Mr. Mark Davis reports
CHEMTRADE LOGISTICS INCOME FUND REPORTS FIRST QUARTER 2020 RESULTS
Chemtrade Logistics Income Fund has released results for the three months ended March 31, 2020. The financial statements and management's discussion and analysis will be available on Chemtrade's website and on SEDAR.
Chemtrade president and chief executive officer Mark Davis said: "As we announced in early April, Chemtrade's operations were not significantly affected by COVID-19 in the first quarter of 2020. Our manufacturing facilities, which are considered essential under U.S. state and Canadian provincial orders, continued to operate. Our top priority was, and continues to be, employee health and safety, and we have implemented appropriate safeguards."
Revenue for the first quarter of 2020 was $366.9-million, a decrease of $18.4-million from 2019. The revenue decrease was primarily due to lower volumes of sulphuric acid in the sulphur products and performance chemicals (SPPC) segment, and lower prices for caustic soda and hydrochloric acid in the electrochemicals (EC) segment. These decreases more than offset higher selling prices and higher sales volumes for water products in the water solutions and specialty chemicals (WSSC) segment.
Net loss for the first quarter of 2020 was $97.9-million, compared with net loss of $29.3-million in 2019. The increase was primarily due to a few non-cash items recorded during the first quarter of 2020: a $56.0-million impairment of goodwill for water solutions products, higher net finance costs due to a $47.4-million loss from the change in the fair value of convertible debentures and an unrealized foreign exchange loss of $9.6-million.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) for the first quarter of 2020 was $80.9-million compared with $44.0-million in the first quarter of 2019, which included a $40.0-million litigation reserve.
Cash flows from operating activities were $31.2-million compared with cash flows used in operating activities of $53.5-million during the first quarter of 2019. Adjusted cash flow from operating activities (1) was $49.3-million compared with $11.5-million generated during the first quarter of 2019. Distributable cash after maintenance capital expenditures (1) for the first quarter of 2020 was $38.2-million or 41 cents per unit compared with $42.5-million or 46 cents per unit in 2019 (excluding the litigation reserve).
In the first quarter of 2020, SPPC generated revenue of $113.0-million compared with $131.1-million in 2019. EBITDA for the quarter was $34.6-million, which was $2.9-million lower than 2019. Although substantially less byproduct volume was available, higher selling prices for sulphuric acid enabled SPPC to maintain margins for acid products. For the segment as a whole, EBITDA was slightly down from last year as the steady margins for acid products were reduced by lower contributions from sodium hydrosulphite.
The WSSC segment reported first quarter revenue of $113.3-million compared with $105.4-million in 2019. EBITDA improved to $25.7-million from the $18.1-million generated in 2019. Water products continued to improve, contributing about half of the segment's year-over-year improvement. The improvement was driven by increased alum selling price and volume while raw material costs remained stable.
The EC segment reported revenue of $140.5-million for the first quarter of 2020, which was $8.2-million lower than the same period of 2019. The lower revenue was due to lower selling prices for caustic soda and lower volume and prices for hydrochloric acid. HCl volume continued to struggle due to the downturn in the fracking industry. EBITDA of $32.9-million for the first quarter of 2020 was $15.2-million lower than the same period of 2019. This was primarily due to lower selling prices for both caustic soda and HCl. The Brazil chlor-alkali and sodium chlorate operation also reported lower EBITDA compared with the same period last year.
Corporate costs during the first quarter of 2020 were $12.4-million, compared with $59.7-million in the first quarter of 2019. The 2019 costs included a $40.0-million litigation reserve. Excluding this reserve, 2020 costs were $7.3-million lower primarily due to lower incentive compensation accruals.
Mr. Davis said: "Our first quarter results were not significantly affected by COVID-19. However, we are seeing reduced demand for some of our products in the second quarter and expect this to continue for the balance of 2020. For Chemtrade, the most significant effect is reduced gasoline demand, stemming from a reduction in driving miles. The reduced gasoline demand has a material effect on our regen services. However, not all of our products are affected. For example, we expect that demand for our water products should remain stable. While we have withdrawn our guidance, the financial outlook section of the first quarter MD&A does include updates on certain guidance 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."
Mr. Davis added: "In addition to the operational steps, we also took a number of financial steps. Our pro-active reduction of our monthly distribution increased our liquidity by about $55.0-million on an annual basis. In light of the current uncertain economic climate, we also negotiated an amended covenant package on our senior credit facility, which provides us with additional covenant room over the next two years. The amendments will be filed on SEDAR in due course."
Distributions declared in the first quarter totalled 25 cents per unit, composed of monthly distributions of 10 cents per unit for January and February, and five cents per unit for March.
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, 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 byproducts and waste streams.
(1) A non-international financial reporting standard measure.
A reconciliation of EBITDA and adjusted EBITDA to net earnings is provided in the attached table.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA TO NET EARNINGS
Three months ended March 31,
Net (loss) ($97,875) ($29,318)
Depreciation and amortization 63,917 67,464
Net finance costs 67,452 27,111
Income tax recovery (21,121) (17,534)
EBITDA 12,373 47,723
Impairment of goodwill 56,000 -
Change in environmental liability 3,381 -
(Gain) loss on disposal and writedown of property, plant and equipment (482) 303
Unrealized foreign exchange loss (gain) 9,608 (4,063)
Adjusted EBITDA 80,880 43,963
A conference call to review the first quarter 2020 results will be webcast live on May 13, 2020, at 10 a.m. ET.
We seek Safe Harbor.
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