the positive movement that we've seen with the export pricing, et cetera. So our expectation would be as I was talking about earlier from the chlorate side, we would expect both chlorate volumes and the pricing to be modestly higher than what you would've seen historically. And that's the offset to some of that pressure that we're seeing in chlor-alkali.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [67]

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Yes, just to add a bit of color, we are a big player in Japan. And the Chinese market whatever reason, they just stopped being a supplier of chlorate. It usually come in and out, they've been in more in the last few years. Now they're out. So we have new growth in the South of Europe. We have new growth with better pricing in Japan, and as the March negotiation in the Japan comes, we expect better margins.

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Raveel Afzaal, Canaccord Genuity Limited, Research Division - Analyst [68]

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Got it. And can you remind us again when a vast majority of your contracts are coming up for renewal on -- for the subdivision?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [69]

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Yes, for the chemicals, every year, about 25% to 35% of the overall volume. A lot of the contract are 1 to 2 years. In Europe, we've done longer term. We've had new big business in America, that's a 10-year contract. Those are rare. We're very excited about that, starting in a year or 2. So momentum is better than I've seen in a long time in chlorate.

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Raveel Afzaal, Canaccord Genuity Limited, Research Division - Analyst [70]

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Perfect. And I know Q2 is sequentially not as important for the propane division, but just with respect to the weather, how was the weather in April for you guys compared to last year?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [71]

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Yes, I think -- that's a good question because a lot of people think oh, you've had the great weather helping you in the first quarter. Well, actually in the States, the weather was not positive for quarter 1, even though the results are extraordinary. And it was positive in Canada. And I think so far in April probably warmer overall, Eastern North America and Northwest, maybe a bit colder.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [72]

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Yes, in particular in the U.S, Raveel, it's interesting where -- when we talk about weather on a year-over-year basis, it was colder but for purposes of our forecasting where we use the 5-year average, it was fundamentally in the markets we're in on a weighted average basis, the heating degree days, it was actually warmer.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [73]

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So imagine the result we would have had if it were in our favor. I hope that next year, we'll take it.

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Operator [74]

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And there is no further questions at this time. I'd like to turn the conference back over to Luc Desjardins, President and CEO, for closing remarks.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [75]

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Before we wrap up, I want to add that I'm very proud of our accomplishments so far from our dedicated employees. We're running on all cylinder, integrating NGL, Canwest finishing this summer. Smaller tuck-in acquisition, lots of that. Our management team is focused on organic growth as well. We'll never give up that, continuous improvement of our operation. Robust -- we talked about M&A, East Coast, West Coast, USA, the funnel is -- tons of opportunity. So for us, it's all about execution. I think that's our trademark, and as you saw at NGL, I know many company you follow that makes acquisition, think of Canwest, think of NGL and look at the result year 1. I think we're pretty good, even though we like to get better again continuously. Thank you, everyone.

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Operator [76]

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Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.