News Press Releases

Chemtrade Logistics Income Fund Reports Second Quarter 2019 Results

T.CHE.DB.E | August 13, 2019

TORONTO

Announces plans to sell two Specialty Chemical businesses

Chemtrade Logistics Income Fund (TSX: CHE.UN) today announced results for the three months and six months ended June 30, 2019. 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 also announced that it has decided to sell its Potassium Chloride business located in Midlothian, Texas and its Vaccine Adjuvants business in Berkeley Heights, New Jersey. Although no sale has been concluded, the decision to sell requires the businesses to be reclassified as Assets Held for Sale. These businesses generated approximately US$14.0 million of Adjusted EBITDA for the twelve months ended June 30, 2019. This has also resulted in a non-cash goodwill impairment charge (“Goodwill Impairment”) of the remaining specialty chemicals of US$50.0 million, in the second quarter.

2019 results include the application of IFRS 16 at January 1, 2019. In relation to leases that were previously classified as operating leases, Chemtrade now recognizes depreciation and interest expense, instead of operating lease expense. This results in an increase in EBITDA, but it does not affect Distributable Cash after maintenance capital expenditures. Also, comparative information is not restated.

The second quarter results for 2018 and the first quarter results for 2019 include, respectively, a litigation reserve (“Litigation Reserve”) of $65.0 million and an increase in the reserve of $40.0 million to cover the costs of resolving the civil actions commenced against General Chemical entities related to the anti-trust matter inherited with Chemtrade’s acquisition of General Chemical in 2014. The Litigation Reserve and the increase in the reserve are reflected in both EBITDA and Distributable Cash after maintenance capital expenditures for the second quarter and first six months of 2018 and for the first six months of 2019.

Revenue for the second quarter of 2019 was $396.7 million, which was $8.5 million lower than the second quarter of 2018. The primary reason for the decline was lower revenue in the Electrochemicals (“EC”) segment.

Net loss for the second quarter of 2019 was $57.6 million, compared with a net loss of $50.4 million in 2018. Excluding the Goodwill Impairment in 2019 and the Litigation Reserve in 2018, net earnings were $8.0 million in 2019 compared with $14.6 million in 2018.

Adjusted EBITDA⁽¹⁾ for the second quarter of 2019 was $91.3 million compared with $70.5 million in the second quarter of 2018, excluding the Litigation Reserve. The increase in Adjusted EBITDA is due to better results in the Sulphur Products & Performance Chemicals (“SPPC”) segment and due to the adoption of IFRS 16, which had a positive impact of $13.6 million.

Cash flows from operating activities were $51.8 million compared with $27.0 million during the second quarter of 2018. Adjusted cash flow from operating activities⁽¹⁾ was $58.2 million compared with adjusted cash flows used in operating activities of $19.7 million generated during the second quarter of 2018.

Distributable Cash after maintenance capital expenditures⁽¹⁾ for the second quarter of 2019 was $41.0 million or $0.44 per unit compared with $33.6 million or $0.36 per unit in 2018 (excluding the Litigation Reserve and financing costs of $7.4 million).

For the six months ended June 30, 2019, excluding the Litigation Reserve, Distributable Cash after maintenance capital expenditures was $83.5 million, or $0.90 per unit compared with $77.8 million, or $0.84 per unit in 2018, excluding the Litigation Reserve and financing costs. Revenue for the six months was $782.0 million (2018: $786.8 million). Adjusted EBITDA was $135.2 million (2018: $77.4 million). Adjusted cash flow from operating activities was $69.7 million (2018: $34.4 million).

Chemtrade President and Chief Executive Officer, Mark Davis, said, “Our plants performed well in the second quarter. The benefits of the initiatives we implemented last year were evident in our second quarter results, particularly in the SPPC segment. We have successfully adapted the sulphuric acid business to reflect the reduced supply of byproduct acid. These initiatives along with higher selling prices generated strong results in SPPC. In our Water Solutions and Specialty Chemicals (“WSSC”) segment, water treatment contract renewals are being made at rates that more than offset increased raw material cost increases. Some of this improvement, however, was offset by weakness in certain specialty chemical products. Our EC segment continued to be affected by low caustic soda and hydrochloric acid (“HCl”) prices.”

In the second quarter of 2019, SPPC generated revenue of $126.4 million compared to $128.5 million in 2018. Adjusted EBITDA for the quarter was $45.3 million, which was $19.6 million higher than 2018. SPPC benefited from better operations, including adjustments in sales to reflect reduced supply of byproduct acid. Also, selling prices for merchant sulphuric acid continued to be strong and more than offset the effect of lower sales volumes. The balance includes the positive impact of IFRS 16 of $5.5 million and a $2.6 million recovery related to the settlement of a claim related to the failure of capital equipment at one of the acid manufacturing plants. There were also fewer plant turnarounds in the second quarter of 2019 compared with last year.

The WSSC segment reported second quarter revenue of $115.5 million compared with $112.4 million in 2018. Adjusted EBITDA was $20.9 million, including the positive IFRS 16 impact of $1.0 million, compared with $22.4 million generated in 2018. Selling prices for water products more than offset higher raw material costs. However, the positive impact of improved performance of water products was more than offset by lower volumes for specialty chemicals.

The EC segment reported revenue of $154.8 million for the second quarter of 2019, which was $9.6 million lower than the same period of 2018. Although volumes were higher than last year when the North Vancouver plant had an extended maintenance outage, continued weakness in selling prices for caustic soda and HCl more than offset the benefit of higher volumes. Chlorate volumes were lower due to reduced demand from pulp mills. Adjusted EBITDA for the second quarter of 2019, including the $6.7 million benefit from IFRS 16, was $5.5 million higher than the same period of 2018. Ignoring the benefit of IFRS 16 on 2019 results, Adjusted EBITDA in the second quarter of 2019 was slightly lower than 2018. Selling prices for caustic soda and HCl during the second quarter of 2019 were significantly lower than the second quarter of 2018. However, this was almost fully offset by higher volumes of caustic soda and reduced costs compared to 2018 that included the costs to repair the piping issue at the North Vancouver plant.

Corporate costs during the second quarter of 2019 were $21.3 million, including a positive IFRS 16 impact of $0.4 million, compared with $18.5 million in the second quarter of 2018, excluding the Litigation Reserve in 2018. The second quarter of 2019 includes a foreign exchange loss of $2.8 million compared to a loss of $3.8 million in 2018.

Mr. Davis said, “We were pleased with the performance of our businesses in the second quarter, and for the first half of this year. Although caustic soda prices are disappointing, the long-term outlook remains positive. We believe the sale of our two specialty chemical businesses, if concluded, will be a positive development for Chemtrade, allowing us to pay down long-term debt, strengthen our balance sheet and provide added flexibility to pursue further organic and other growth opportunities.”

Despite the near-term weakness in chlor-alkali products, Chemtrade is maintaining its Adjusted EBITDA guidance for 2019, although it now believes that it will be at the lower end of the range. Further details of this, including updated assumptions are contained in Chemtrade’s second quarter Management’s Discussion and Analysis.

Distributions

Distributions declared in the second quarter totalled $0.30 per unit, comprised of monthly Distributions of $0.10 per unit.

About Chemtrade

Chemtrade operates a diversified business providing industrial chemicals and services to customers in North America and around the world. Chemtrade is one of North America’s largest suppliers of sulphuric acid, spent acid processing services, inorganic coagulants for water treatment, sodium chlorate, sodium nitrite, sodium hydrosulphite and phosphorus pentasulphide. Chemtrade is a leading regional supplier of sulphur, chlor-alkali products, liquid sulphur dioxide, potassium chloride, and zinc oxide. Additionally, Chemtrade provides industrial services such as processing by-products and waste streams.

⁽¹⁾Non–IFRS Measures

EBITDA and Adjusted EBITDA –

Management defines EBITDA as net earnings before any deduction for net finance costs, taxes, depreciation and amortization. Adjusted EBITDA also excludes other non-cash charges such as gains and losses on the disposal and write-down of assets, and unrealized foreign exchange gains and losses. EBITDA and Adjusted EBITDA are metrics used by many investors and analysts to compare organizations on the basis of ability to generate cash from operations. Management considers Adjusted EBITDA (as defined) to be an indirect measure of operating cash flow, which is a significant indicator of the success of any business. Adjusted EBITDA is not intended to be representative of cash flow from operations or results of operations determined in accordance with IFRS or cash available for distribution.

EBITDA and Adjusted EBITDA are not recognized measures under IFRS. Chemtrade's method of calculating EBITDA and Adjusted EBITDA may differ from methods used by other income trusts or companies, and accordingly may not be comparable to similar measures presented by other organizations.

A reconciliation of net earnings to EBITDA and Adjusted EBITDA is provided below:

	Three months ended				Six months ended
($’000)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018

Net (loss) earnings from continuing operations	$	(57,576)	$	(50,442)	$	(86,894)	$	(43,526)
Add:
Depreciation and amortization		64,192		54,734		131,656		107,071
Net finance costs		26,211		20,099		53,322		35,771
Income tax recovery		(2,342)		(24,461)		(19,876)		(27,405)
EBITDA from continuing operations		30,485		(70)		78,208		71,911

Impairment of goodwill		65,600		-		65,600		-
Loss on disposal and write-down of assets		302		3,458		605		3,343
Unrealized foreign exchange loss (gain)		(5,110)		2,089		(9,173)		2,194
Adjusted EBITDA from continuing operations	$	91,277	$	5,477	$	135,240	$	77,448

Segmented information
*SPPC -*
	Three months ended				Six months ended
($’000)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018

Revenue	$	126,441	$	128,477	$	257,520	$	251,111
Gross Profit		18,325		4,432		34,808		12,012

Adjusted EBITDA		45,288		25,661		82,813		46,927
Loss on disposal and write- down of assets		(754)		(3,468)		(752)		(3,343)
EBITDA	$	44,534	$	22,193	$	82,061	$	43,584

*WSSC -*
	Three months ended				Six months ended
($’000)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018

Revenue	$	115,508	$	112,375	$	220,898	$	211,268
Gross Profit		(53,481)		13,737		(47,293)		21,680

Adjusted EBITDA		20,859		22,412		38,926		41,257
Impairment of goodwill		(65,600)		-		(65,600)		-
Gain (loss) on disposal and write-down of assets		2		10		4		-
EBITDA	$	(44,739)	$	22,422	$	(26,670)	$	41,257

*EC -*
	Three months ended				Six months ended
($’000)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
North American Sales Volumes:
Sodium Chlorate Sales Volume (000's MT)		95		104		196		202
Chlor-alkali Sales Volume (000's MECU)		52		37		91		81

Revenue	$	154,786	$	164,428	$	303,569	$	324,374
Gross Profit		22,874		20,757		44,638		50,690

Adjusted EBITDA		46,400		40,903		94,494		90,125
Gain (loss) on disposal and write-down of assets		1,055		-		1,051		-
EBITDA	$	47,455	$	40,903	$	95,545	$	90,125

Cash Flow –

Management believes supplementary disclosure related to the cash flows of the Fund including the amount of cash available for distribution to Unitholders, repayment of debt and other investing activities provides useful additional information. A cash flows table presenting this information is included in the Fund’s MD&A filed on SEDAR. The table is derived from, and should be read in conjunction with, the consolidated statements of cash flows. Certain sub-totals presented within the cash flows table, such as “Adjusted cash flows from operating activities”, “Distributable Cash after maintenance capital expenditures” and “Distributable Cash after all capital expenditures”, are not defined terms under IFRS. These sub-totals are used by Management as measures of internal performance and as a supplement to the consolidated statements of cash flows. Investors are cautioned that these measures should not be construed as an alternative to using net earnings as a measure of profitability or as an alternative to the IFRS consolidated statements of cash flows. Further, Chemtrade's method of calculating each measure may not be comparable to calculations used by other income trusts or companies bearing the same description.

A reconciliation of these supplementary cash flow measures to cash flow from operating activities is provided below:

	Three months ended		Six months ended
($'000)	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018

Cash flow from operating activities	$ 51,826	$ 27,007	$ (1,644)	$ 62,044
Add (deduct):
Lease Payments ⁽¹⁾	(13,842)	-	(28,485)	-
Changes in non-cash working capital and other items	20,233	(46,714)	99,815	(27,660)
*Adjusted cash flows (used in) from operating activities of continuing operations*	58,217	(19,707)	69,686	34,384
Less:
Maintenance capital expenditure	17,246	19,074	26,204	29,006
*Distributable cash after maintenance capital expenditure from continuing operations*	40,971	(38,781)	43,482	5,378
Less:
Non-maintenance capital expenditure ⁽²⁾	2,759	3,052	5,201	4,554
*Distributable cash after all capital expenditure from continuing operations*	$ 38,212	$ (41,833)	$ 38,281	$ 824
⁽¹⁾ Chemtrade initially applied IFRS 16 at January 1, 2019. In applying IFRS 16, in relation to the leases that were previously classified as operating leases, Chemtrade recognizes depreciation and interest expense, instead of operating lease expense. Cash flow from operating activities for the three and six months ended June 30, 2018 included lease expenses of $13.6 million and $27.8 million, respectively. Chemtrade applied IFRS 16 using the modified retrospective approach, under which comparative information is not restated. ⁽²⁾ Non-maintenance capital expenditures are: (a) pre-identified or pre-funded, usually as part of a significant acquisition and related financing; (b) considered to expand the capacity of Chemtrade's operations; (c) significant environmental capital expenditures that are considered to be non-recurring; or (d) capital expenditures to be reimbursed by a third party.

Caution Regarding Forward-Looking Statements

Certain statements contained in this news release constitute forward-looking statements within the meaning of certain securities laws, including the Securities Act (Ontario). Forward-looking statements can be generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “expected”, “intend”, “may”, “will”, “project”, “plan”, “should”, “believe” and similar expressions. Specifically, forward-looking statements in this news release include statements respecting certain future expectations about: the long-term outlook; the effect of a possible sale of the two specialty chemical businesses and its ability to allow Chemtrade to reduce debt, strengthen the balance sheet and add flexibility to pursue growth opportunities; the Fund’s expected adjusted EBITDA range and expected placement within that range for 2019. Forward-looking statements in this news release describe the expectations of the Fund and its subsidiaries as of the date hereof. These statements are based on assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including without limitation the risks and uncertainties detailed under the “RISK FACTORS” section of the Fund’s latest Annual Information Form and the “RISKS AND UNCERTAINTIES” section of the Fund’s most recent Management’s Discussion & Analysis.

Although the Fund believes the expectations reflected in these forward-looking statements and the assumptions upon which they are based are reasonable, no assurance can be given that actual results will be consistent with such forward-looking statements, and they should not be unduly relied upon. With respect to the forward-looking statements contained in this news release, the Fund has made assumptions regarding: there being no significant disruptions affecting the operations of the Fund and its subsidiaries, whether due to labour disruptions, supply disruptions, power disruptions, transportation disruptions, damage to equipment or otherwise; the ability of the Fund to obtain products, raw materials, equipment, transportation, services and supplies in a timely manner to carry out its activities and at prices consistent with current levels or in line with the Fund’s expectations; the timely receipt of required regulatory approvals; the cost of regulatory and environmental compliance being consistent with current levels or in line with the Fund’s expectations; the ability of the Fund to successfully access tax losses and tax attributes; the ability of the Fund to obtain financing on acceptable terms; currency, exchange and interest rates being consistent with current levels or in line with the Fund’s expectations; and global economic performance.

Except as required by law, the Fund does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement.

Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available at www.sedar.com.

A conference call to review the second quarter 2019 results will be webcast live on Wednesday, August 14, 2019 at 9:30 a.m. ET. To access the webcast click here.