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Chemtrade Logistics Income Fund Reports First Quarter 2018 Results

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Chemtrade Logistics Income Fund Reports First Quarter 2018 Results

Canada NewsWire

TORONTO, May 8, 2018 /CNW/ - Chemtrade Logistics Income Fund (TSX:  CHE.UN) today announced results from continuing operations for the three months ended March 31, 2018.  The financial statements and MD&A will be available on Chemtrade's website at www.chemtradelogistics.com and on SEDAR at www.sedar.com.

On March 10, 2017, Chemtrade completed the acquisition (the "Acquisition") of all the issued and outstanding common shares of Canexus Corporation ("Canexus").  The first quarter 2017 results included roughly three weeks of contribution from the acquired businesses.  Due to the Acquisition, Chemtrade reconfigured its business segments and introduced a new segment called Electrochemicals ("EC").  EC includes Chemtrade's legacy sodium chlorate business and all the newly acquired businesses. 

On February 24, 2017, Chemtrade entered into a definitive agreement to sell its International business segment to Mitsui & CO., Ltd. ("Mitsui").  The transaction closed during the second quarter of 2017.  The International segment is treated as a discontinued operation in the financial statements.

Revenue from continuing operations for the first quarter of 2018 was $381.5 million, an increase of $106.9 million from 2017.  This increase was primarily due to revenues generated by the newly acquired businesses, partially offset by lower revenues in the Sulphur Products & Performance Chemicals ("SPPC") segment.

Net earnings from continuing operations for the first quarter of 2018 were $6.9 million, compared with $0.7 million in 2017.  The increase was mainly due to higher net earnings from the newly acquired businesses.

Adjusted EBITDA from continuing operations(1) for the first quarter of 2018 was $72.0 million compared with $44.8 million in the first quarter of 2017.  The increase in Adjusted EBITDA is mainly attributable to the contribution from the new businesses in the EC segment, partially offset by lower Adjusted EBITDA in the SPPC and Water Solutions & Specialty Chemicals ("WSSC") segments.

Cash flows from operating activities were $35.0 million compared with cash flows used in operating activities of $15.1 million during the first quarter of 2017.  Adjusted cash flow from operating activities from continuing operations(1) was $54.1 million compared with $13.2 million generated during the first quarter of 2017.  Distributable cash after maintenance capital expenditures from continuing operations(1) for the first quarter of 2018 was $44.2 million or $0.48 per unit compared with $8.7 million or $0.12 per unit in 2017.  Distributable cash after maintenance capital expenditures from continuing operations for the first quarter of 2017 included Canexus Acquisition costs of $2.9 million and a foreign exchange loss of $18.3 million resulting from the repayment of US dollar bank debt associated with the financing for the Acquisition.

Chemtrade President and Chief Executive Officer, Mark Davis, said, "Markets for our key products remained strong during the first quarter, continuing the strength we saw at the end of 2017.  The operational issues we experienced in the latter half of 2017 are being addressed and the benefits should be seen in the second half of this year.  Our first quarter results reflect the contributions from the Canexus businesses acquired last year; however, we were unable to realize the full benefits of these businesses due to a lack of rail service and railcar availability.  These rail issues caused us to reduce production at our North Vancouver chlor-alkali facility."

In the first quarter of 2018, SPPC generated revenue of $122.6 million compared to $125.5 million in 2017.  Adjusted EBITDA for the quarter was $21.3 million, which was $8.2 million lower than 2017.  From a revenue perspective, the main reason for the year-over-year decrease was lower sales volume for sulphuric acid as higher prices were not sufficient to fully offset the effect of lower volume, particularly lower volume from our largest by-product supplier.  Adjusted EBITDA was lower due to reduced sales volume for merchant sulphuric acid and higher maintenance spending due to additional plant turnarounds.  The reduced sales volume of merchant acid was due to reduced availability of supply as demand remained firm.

The WSSC segment reported first quarter revenue of $98.9 million compared with $100.2 million in 2017.  Adjusted EBITDA was $18.8 million compared with $21.5 million generated in 2017.  The decrease is primarily due to the effects of operating issues at two water chemical plants that started in 2017.  The issues are being resolved but resulted in additional costs in the first quarter of 2018 to ensure that customers were not disrupted.  The stronger Canadian dollar relative to the US dollar also had a negative impact on Adjusted EBITDA in 2018. 

The EC segment reported revenue of $159.9 million and Adjusted EBITDA of $49.2 million.  While demand for chlor-alkali products remained firm, the production rate was constrained due to the issues associated with western Canadian rail shipping and because of insufficient railcars for hydrochloric acid.

Corporate costs during the first quarter of 2018 were $17.4 million, compared with $19.0 million in the first quarter of 2017.  The primary reason for the difference was the $2.9 million of transaction costs related to the Acquisition and higher Long-Term Incentive Plan costs recorded in the first quarter of 2017. 

During the first quarter, Chemtrade amended its senior credit agreement to add one more year of term.  The credit facility now matures in March 2023.

Mr. Davis said, "We expect the steady to robust markets we saw at the end of 2017 and first quarter this year to continue throughout 2018.  The chlor-alkali markets continue to be strong and show no sign of weakening.  The sodium chlorate industry and our plants are operating at high utilization rates, and demand for all our sulphuric acid products remains strong.  As a result of the issues mentioned and our turnaround schedule we expect that the second half of 2018 will show stronger results than the first half."

Distributions

Distributions declared in the first 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 EBITDA and Adjusted EBITDA to net earnings is provided below:


Three months ended

($'000)

March 31, 2018

March 31, 2017




Net earnings from continuing operations

$

6,916

$

672




Add:




Depreciation and amortization

52,337

39,115


Net finance costs

15,672

20,025


Income tax recovery

(2,944)

(13,151)




EBITDA from continuing operations

71,981

46,661




Add:

-

-


Gain on disposal and write-down of assets

(115)

-


Unrealized foreign exchange loss (gain)

105

(1,842)




Adjusted EBITDA from continuing operations

$

71,971

$

44,819

 

Segmented information

SPPC –




Three Months Ended

($'000)

March 31, 2018

March 31, 2017




Revenue

$

122,634

$

125,458

Gross profit

7,580

13,148




Adjusted EBITDA

21,266

29,452

Gain on disposal and write-down of assets

125

2

EBITDA

21,391

29,454




Depreciation and amortization

(16,273)

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