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Chemtrade Logistics Income Fund
Symbol CHE
Shares Issued 92,596,006
Close 2020-02-20 C$ 9.12
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Chemtrade Logistics loses $99.65-million in 2019

2020-02-20 17:11 ET - News Release

Mr. Mark Davis reports

CHEMTRADE LOGISTICS INCOME FUND REPORTS FULL YEAR 2019 AND FOURTH QUARTER RESULTS

Chemtrade Logistics Income Fund has released its results for the three months and year ended Dec. 31, 2019. The financial statements and management's discussion and analysis (MD&A) will be available on Chemtrade's website and on SEDAR.

Chemtrade's president and chief executive officer, Mark Davis, said: "Our results for 2019 reflect the successful execution of the initiatives we undertook in 2018 and 2019 to adjust to the changes in market conditions. Our ability to improve day-to-day operational execution bore substantial benefits. In general, our plants operated efficiently, and supply chain and logistics movements were executed well. The weakness in our aggregate financial results was due to the continuing low price for caustic soda."

The 2019 results include the application of IFRS 16 (international financial reporting standards) at Jan. 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.

Revenue for the fourth quarter of 2019 was $355.2-million, a decrease of $35.6-million from 2018. The decrease was primarily due to lower prices for caustic soda and hydrochloric acid (HCl) in the electrochemicals (EC) segment. These decreases more than offset higher selling prices for water products.

Net loss for the fourth quarter of 2019 was $12.6-million, compared with $97.2-million for the fourth quarter of 2018, which included a goodwill impairment of $90.0-million related to the water products business.

Adjusted EBITDA (1) for the fourth quarter of 2019 was $70.3-million, compared with $65.0-million in the fourth quarter of 2018. Strong results in the sulphur products and performance chemicals (SPPC) and water solutions and specialty chemicals (WSSC) segments were more than offset by the EC segment where adjusted EBITDA was $19.2-million lower than 2018, excluding the $7.2-million benefit from IFRS 16.

Cash flows from operating activities were $60.7-million, compared with $79.9-million during the fourth quarter of 2018. Adjusted cash flows from operating activities (1) were $38.3-million, compared with $48.7-million generated during the fourth quarter of 2018. Distributable cash after maintenance capital expenditures (1) for the fourth quarter of 2019 was $1.4-million or two cents per unit, compared with $17.3-million or 19 cents per unit in 2018.

For the full year 2019, consolidated revenue was $1.5-billion, which was $62.9-million lower than 2018. The decrease was due primarily to lower selling prices for caustic soda and hydrochloric acid, partially offset by higher selling prices and higher sales volumes for water products in WSSC and higher selling prices for sulphuric acid.

The full-year results for 2019 and 2018 include a litigation reserve of $40.0-million and $100.0-million, respectively, to cover the costs of resolving the civil actions commenced against General Chemical entities related to the antitrust matter inherited with Chemtrade's acquisition of General Chemical in 2014. The 2018 results also include $7.4-million of costs incurred to repay certain Chemtrade Electrochem (formerly, Canexus) senior notes and another small project financing loan that was inherited as part of another acquisition. Adjusted EBITDA and distributable cash after maintenance capital expenditures for 2019 and 2018 include the litigation reserve, and distributable cash for 2018 includes the loan repayment costs.

Adjusted EBITDA for 2019 before the litigation reserve was $335.6-million compared with $296.2-million in the previous year. Distributable cash after maintenance capital expenditures, and before the litigation reserve and loan repayment costs, was $122.1-million or $1.32 per unit, compared with $149.0-million or $1.61 per unit in 2018.

In the fourth quarter of 2019, the SPPC segment generated revenue of $117.3-million, compared with $129.1-million in 2018. Adjusted EBITDA for the quarter was $34.2-million, which was $17.0-million higher than 2018. While IFRS 16 contributed $5.8-million to the improvement, the majority of the increased adjusted EBITDA came from improvements in the business itself. Despite sales volumes being lower than last year due to reduced byproduct supply, higher selling prices for sulphuric acid combined with better operations resulted in significantly higher margins. There was also a lower-than-normal level of maintenance turnaround activity in 2019.

The WSSC segment reported fourth quarter revenue of $101.8-million, compared with $102.4-million in 2018. Adjusted EBITDA improved to $14.6-million, including the positive IFRS 16 impact of $1.0-million, compared with $11.9-million generated in 2018. The results reflected increased selling prices for water products and stable raw material costs, resulting in expanded margins. This was partially offset by lower results for specialty chemicals.

The EC segment reported revenue of $136.1-million for the fourth quarter of 2019, which was $23.2-million lower than the same period of 2018. The lower revenue was due to lower selling prices for caustic soda and for HCl. For the fourth quarter of 2019, caustic soda prices were 15 per cent lower than the fourth quarter of 2018. HCl selling prices and netbacks were lower by 21 per cent and 27 per cent, respectively. From an EBITDA perspective, excluding the $7.2-million benefit from IFRS 16, adjusted EBITDA for the fourth quarter of 2019 was $19.2-million lower than the same period of 2018. This was primarily due to lower selling prices for both caustic soda and HCl. The week-long CN rail strike in November also had a negative impact on EBITDA of roughly $3.0-million.

Corporate costs during the fourth quarter of 2019 were $12.7-million, including a positive IFRS 16 impact of $400,000, compared with $10.4-million in the fourth quarter of 2018.

Mr. Davis said: "We continue to pursue further improvements in all areas of our operations. The main impediment to improved near-term financial results is the disappointing price for caustic soda. The longer-term outlook for caustic soda pricing is favourable and we are well positioned to take advantage of the recovery when it occurs. Other factors that are expected to affect our results in 2020 are the continued weakness in HCl prices and a larger number of plant turnarounds in 2020 relative to 2019."

Chemtrade's guidance for adjusted EBITDA in 2020 is $300.0-million to $350.0-million. Further details of this, including updated assumptions, are contained in Chemtrade's fourth quarter management's discussion and analysis.

Mr. Davis also commented on two macrofactors that could have a significant impact on Chemtrade's operations and results.

"The first is a disruption in rail service as a result of blockades in various parts of Canada. We and our suppliers and customers rely on rail to transport a large portion of our products and in most cases, there is no viable alternative mode of transportation. The second is the effect of the COVID-19 virus on the Asian chlor-alkali industry and the broader global economy. Recent reports show that the virus is resulting in a reduction in the operating rates for the chlor-alkali industry in Asia. The price we realize for caustic soda is heavily influenced by the Northeast Asia spot price for caustic soda. Due to the nature of both these issues, it is difficult for us to estimate their effect on our operations and financial results."

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.

(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 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.

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

                                                Three months ended Dec. 31,           Years ended Dec. 31,
                                                       2019           2018           2019            2018    
                                                                                                    
Net (loss)                                      $   (12,597)   $   (97,185)   $   (99,654)   $   (131,517)
Add                                                                                                
Depreciation and amortization                        65,422         53,840        262,458         214,507  
Net finance costs                                    12,490         25,263         88,487          74,126   
Income tax expense (recovery)                         4,410        (10,648)       (24,291)        (48,680) 
EBITDA                                               69,725        (28,730)       227,000         108,436  
Add                                                                                                
Impairment of goodwill                                    -         90,000         65,600          90,000   
Loss (gain) on disposal and writedown of assets       3,268          1,031         13,790          (4,039)  
Unrealized foreign exchange (gain) loss              (2,660)         2,696        (10,787)          1,826    
Adjusted EBITDA                                 $    70,333    $    64,997    $   295,603    $    196,223  

                                        SEGMENTED INFORMATION
                              (in thousands of dollars, except volumes)

                                                Three months ended Dec. 31,           Years ended Dec. 31,
                                                       2019           2018           2019            2018    
SPPC                                                                                                     
Revenue                                        $    117,286   $    129,082   $    502,604    $    509,765 
Gross profit                                         14,313          1,023         60,207          28,041  
Adjusted EBITDA                                      34,242         17,254        160,744          86,418  
(Loss) gain on disposal and 
writedown of assets                                    (966)        (1,031)       (10,939)          4,039   
EBITDA                                         $     33,276   $     16,223   $    149,805    $     90,457 

                                                Three months ended Dec. 31,           Years ended Dec. 31,
                                                       2019           2018           2019            2018    
WSSC                                                                                             
Revenue                                        $    101,845   $    102,442   $    445,175    $    430,311  
Gross profit                                          3,601        (88,188)       (30,856)        (55,106) 
Adjusted EBITDA                                      14,642         11,929         77,903          77,300   
Impairment of goodwill                                    -        (90,000)       (65,600)        (90,000)
(Loss) on disposal and 
writedown of assets                                  (2,313)             -         (3,970)              -
EBITDA                                         $     12,329   $    (78,071)  $      8,333    $    (12,700) 

                                                Three months ended Dec. 31,           Years ended Dec. 31,
                                                       2019           2018           2019            2018    
EC
North American sales volumes
Sodium chlorate sales volume (000 MT)                    98            101            392             406
Chlor-alkali sales volume (000 MECU)                     38             43            178             172
Revenue                                        $    136,084   $    159,276   $    585,076    $    655,671 
Gross profit                                          5,839         25,797         67,972         113,848 
Adjusted EBITDA                                      34,101         46,196        171,399         193,442
(Loss) gain on disposal and 
writedown of assets                                    (167)             -            706               -
EBITDA                                         $     33,934   $     46,196   $    172,105    $    193,442

We seek Safe Harbor.

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