Mr. Rohit Bhardwaj reports

CHEMTRADE LOGISTICS INCOME FUND REPORTS FOURTH QUARTER AND RECORD FULL YEAR RESULTS FOR 2023

Chemtrade Logistics Income Fund today released its results for the three months and year ended Dec. 31, 2023. The financial statements and MD&A (management's discussion and analysis) will be available on Chemtrade's website and on SEDAR+.

Full year 2023 highlights

• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $502.6-million, an increase of $71.8-million or 16.7 per cent year over year, reflecting both higher revenue and improved margins. This is the highest level of adjusted EBITDA ever generated by Chemtrade. The increase over 2022 was driven by higher-selling prices for sodium chlorate in the electrochemicals (EC) segment, higher-selling prices for water products in the sulphur and water chemicals (SWC) segment, and the benefit of a weaker Canadian dollar relative to the United States dollar.
• Distributable cash after maintenance capital expenditures of $283.0-million, an increase of $67.9-million or 31.6 per cent year over year, with a distribution payout ratio of 25 per cent for the 12 months ended Dec. 31, 2023.
• Cash flows from operating activities of $401.5-million, an increase of $32.3-million or 8.7 per cent year over year.
• Revenue of $1,846.8-million, an increase of $33.4-million or 1.8 per cent year over year, mainly due to the weaker Canadian dollar during 2023 compared with 2022. higher-selling prices across numerous key products offset lower volumes of merchant sulphuric acid and sodium chlorate.
• Net earnings of $249.3-million, an increase of $140.2-million or 128.5 per cent year over year.
• Continued balance sheet improvement, with a reduction in total debt of $215.3-million, a 24-per-cent decline from the start of the year and net debt to adjusted EBITDA ratio declined to 1.7 times at year-end from 2.2 times at the end of 2022.
• Reaffirming 2024 adjusted EBITDA guidance of $395.0-million to $435.0-million. Increased monthly distribution by 10 per cent and suspended the distribution reinvestment plan (DRIP).

Fourth quarter 2023 highlights

• Revenue of $422.0-million, a decrease of $34.7-million or 7.6 per cent year over year, driven by lower prices for merchant acid, sulphur products and caustic soda, which was partially offset by higher prices for water products, sodium chlorate, Regen acid and chlorine.
• Net earnings of $11.7-million, an increase of $23.4-million year over year, mainly due to lower income tax expenses in Q4 2023.
• Adjusted EBITDA of $84.6-million, a decrease of $19.6-million or 18.8 per cent year over year, reflecting reduced revenues, which more than offset improved margins for several products.
• Cash flows from operating activities of $98.6-million, a decrease of $6.0-million or 5.7 per cent year over year, mainly due to lower adjusted EBITDA and higher income taxes paid, partially offset by lower interest paid and changes in working capital.
• Distributable cash after maintenance capital expenditures of $13.5-million, a decrease of $29.9-million or 68.9 per cent year over year, reflecting lower cash flows from operating activities and higher maintenance capital expenditures during Q4 2023.

Scott Rook, president and chief executive officer of Chemtrade, commented on the fourth quarter and full year 2023 results: "The fourth quarter represented a successful end to what was another record year for Chemtrade, one in which we set a new high watermark for adjusted EBITDA. More than anything else, these strong results are reflective of the continued strong execution across Chemtrade's operations, from the plant floor through all levels to our senior leadership.

"Both of our operational segments generated improved adjusted EBITDA year over year in 2023. In the sulphur and water chemicals segment, the water solutions business was a standout performer, generating substantial margin expansion. The Regen acid business was also a meaningful contributor to growth in this segment, while reduced byproduct merchant acid supply and lower sodium nitrite volumes were partial offsets. In the electrochemicals segment, results were buoyed by very strong sodium chlorate performance in addition to improved chlorine and hydrochloric acid results, which more than offset the impact of weaker caustic soda pricing."

Mr. Rook continued: "Looking to 2024, we anticipate another successful year as we remain focused on executing with diligence and determination and our commitment to safety. We expect to complete and commission the expansion and upgrade of our Cairo, Ohio, ultrapure sulphuric acid facility this year. This plant will be the first in North America to meet the quality requirements for next-generation semiconductor nodes, furthering Chemtrade's position as the top North American supplier of ultrapure acid to the semiconductor industry. We also expect to make additional progress on other high-return organic growth projects during the year, including in our water solutions business, while remaining disciplined on balanced capital allocation and maintaining a strong balance sheet.

"We anticipate another solid year financially in 2024 and reaffirm our previously issued 2024 adjusted EBITDA guidance of $395.0-million to $435.0-million. While adjusted EBITDA is expected to be below the record level we achieved in 2023, achieving the midpoint of guidance of $415.0-million would represent the third highest adjusted EBITDA in our history. We believe that this midpoint, which is well above the level of earnings that Chemtrade generated pre-COVID, represents a normalized and sustainable level of mid-cycle earnings with the current business portfolio, reflective of the various strategic improvements we have undertaken in recent years," Mr. Rook concluded.

Consolidated financial summary of Q4 2023

Revenue for the fourth quarter of 2023 was $422.0-million, compared with $456.7-million in the fourth quarter of 2022. Excluding the impact of foreign exchange, revenue for the fourth quarter of 2023 was lower by $35.6-million. The lower revenue was primarily due to: (i) lower selling prices for merchant acid and sulphur products due to lower sulphur costs, and lower volumes of sodium nitrite and merchant acid in the SWC segment; and (ii) significantly lower selling prices for caustic soda and lower sales volumes of chlor-alkali products and sodium chlorate in the EC segment. Partial offsets to these factors included higher-selling prices for sodium chlorate, chlorine and hydrochloric acid in the EC segment, as well as higher-selling prices for water solutions products and higher volumes of Regen acid in the SWC segment.

Adjusted EBITDA for the fourth quarter of 2023 was $84.6-million, compared with $104.3-million in the fourth quarter of 2022. The decrease in adjusted EBITDA for the fourth quarter of 2023 was primarily due to: (i) lower gross profit for sodium nitrite and merchant acid in the SWC segment; and (ii) significantly lower selling prices for caustic soda in the EC segment. This decrease was partially offset by lower corporate costs.

Distributable cash after maintenance capital expenditures for the fourth quarter of 2023 was $13.5-million or 12 cents per unit, compared with $43.4-million or 38 cents per unit in the fourth quarter of 2022. This decrease primarily reflects the same factors that impacted adjusted EBITDA, as noted herein, higher income taxes paid and higher maintenance capital expenditures. Partial offsets to the decrease included lower interest paid and changes in working capital. Chemtrade's distribution payout ratio for the 12 months ended Dec. 31, 2023, was 25 per cent.

Chemtrade maintained a strong balance sheet through the fourth quarter of 2023. As of Dec. 31, 2023, Chemtrade's net debt to adjusted EBITDA ratio was 1.7 times, compared with 2.2 times at the end of 2022. This balance sheet improvement reflects a combination of cash generation, adjusted EBITDA growth, the sale of the P2S5 business in November, 2023, for gross proceeds of approximately $43.0-million (U.S.), and a reduction in debt. During 2023 Chemtrade reduced total debt by $215.3-million, a 24-per-cent decline from the start of the year. At the end of the fourth quarter of 2023, Chemtrade had $449.8-million (U.S.) undrawn on its revolving credit facilities, in addition to $21.5-million of cash on hand.

Segmented financial summary of Q4 2023

The SWC segment reported revenue of $243.8-million for the fourth quarter of 2023, compared with $264.7-million for the fourth quarter of 2022. Adjusted EBITDA in the SWC segment was $40.8-million for the fourth quarter of 2023, compared with $57.1-million for the fourth quarter of 2022.

The decrease in SWC revenue was primarily due to: (i) lower selling prices for merchant acid and sulphur products due to lower sulphur costs; (ii) lower volumes of sodium nitrite due to an extended turnaround; and (iii) lower volumes of merchant acid due to reduced byproduct supply. Partial offsets to the lower SWC revenue included higher volumes for Regen acid and higher-selling prices for water solutions products. The same factors that impacted SWC revenue also contributed to lower SWC adjusted EBITDA.

The EC segment reported revenue of $178.2-million for the fourth quarter of 2023, compared with $192.0-million for the fourth quarter of 2022. Adjusted EBITDA in the EC segment was $73.3-million for the fourth quarter of 2023, compared with $78.3-million for the fourth quarter of 2022.

The decreases in EC revenue and adjusted EBITDA were primarily due to significantly lower selling prices of caustic soda and lower sales volumes of chlor-alkali products and sodium chlorate. These factors were partially offset by significantly higher-selling prices for sodium chlorate, and higher-selling prices for chlorine and hydrochloric acid. MECU netbacks declined by approximately $220 year over year, excluding the impact of foreign exchange. Higher netbacks for chlorine and hydrochloric acid offset approximately 30 per cent of the decline in caustic soda.

Corporate costs for the fourth quarter of 2023 were $29.4-million, compared with $31.1-million in the fourth quarter of 2022. The decrease was primarily due to $1.8-million of lower long-term incentive plan costs and $200,000 of realized foreign exchange gains compared with $3.3-million of realized foreign exchange losses in the prior-year period. Partial offsets to this decrease were $2.1-million of higher short-term incentive compensation costs and higher discretionary spending year over year.

2024 guidance

Chemtrade is reaffirming its 2024 guidance, as set out herein and previously issued in January, 2024. Chemtrade expects adjusted EBITDA for 2024 to range between $395.0-million and $435.0-million. Based on the midpoint of the below guidance, including the anticipated spending on organic growth, Chemtrade expects to end 2024 with a net debt to adjusted EBITDA ratio below 2.0.

Chemtrade's adjusted EBITDA in 2024 is expected to be below the record high 2023 level, but still in the range of Chemtrade's second highest adjusted EBITDA, achieved in 2022. Further, Chemtrade considers the midpoint of 2024's anticipated adjusted EBITDA of $415-million to represent a sustainable level of mid-cycle earnings with the current business portfolio.

Chemtrade's guidance is based on numerous assumptions. Certain key assumptions that underpin the 2023 guidance are as follows:

• There will be no significant lockdowns or stay-at-home orders issued in North America due to a pandemic outbreak during 2024.
• None of the principal manufacturing facilities (as set out in Chemtrade's AIF) incurs significant unplanned downtime.
• No labour disruptions occur at any of Chemtrade's principal manufacturing facilities (as set out in Chemtrade's AIF).

The lower expected adjusted EBITDA for 2024 compared with 2023 is attributed to the following key factors:

• Lower average selling prices for caustic due to lower NE Asia index prices.
• Turnaround at North Vancouver chlor-alkali plant.
• Lower sales volumes of sodium chlorate.
• Higher cost of raw materials for water treatment chemicals.
• Stronger Canadian dollar relative to the U.S. dollar.

Update on organic growth projects

Chemtrade remains focused on its long-term objective of delivering sustained earnings growth and generating value for investors. To accomplish this, Chemtrade has identified various organic growth initiatives. In 2024, Chemtrade plans to invest between $60-million and $90-million in growth capital expenditures. This includes approximately $40-million for Chemtrade's ultrapure sulphuric acid (UPA) business, principally at the Cairo, Ohio, facility, with the remainder for water treatment chemicals and other organic growth projects.

The Cairo project is generally on track and the company expects to finish construction later this year. The company now expects costs to be between $60-million (U.S.) and $65-million (U.S.). Following startup later this year, the commercial ramp up will begin to take place in 2025. This will be the first UPA plant in North America that will meet the quality requirements for next-generation semiconductor nodes. As a result, completion of this project will further bolster Chemtrade's position as the top North American supplier of UPA to the semiconductor industry. The company will provide an update on the expected return on this project after the start-up of the project is complete.

Chemtrade also previously identified a second large UPA growth project, undertaken via a joint venture with KPCT Advanced Chemicals LLC and located in Casa Grande, Az. Together with its joint venture partner, Chemtrade made the decision to put the project on hold until it can be assured the project generates an acceptable level of return. Discussions with customers are continuing and the joint venture has applied for CHIPS Act funding.

Disposal of P2S5 business

On Nov. 8, 2023, Chemtrade completed the sale of its P2S5 business for gross proceeds of approximately 43.0-million (U.S.) ($58.9-million), which consisted of cash of approximately $39.4-million (U.S.) ($53.9-million) and the assumption of indebtedness (as defined in the sales agreement) of approximately $3.6-million (U.S.) ($4.9-million). After deducting a net working capital adjustment of approximately $1.0-million (U.S.) ($1.4-million), Chemtrade recorded a gain of $14.6-million (U.S.) ($20.1-million). Chemtrade also reclassified the cumulative amount of foreign exchange difference of $4.3-million from AOCI to net earnings. Combined, the total gain on disposal recorded was $24.3-million. The net proceeds were used to reduce borrowings from the credit facilities.

Distributions and capital allocation update

Distributions declared in the fourth quarter of 2023 (prior to the increase) totalled 15 cents per unit, comprised of monthly distributions of five cents per unit.

Chemtrade's management and board of trustees periodically assess Chemtrade's capital structure and capital allocation to ensure that it is positioned to deliver maximum long-term value to unitholders. Chemtrade's balance sheet has significantly improved over the past few quarters and leverage has decreased with a net debt to adjusted EBITDA ratio of 1.7 times at Dec. 31, 2023. Chemtrade's business has also strengthened as evidenced by two consecutive record years in terms of adjusted EBITDA generated. While 2023 is unlikely to represent a new adjusted EBITDA run rate, Chemtrade believes that its business has undergone a step-change improvement from the pre-COVID levels. In light of the improved sustainable long-term outlook for Chemtrade's cash flow, Chemtrade's board increased its monthly distribution by 10 per cent, from five cents per month to 5.5 cents per month on Jan. 15, 2024, effective with the distribution declared during the month of January, 2024. This distribution represents a payout ratio of 45 per cent based on the midpoint of Chemtrade's guidance for 2024.

In addition, as part of its updated capital structure and capital allocation strategy, Chemtrade also announced the suspension of its DRIP (dividend reinvestment plan), initiated during the COVID pandemic. The suspension of the DRIP is effective with the distribution declared in January, 2024, and payable in February, 2024, at which time all distributions of the fund will be paid only in cash.

The increase in the level of cash distributions is expected to have minimal impact on Chemtrade's leverage and is not expected to impede Chemtrade's ability to execute growth initiatives while maintaining a healthy balance sheet.

About Chemtrade Logistics Income Fund

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 and sodium hydrosulphite. Chemtrade is also the largest producer of high-purity sulphuric acid for the semiconductor industry in North America. Chemtrade is a leading regional supplier of sulphur, chlor-alkali products and zinc oxide. Additionally, Chemtrade provides industrial services such as processing byproducts and waste streams.

A conference call to review the fourth quarter and full year 2023 results will be webcast live on Wednesday, Feb. 21, 2024, at 10 a.m. ET.