Chemtrade Logistics Income Fund · TSX:CHE.UN
Chemtrade Logistics Income Fund — Shareholder Meeting (May 2014)
39 slides from Chemtrade Logistics Income Fund's shareholder meeting presentation, May 14, 2014
Slide 1: Chemtrade Logistics | 2014 Annual Meeting
Chemtrade Logistics | 2014 Annual Meeting 1
Slide 2: Mark Davis
Mark Davis Good morning, ladies and gentlemen. 2
Slide 3: I'm pleased that you can join us today
I’m pleased that you can join us today. 3
Slide 4: Excitement about the General Chemical acquisition
As you can imagine, we remain very excited about our recent acquisition of General Chemical. We want to take the majority of our time this morning to describe the “new” Chemtrade now that the acquisition is complete including a review of our business model and how our newly acquired businesses fit.
Slide 5: Goal of above-average growth and yield for unitholders
Since Chemtrade’s inception in 2001, our key goal has been to provide above- average growth and yield for our unitholders. 5
Slide 6: Four-pronged strategy
In building Chemtrade we have followed a clear, four-pronged strategy. All of our key initiatives, and particularly acquisitions, have aligned with this strategy. 6
Slide 7: Broad portfolio of industrial, water treatment and specialty chemicals
After years of growth Chemtrade is now a provider of a broad portfolio of industrial, water treatment and specialty chemicals and a range of critical but non-core services to industrial users or producers of chemicals. We have significant market shares in most of our products and specific competitiv
Slide 8: Six significant acquisitions since 2001 IPO
We have now completed six significant acquisitions since our IPO in mid-2001, with our most recent acquisition being the purchase of General Chemical. Each acquisition diversified our product portfolio, increased our geographic reach, enhanced the quality of our earnings, and supported our ability t
Slide 9: Growth from acquisitions and organic initiatives
As you can see from this slide, these acquisitions, together with organic initiatives have resulted in significant growth for Chemtrade over the years. The General Chemical acquisition, based on September 2013 numbers, almost doubles EBITDA. 9
Slide 10: Total return for unitholders since IPO
This strategy has delivered superior returns for unitholders. This chart shows the total return Chemtrade has generated for unitholders since the IPO in 2001 to the end of March, 2014. A unitholder who purchased units at the time of the IPO would have enjoyed a compound annual return of 18.3% versus
Slide 11: Business model mitigates commodity risks
As I mentioned earlier, a cornerstone of delivering reliable distributions to our unitholders is our business model that mitigates typical commodity risks. There are a number of elements to our business model that protect our strong cash flow from commodity risks… 11
Slide 12: Elements of the business model
…including: • Diversity of customers, industries and products; • Fee-based and risk-sharing contracts; • Competitive positioning; and • Service and product differentiation 12
Slide 13: Reorganized operating segments
With the addition in January of the General Chemical businesses, we re-categorized the structure of our operations. We still have three operating segments but have reorganized some of our products into the appropriate segments. Sulphur Products and Performance Chemicals (or SPPC) incorporates most o
Slide 14: Diversity of end markets and sources of earnings
Chemtrade has significant diversity of both end markets and sources of earnings. By spreading our risk among different end markets, geographies, and products and services, we reduce the likelihood that a downturn in any one industry or product could have an undue effect on our earnings. Looking at t
Slide 15: Diversification within water treatment market
Even within that water treatment market we have further diversified. Municipal water treatment is a significant new market for us, and the geographic coverage of the industrial water treatment market we previously served has been greatly enhanced. Our expanded water solutions business should now rep
Slide 16: Earnings by product and service
Secondly, as you can see from this chart, we generate earnings from a variety of different products and services. While we still derive a large portion of our earnings from sulphuric acid, there are a number of other significant contributors such as our water & specialty products. Again, we see that
Slide 17: SPPC and WSSC adherence to business model
Turning to the SPPC and WSSC segments, each segment adheres to Chemtrade’s business model in different ways. As a general statement, SPPC seeks to mitigate typical commodity risks through risk shared contracts, while the WSSC segment, which does have some products that benefit from risk shared contr
Slide 18: Risk-shared contracts in SPPC
Within the SPPC segment, the centrepiece of our business model is the contracts we have with our customers and suppliers. In this segment, in a large part due to the critical nature of our relationships with industrial customers, Chemtrade is able to reduce its exposure to commodity price risks thro
Slide 19: Two main groups of risk mitigating contracts
Each risk mitigating contract is unique. However, they can be generalized into two main groups. Where Chemtrade is not the producer of the product we market, we seek to enter into contracts with the product supplier where the risk or benefit of movements in market price (and sometimes volume) is sha
Slide 20: General's sulphuric acid and regen business
In addition to our previous sulphur products businesses, the sulphuric acid business we acquired with General provides regen and related services to customers on the US West coast. The business also provides sulphuric acid over-the-fence to a dedicated consumer of merchant sulphuric acid in Georgia.
Slide 21: Water Solutions & Specialty Chemicals segment
In our Water Solutions & Specialty Chemicals segment our business model enhances the quality of our earnings in other ways. The Water Treatment business builds on our footprint in Western Canada and transforms Chemtrade into the largest supplier of inorganic coagulants for water treatment in the U.S
Slide 22: Water Treatment business and coagulants footprint
The Water Treatment business provides municipal and industrial customers with a number of water treatment chemicals, primarily aluminum- and iron- based inorganic coagulants, as well as alkali and disinfectant products. The addition of this business greatly expands our existing aluminum sulphate (or
Slide 23: Water Treatment stabilizing effect on earnings
From a business model perspective, the number of individual plants, diverse customers and freight cost logistics provide a stabilizing effect on earnings. No one plant or one customer represents a large part of this segment’s earnings; thus a loss of any particular customer or competitive pressures
Slide 24: Specialty Chemicals and sodium nitrite
The Specialty Chemicals business expands Chemtrade into new high margin product categories, serving a new and diverse set of customers and markets. These products provide a nice entry point into the specialty chemical sphere as these products serve niche applications and have certain barriers to ent
Slide 25: High-purity potassium chloride
Another specialty chemical we now manufacture and sell is High-purity Potassium Chloride. This product is used as an ingredient in custom pharmaceutical formulations. It is specified by a number of customers for time-release applications, for use in food as a salt alternative, for certain vitamin ap
Slide 26: Summary of General Chemical acquisition
In summary, we are very pleased with the General Chemical acquisition and how its addition strengthens our overall portfolio of businesses. We added talented employees to the Chemtrade team, who will, when combined with our legacy employees, continue delivering value to our unitholders. The second q
Slide 27: Review of 2013 financial performance
Now Rohit will briefly review Chemtrade’s financial performance for 2013. 27
Slide 28: Rohit Bhardwaj
Rohit Bhardwaj Thank you, Mark and good morning everyone. 28
Slide 29: 2013 revenue
Throughout 2013, business conditions were relatively stable in North America. In international markets, conditions continued to be weak, with lower volumes of acid and lower sales prices. This was reflected in revenue for the year, which was $836 million compared with $919 million in 2012. 29
Slide 30: 2013 EBITDA
Despite the lower revenue, our operating businesses performed well in 2013 generating EBITDA of $176 million compared with $179 million in 2012. 30
Slide 31: SPPC segment results
Turning to the segmented results for the year, SPPC generated revenue of $596 million compared with $606 million in 2012. The main reason for the decrease in revenue was lower prices of sulphur and sulphuric acid. This was partially offset by higher prices for certain other products within the segme
Slide 32: Pulp Chemicals results
Pulp Chemicals reported revenue of $52.0 million compared with $51 million in 2012 and EBITDA of $11 million, which was the same as 2012. The capital improvement projects at our Prince George facility that will make it a low-cost producer, are substantially complete. 32
Slide 33: International segment results
International reported revenue of $187 million for the year, compared with $262 million in 2012. This significant reduction in revenue reflected the generally weak conditions for sulphuric acid and sulphur in international markets. Despite the significant reduction in revenue, EBITDA for the year wa
Slide 34: Aggregate EBITDA
Aggregate EBITDA, i.e., including the Corporate segment, for 2013 was $12 million lower than 2012, primarily because of higher accruals for the long- term incentive plan (or LTIP) due to the significant appreciation in our unit price, particularly towards the end of 2013 and due to some acquisition
Slide 35: Distributable cash per unit
Additionally, maintenance capex was higher than 2012 and closer to our targeted investment level. This resulted in distributable cash after maintenance capex of $1.81 per unit compared with $2.07 per unit in 2012. This was still comfortably ahead of our annual distribution rate of $1.20 per unit. 35
Slide 36: Financial prudence and acquisition financing
As you saw on an earlier slide, one of our core strategies is financial prudence. Our balance sheet structure changed on January 23 with the closing of the acquisition which was financed through a combination of a $345.2 million underwritten equity offering and syndicated senior secured credit facil
Slide 37: Deleveraging track record
This slide shows that we have delivered on this commitment of deleveraging in the past. With the Marsulex acquisition, our senior secured leverage increased to 2.8x as of closing in Q2, 2011 and within one year we had reduced this indebtedness to 1.6x LTM EBITDA, while at the same time, delivering o
Slide 38: Track record of growth since inception
Mark Davis It is now almost 13 years since Chemtrade’s inception and during that time we have established a track record of growth. Our track record is evidence that our business model creates a distribution rate that is sustainable through the differing economic conditions. We have also demonstrate
Slide 39: Thank you and questions
We remain confident of Chemtrade’s ability to continue delivering growth and yield to our unitholders. Thank you for your attention. We would now be pleased to answer questions. 39
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