21:07:49 EDT Fri 29 May 2020
Enter Symbol
or Name
USA
CA



Login ID:
Password:
Save

Chemtrade loses $131.51M from 2018 continuing ops

2019-02-13 19:45 ET - News Release

Mr. Mark Davis reports

CHEMTRADE LOGISTICS INCOME FUND REPORTS FULL YEAR 2018 AND FOURTH QUARTER RESULTS

Chemtrade Logistics Income Fund has released its results from continuing operations for the three months and year ended Dec. 31, 2018. The financial statements and MD&A (management's discussion and analysis) will be available on Chemtrade's website and on SEDAR.

Revenue from continuing operations for the fourth quarter of 2018 was $390.8-million, which was $4.1-million higher than the fourth quarter of 2017, largely due to higher revenues in the water solutions and specialty products (WSSC) segment.

Net loss from continuing operations for the fourth quarter of 2018 was $97.2-million, compared with net earnings from continuing operations of $45.5-million in 2017, which included a tax recovery of $61.5-million compared with $10.7-million in 2018. During the fourth quarter of 2018, a goodwill impairment of $90.0-million related to the water products business was recorded.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations (1) for the fourth quarter of 2018 was $65.0-million compared with $61.5-million in the fourth quarter of 2017. The increase in adjusted EBITDA is mainly attributable to lower corporate costs, including lower incentive compensation accruals.

Cash flows from operating activities were $79.9-million compared with $62.2-million during the fourth quarter of 2017. Adjusted cash flows from operating activities from continuing operations (1) were $48.7-million compared with $41.4-million generated during the fourth quarter of 2017. Distributable cash after maintenance capital expenditures from continuing operations (1) for the fourth quarter of 2018 was $17.3-million or 19 cents per unit compared with $6.7-million or seven cents per unit in 2017.

For the full-year 2018, consolidated revenue from continuing operations was $1.6-billion, which was $126.6-million higher than 2017. The increase was due primarily to the full-year contributions from the acquired businesses compared with less than 10 months in 2017.

The full-year 2018 results include a litigation reserve of $100.0-million established in the second and third quarters to cover the costs of resolving the civil actions commenced against General Chemical entities acquired by Chemtrade in 2014. This is related to conduct that occurred prior to Chemtrade's acquisition of General Chemical. The results also include $7.4-million of costs incurred to repay certain Canexus senior notes and another small project financing loan that was inherited as part of another acquisition. Adjusted EBITDA for 2018 includes the litigation reserve and distributable cash for 2018 includes both the litigation reserve and the loan repayment costs.

Adjusted EBITDA from continuing operations for 2018 before the litigation reserve was $296.2-million compared with $301.7-million in the previous year, before severances, accruals for an onerous lease and Canexus acquisition costs incurred during that year. Distributable cash from continuing operations after maintenance capital expenditures and before the litigation reserve and loan repayment costs was $149.0-million or $1.61 per unit, compared with $157.7-million, or $1.79 per unit in 2017 (excluding the foreign exchange loss and acquisition-related costs incurred in 2017). The per-unit amounts are based on a weighted average number of units outstanding of 92.6 million units in 2018, versus 88.2 million units outstanding in 2017.

Chemtrade's president and chief executive officer, Mark Davis, said: "Our results for 2018 were disappointing and reflect the challenges we faced during the year. We took action on most of these issues, which will drive improvements in 2019 and future years. It's clear that improved execution by Chemtrade and our suppliers will improve results and remains our key focus."

In the fourth quarter of 2018, the sulphur products and performance chemicals (SPPC) segment generated revenue of $129.1-million, essentially the same as the $129.0-million generated in 2017. However, adjusted EBITDA for the quarter was $17.3-million, which was $7.1-million lower than 2017. From a revenue perspective, higher prices for merchant sulphuric acid helped to offset the impact of lower volumes due to reduced availability of merchant sulphuric acid supply. The decrease in adjusted EBITDA was driven by several factors. From a merchant acid perspective, margins were flat despite the revenue increase due to lower volume, contractual sharing some of the price increases with suppliers, and higher raw material and freight costs. Adjusted EBITDA was negatively affected by unplanned downtime at a few customers' sites and an extended maintenance outage at a regen customer. Results were also negatively affected by an extended outage at one of Chemtrade's large regen plants, which resulted in higher costs to outsource the processing of a customer's product.

The WSSC segment reported fourth quarter revenue of $102.4-million compared with $95.2-million in 2017. Adjusted EBITDA was $11.9-million compared with $15.0-million generated in 2017. The increased revenue was mainly due to higher volumes and selling prices of water products. However, despite increasing prices, the rising raw materials costs continue to squeeze margins. Margins are expected to improve as contracts are renewed at prices reflecting the higher raw material costs. During the quarter, two specialty chemicals customers (for potassium chloride (KCl) and phosphorus pentasulphide (P2S5)) significantly reduced their purchases. A return to historic buying levels is expected once the customers' inventory levels are normalized, although in the case of KCl this may take over one year. Therefore, additional sales opportunities are being actively pursued. Until recently, this business's facility was operating at full capacity.

The electrochemicals (EC) segment reported revenue of $159.3-million and adjusted EBITDA of $46.2-million for the fourth quarter, both of which were close to levels achieved in 2017. Lower caustic prices were offset by higher hydrochloric (HCl) acid prices. However, a sudden downturn in demand for HCl late in the second half of the quarter led to lower production of chlor-alkali. Although there has been some volatility in caustic soda prices recently, the long-term forecast for caustic soda pricing remains favourable.

Corporate costs during the fourth quarter of 2018 were $10.4-million, compared with $24.6-million in the fourth quarter of 2017. The primary reason for the decrease was an accrual in the fourth quarter of 2017 of $8.6-million related to the Calgary Canexus office lease. Also, long-term incentive plan and incentive compensation costs in the fourth quarter of 2018 were $6.4-million lower than the fourth quarter of 2017.

Mr. Davis said: "The market supply/demand characteristics for most of our products are quite favourable. The current strong pricing environment for sulphuric acid and alum will have a beneficial effect on earnings as renewed contracts with customers reflect the higher prices and cost recoveries. The forecasted mid-to-long-term pricing of caustic soda is expected to support solid results for our chlor-alkali business for the next several years."

Distributions

Distributions declared in the fourth quarter totalled 30 cents per unit, comprising monthly distributions of 10 cents per unit.

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 phosphorus pentasulphide. Chemtrade is a leading regional supplier of sulphur, chlor-alkali products, liquid sulphur dioxide, potassium chloride, sodium hydrosulphite and zinc oxide. Additionally, Chemtrade provides industrial services such as processing byproducts and waste streams.

(1) Non-IFRS (international financial reporting standards) 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 writedown 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 with similar measures presented by other organizations.

                            RECONCILIATION OF NET EARNINGS TO EBITDA AND ADJUSTED EBITDA 
                                              (in thousands of dollars)

                                                             Three months ended                         Years ended 
                                                 Dec. 31, 2018    Dec. 31, 2017      Dec. 31, 2018    Dec. 31, 2017
                           
Net (loss) earnings from continuing operations   $     (97,185)   $      45,457      $    (131,517)   $      78,822
Add
Depreciation and amortization                           53,840           55,880            214,507          204,447
Net finance costs                                       25,263           19,721             74,126           86,073
Income tax recovery                                    (10,648)         (61,464)           (48,680)         (92,692)
EBITDA from continuing operations                      (28,730)          59,594            108,436          276,650
Impairment of goodwill                                  90,000                -             90,000                -
(Gain) loss on disposal and writedown of assets          1,031              152             (4,039)           4,498
Unrealized foreign exchange loss (gain)                  2,696            1,708              1,826            2,027
Adjusted EBITDA from continuing operations       $      64,997    $      61,454      $     196,223    $     283,175

We seek Safe Harbor.

© 2020 Canjex Publishing Ltd. All rights reserved.