Chemtrade Logistics Income Fund (TSX: CHE.UN) today announced results for the three months and six months ended June 30, 2020. The financial statements and MD&A will be available on Chemtrade’s website at www.chemtradelogistics.com and on SEDAR at www.sedar.com.
Chemtrade President and Chief Executive Officer, Mark Davis, said, “Despite significant COVID-19 effects, our results for the second quarter were better than we had anticipated at the start of the quarter. Our acid regeneration (‘regen”) business suffered the most, as people drove less due to the pandemic resulting in a significant drop in refinery utilization. As the quarter progressed, refinery utilization rates improved more quickly than we had expected, so the results for regen were better than we had anticipated. Additionally, our water business performed very well, continuing the improvement that commenced more than a year ago.”
Revenue for the second quarter of 2020 was $347.5 million, which was $49.2 million lower than the second quarter of 2019. The primary reasons for the lower revenue were lower sales volumes and selling prices for hydrochloric acid (“HCl”) and caustic soda in the Electrochemicals (“EC”) segment, and lower sales volumes of regen and merchant sulphuric acid in the Sulphur Products and Performance Chemicals (“SPPC”) segment.
Net earnings for the second quarter of 2020 were $4.5 million, compared with a net loss of $57.6 million in 2019, which included a $65.6 million non-cash goodwill impairment charge. Excluding the goodwill impairment, net earnings in the second quarter in 2019 were $8.0 million.
Adjusted EBITDA(1) (“EBITDA”) for the second quarter of 2020 was $75.5 million compared with $91.3 million in the second quarter of 2019. For the second quarter this year, Chemtrade’s operating businesses generated $17.7 million lower EBITDA than last year and corporate expense was $1.9 million better. As expected, the largest shortfall was in the SPPC segment, largely due to lower refinery utilization rates affecting regen.
Cash flow from operating activities was $66.7 million compared with $51.8 million during the second quarter of 2019. Adjusted cash flow from operating activities(1) was $43.7 million compared with $58.2 million generated during the second quarter of 2019.
Distributable Cash after maintenance capital expenditures(1) for the second quarter of 2020 was $31.7 million or $0.34 per unit compared with $41.0 million or $0.44 per unit in 2019.
For the six months ended June 30, 2020, Distributable Cash after maintenance capital expenditures was $69.9 million, or $0.75 per unit compared with $43.5 million, or $0.47 per unit in 2019. Results for the first six months of 2019 included a litigation reserve (“Litigation Reserve”) of $40.0 million. Excluding the litigation reserve, Distributable Cash after maintenance capital expenditures was $83.5 million, or $0.90 per unit for the first six months of 2019.
Revenue for the first six months of 2020 was $714.4 million (2019: $782.0 million). EBITDA was $156.4 million (2019: $135.2 million). Adjusted cash flow from operating activities was $93.0 million (2019: $69.7 million).
In the second quarter of 2020, SPPC generated revenue of $104.0 million compared with $126.4 million in 2019. The decrease in revenue in the second quarter of 2020 was primarily due to the COVID-19 pandemic which resulted in lower sales volumes for regen and merchant acid and sulphur products. These factors, particularly the reduction in regen volume, were the primary reasons for EBITDA during the second quarter of 2020 of $31.6 million being $13.7 million lower than the second quarter of 2019.
The Water Products and Specialty Chemicals (“WSSC”) segment reported second quarter revenue of $113.5 million compared with $115.5 million in 2019. The slight decrease is due to lower sales volumes of water solutions products and lower sales volumes of specialty chemical products, partially offset by higher selling prices for water solutions products. EBITDA improved to $27.2 million from the $20.9 million generated in 2019. The improvement was due to higher margins for water products, which benefitted from higher selling prices and lower raw material costs.
The EC segment reported revenue of $130.1 million for the second quarter of 2020, which was $24.7 million lower than the same period of 2019. The lower revenue in the second quarter of 2020 was primarily due to a 37% decrease in chlor-alkali sales volumes, a decrease of 39% in selling prices for HCl, and a decrease of 15% in selling prices for caustic soda. This was partially offset by a 6% increase in selling prices for chlorine. EBITDA of $36.0 million for the second quarter of 2020 was $10.4 million lower than the same period of 2019. This was primarily due to lower selling prices for both caustic soda and HCl, as well as the effect of operating the North Vancouver facility at reduced rates. The plant’s production rate was constrained by reduced demand for HCl. In the second quarter, netbacks, i.e., selling prices less freight, for HCl were 54% lower compared with the same period of 2019.
Corporate costs during the second quarter of 2020 were $19.4 million, compared with $21.3 million in the second quarter of 2019. The lower costs were primarily due to lower incentive compensation accruals.
Mr. Davis said, “While the effects of COVID-19 are far reaching, they should not have a material effect on certain of our businesses, such as the water business. We expect that COVID-19 will continue to negatively affect our regen business, but to a lesser extent than we had forecasted at the end of the first quarter. We have also started to see some lower demand for sodium chlorate as demand for printing paper has declined with large numbers of people working from home. When the economy returns to more normal course activity, we expect to see demand for our products increase. While we have not reinstated our Guidance, the Financial Outlook section of the second quarter MD&A does include updates on certain assumptions, while cautioning that the situation remains very fluid. The comments contained there are based on input from customers which can, and likely will, change over time.”
Distributions & Distribution Reinvestment Plan
Distributions declared in the second quarter totalled $0.15 per unit, comprised of monthly Distributions of $0.05 per unit. In July 2020, Chemtrade established a Distribution Reinvestment Plan that became available with the July distribution, which is payable at the end of August 2020. The plan provides a way for unitholders to accumulate additional Chemtrade units without fees and currently includes a 3% bonus distribution.