Ciner Resources LP (CINR) Q4 2018 Earnings Conference Call Transcript

CINR earnings call for the period ending December 31, 2018.

Motley Fool Transcribers
Motley Fool Transcribers
Feb 15, 2019 at 12:22PM
Other
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Ciner Resources LP  (NYSE:CINR)
Q4 2018 Earnings Conference Call
Feb. 15, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Welcome to Ciner Resources Fourth Quarter and Full-Year 2018 Earnings Conference Call and Webcast. Hosting the call today from Ciner Resources is Mr. Kirk Milling, Chief Executive Officer. He is joined by Mr. Ed Freydel, VP of Finance; and Mr. Vivek Bhakuni, Senior Financial Planning Analyst. Today's call is being recorded. At this time, all participants have been placed on listen-only mode, and the floor will be open for you questions following the presentation. (Operator Instructions)

It is now my pleasure to turn the floor over to Vivek Bhakuni. Please go ahead.

Vivek Bhakuni -- Senior Financial Planning Analyst

Thank you, Christie. Good morning. Thank you for joining us to discuss our fourth quarter and full year 2018 earnings. Kirk Milling, our CEO, will discuss our fourth quarter performance. Ed Freydel, our VP of Finance, will then provide additional details related to our financials and Kirk will discuss our outlook for 2019 and beyond. We will then take your questions.

Before we begin, I would like to remind you that the comments included in today's conference call constitute forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in the Company's SEC filings.

Certain financial measures discussed during this call are considered pro forma and are therefore non-GAAP financial measures. Reconciliation of those non-GAAP financial measures can be found in our earnings press release.

I will now turn the call over to Kirk.

Kirk H. Milling -- President and Chief Executive Officer

Thanks, Vivek, and good morning, everyone. Welcome to Ciner Resources' Fourth Quarter and Full Year 2018 Earnings Call. I'm very pleased that we finished the year on a high note. We safely produced over 700,000 tons in the quarter for the first time in our history, and I want to stress, safely. I'm so proud, our team places such a high emphasis and focus on maintaining a safe work environment and ensuring everyone gets home safely to their families. It's who we are and how we do business each and every day.

On production, we were coming off two difficult quarters where we experienced lower ore grade and some unexpected maintenance issues during one of our annual outages. As discussed last quarter, we took some specific actions to work on our ore grade and saw a 2% improvement from August to where we finished in December. Running at our current rates, which are near our physical asset limits, we become much more sensitive to variations in ore grade, and therefore, have included this metric in our tables and we'll be reporting on it each quarter.

As per reliability, we made significant strides over the year and lowered the production hours lost from unplanned equipment failures by over 50% as compared to 2017. So, we're glad to put 2018 behind us and keep our efforts focused on taking the right steps to both grow and sustain our production levels back to where we were a few years ago.

So not only do we have a record-breaking production quarter, but the strength of the market continued to outpace our expectations. International prices were up 6.7% in the quarter and finished up 6.6% for the full year, which exceeded our prior outlook of a 4% to 6% increase. Our domestic volumes also were stronger than anticipated, finishing a 180,000 tons over our 2017 levels, and again, outpacing our outlook of 150,000 ton to 175,000 ton increase.

Turning to our capital investments, we previously communicated that our capital spend would be higher in Q4, and in fact, you can see that we spent almost half of our totals for MOB and expansion capital in the quarter. One of the big drivers was our co-generation project that is now well under way and expected to start up later this year. Once fully operational, we expect to self generate roughly one-third of our annual electricity consumption.

The other driver was our ERP implementation project began to wind down at the end of the year. I'm happy to report that we've had a very successful implementation and are up and running on our new platform. We expect the new system will streamline many of our internal processes and drive new efficiencies in the way we manage our business.

As part of our strategy, we continue to take important steps toward leveraging and harnessing Ciner's global assets to provide a differentiated service offering to our customers. As mentioned last quarter, one of our affiliate companies recently commenced loading soda ash supplied from a new terminal located in Norfork, Virginia. Our strategy is to supplement our supply from Wyoming, which will bring added security supply for our customers located along the eastern seaboard.

In addition, during the quarter, our affiliate, Ciner Corp, notified ANSAC of Ciner's intention to terminate its membership status, which is to take effect as of December 31st, 2021. Between now and the termination date, Ciner will continue to have full ANSAC membership benefits and services. After termination, Ciner Corp will begin marketing soda ash directly into international markets that are currently being served by ANSAC and intend to utilize the distribution network that has already been established by Ciner Group.

We believe by combining our volumes with Ciner Group's soda ash exports from Turkey, our withdrawal from ANSAC will allow us to better leverage the larger global Ciner Group soda ash operations, which we expect will improve our ability to optimize our market share, both domestically and internationally.

Now, I'm going to turn the call over to Ed, who will share our financial results in more detail.

Eduard Freydel -- Vice President of Finance

Thanks, Kirk, and thanks everyone for joining us on our call and your continued interest in Ciner Resources. Today, I'll provide some detail around our fourth quarter and full year performance and how those results compare to the outlook we provided throughout 2018. I'll discuss the significant financial drivers from the quarter, including our capital spending program and some key metrics we utilize to evaluate our business.

Let me start with a recap of our actual results versus our full year outlook. Total volume sold were flat in the quarter compared to Q4 of 2017 and decreased 3.4% on a year-to-year basis, in line with our year-end outlook of down 3% to 5%. Production volume hit an all-time high in the quarter, and over the year, was down approximately 50,000 tons as compared to 2017. Domestic volume grew approximately 43,000 short tons as compared to Q4 of 2017 and grew by approximately 180,000 short tons for the year, which was above the revised range of 150,000 tons to 175,000 tons we provided at the end of Q3.

Our domestic sales price increased by 1.3% in the quarter and 0.5% for the year, in line with our previous guidance. International pricing was up 1.4% quarter-over-quarter and down by 2.3% for the full year 2018. Q4 2017 represents the last quarter where we sold to our CIDT affiliate. CIDT sales include full inland and ocean freight costs in our results as compared to ANSAC volumes, which only contemplate rail freight to the US ports. When excluding the CIDT effect on sales in 2017, international prices continued their upward trend, increasing by 6.7% in the quarter and 6.6% year-over-year.

Maintenance capital spending in 2018 was $15.1 million, within our revised expected range of $15 million to $17 million for the full year. Expansion capital spending for the full year was $37 million, which was below our expected range of $40 million to $50 million, as timing on certain projects was pushed into the first quarter of 2019. One of our biggest expenditures in 2018 was the start of our co-generation project, which we anticipate coming on line in the second half of 2019. We also completed our ERP implementation project, which went live on January 1st of this year and was on budget and on schedule.

Our revenues for the quarter were $132 million, up 3% compared to the fourth quarter of 2017. Full year revenues were $487 million, down 2% compared to $497 million in 2017. The two main drivers for the reduction year-over-year were the reduced freight component of our sales and the production issues we experienced during 2018, which were partially offset by strong international pricing.

Cost of products sold in the quarter, including freight, increased 2% from $88 million to $90 million due to higher employee compensation costs and medical claims, as well as higher freight costs. Full-year cost of products sold decreased slightly from $357 million to $355 million.

SG&A expenses of $5.6 million were flat in the fourth quarter of 2018 when compared to the prior year quarter. SG&A expenses increased in 2018 when compared to 2017 from $22.4 million to $24.5 million. The three primary drivers for the increase year-over-year were higher fees from ANSAC, higher compensation and benefits, and higher expenses from our ERP project.

Ciner Resources had basic earnings per unit of $0.70 in the fourth quarter of 2018, compared to $0.67 in the fourth quarter of 2017. On a full year basis, earnings per unit was $2.48 in 2018, compared to $2.08 in 2017. Most of the year-over-year increase was related to our $27.5 million litigation settlement with Rock Springs Royalty Company.

Cash provided by operations was $162 million in 2018, compared to $79 million generated in 2017. The increase in cash from operations was primarily due to a reduction in accounts receivable from affiliate sales, as well as the July collection of the litigation settlement. From a balance sheet perspective, we maintained a very conservative debt profile and ended the year with a total leverage ratio of 0.70.

Next, let's turn to discuss how all this translates into two of the key metrics we monitor as an MLP, adjusted EBITDA and distributable cash flow. In the fourth quarter, we delivered $37 million in adjusted EBITDA, up 6% compared to $35 million in the same quarter of 2017. Full-year adjusted EBITDA of $136.5 million was 14% higher than the $120 million we delivered in 2017. This includes the effects of the $27.5 million litigation settlement.

Our distributable cash flow was $13.9 million in the quarter, compared to $14.6 million in the fourth quarter of 2017, as our cash spend on maintenance CapEx increased in Q4 2018. On a full year basis, our distributable cash flow attributable to Ciner Resources was $58.4 million, compared to $52 million in 2017, again, including the effects of the litigation settlement.

Our coverage ratio was 1.22 for the quarter and 1.28 for the full year, including the effects of the litigation settlement, compared to 1.28 and 1.14 for the prior year quarter and full year, respectively.

Now, I'm going to turn the call back to Kirk for some comments on our outlook for 2019.

Kirk H. Milling -- President and Chief Executive Officer

Thanks, Ed. As mentioned in our earnings release outlook for 2019, we are expecting soda ash volumes sold to increase 2% to 4%. We are expecting further modest improvements in ore grade during the year, along with a strategic decision to increase our consumption of deca. This is a debottlenecking project that will start up in Q2 that we expect will contribute 50,000 tons to 80,000 tons annually of additional soda ash output over the next four to five years.

For our domestic market, we anticipate our volume will drop by 140,000 tons to 160,000 for the year. Given the favorable pricing indications in the international market, we took a disciplined approach during the domestic price negotiations and made some trade-offs where we saw a margin improvement opportunity. This should lead to a better-than-expected increase in domestic prices for the year, which we've projected to be up 5% to 7% for our full-year outlook.

On the international side, markets remained tight in Q4, which provided a positive backdrop for prices to move higher, particularly in markets where prices were firm during the calendar year and had been negotiated the previous year when Turkey's new production was coming on line. Overall, we are projecting a 2% to 4% increase for the year, as most of the new Turkish production is now fully absorbed into the market and we are expecting continued demand growth over 3% in export markets outside of China.

To take advantage of favorable industry fundamentals, our operations team has put a lot of effort into improving the reliability of our production assets. And year-on-year, we're beginning to see tangible evidence of improvement in our unplanned downtime as compared to historical levels.

As we look ahead to 2019, we are increasing our maintenance capital to $25 million. While this will have some near-term impact on our DCF, our goal is to improve the reliability and sustainability of our production volumes, which ultimately drives more consistency in our DCF.

Growth capital expenditures for 2019 are expected to be between $35 million to $40 million, as we continue to execute on our co-generation project, which will provide roughly one-third of the plant's required electricity needs at a significant cost advantage. As we look to the future, we are reevaluating our investment plans to not only improve the sustainability of our existing assets, but also increase our production levels up to at least 3 million tons per year.

While we've made good strides on process improvement, it is clear, more investment in our aging assets will be needed to make a meaningful change in our production levels. We are working diligently on these growth capital expenditure plans and we'll provide more details in the coming months. But we will continue our disciplined financial policy to maintain a conservative capital structure. Improving operating performance should give us more flexibility to use a balanced approach of both operating cash flow and debt to fund these investments.

Overall, higher trending production volumes, coupled with bullish global pricing, leads us to anticipate continued improvement in our operating performance for 2019. Going forward, we have renewed our focus on operational sustainability and need for investment in our assets. This will be done in conjunction with our long-term strategic plan to better align ourselves with our parent company's global presence and take advantage of the growth in demand and pricing in international markets.

Thanks for your continued interest in Ciner Resources. And this concludes our prepared remarks. So Christie, please open the line for questions.

Operator

Thank you. (Operator Instructions)

And we have no questions at this time. I'll return the call to management for any additional or closing remarks.

Vivek Bhakuni -- Senior Financial Planning Analyst

All right. Thanks, Christy. Thanks, everyone. And again, thanks for your interest in Ciner Resources.

Kirk H. Milling -- President and Chief Executive Officer

That concludes the call.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

Duration: 18 minutes


Related Articles

Call participants:

Vivek Bhakuni -- Senior Financial Planning Analyst

Kirk H. Milling -- President and Chief Executive Officer

Eduard Freydel -- Vice President of Finance

More CINR analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.