Chemtrade Logistics Income Fund (TSX:CHE.UN) Q4 2025 Earnings Call

0:21 Thank you. Thank

2:28 you. Thank you. Thank you. Good morning, ladies and gentlemen, and welcome to the ChemTrade Logistics Income Fund Q4 2025 Question and Answer Session. This call is being recorded on Thursday, February 26, 2026. And I would like to turn the conference over to Mr.

3:52 Rohit Bharadwaj. Please go ahead.

3:55 Thank you, Operator, and thank you for joining the Q&A session for ChemTrade's fourth quarter and full year 2025 results. I would like to remind everyone that today's call will contain certain forward-looking statements. that are based on current expectations and are subject to a number of risks and uncertainties. Actual results may differ materially from those expressed or implied. Additional information regarding these risks, uncertainties, and assumptions, as well as information on certain non-IFRS and other financial measures as of today, can be found in our disclosure documents filed with the securities regulators and available on SEDARplus.com. One of the non-IFRS measures we will refer to today is adjusted EBITDA, It is EBITDA modified to exclude non-cash items that have unrealized foreign exchange gains and losses.

4:44 While our slide deck and disclosure documents refer to adjusted EBITDA, you may refer to it as EBITDA during the call. With that, we would now like to open the lineup for your questions. Thank you. Operator? Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star four by the one on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star, followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you. And your first question comes in the line of Nikolai Gorupich from CIBC Capital Market.

5:31 Please go ahead.

5:34 Hi, good morning. Given the margin pressures and high sulfur costs in the SWC segment, are you expecting some relief going forward as contracts renew? And do you think segment E margins can match 2025 levels of 23% this year?

5:52 Okay, so I'll give you some context for margin. So as you know, in 2025, we had cost escalations, particularly sulfur went up significantly. So what happened in that situation is we try and pass through the incremental costs to our customers, but it's hard to mark those costs up. So basically we're trying to protect our EBITDA and passing costs, especially when they're so significant. So what the effect of that is it actually reduces the margin percentage because your revenue goes up and costs are dragged along with it. So that's generally in our business, in SWC in particular, uh when costs are are lower the margin percentage tends to be higher and vice versa so in 2026 we'll have to see uh how software other costs you know progress but that's kind of the general rule is when costs spike up the margin percentage tends to come down but they're protecting that either that so and just to add to to that i'll um

6:58 remind the listeners that in our water business, as we sell product to city municipalities across North America, we sell under, we sell our product at fixed annual costs and that's the way, that's just the way this business operates and has operated for a long time. So we sell our products at fixed annual prices that are determined by bids. And so when raw materials go up, We'll take the hit in the short term on that, but it works vice versa as raw materials fall. We have contracts that roll in and out every month. So whenever sulfur has a significant increase like what we've experienced over the last six months, it takes us a little time to work on that.

7:51 So our water business has margin pressure for a few months as we work through those price increases, but we make it up over time. On the counter to that, our merchant acid business does a better job and can react with more rapid price increases whenever sulfur goes up.

8:19 Okay, that makes sense. Thank you. And with you guys breaking out the water chemicals into a separate segment going forward, to help with some of our modeling, are you able to provide some more detail on new segments, revenue or EBITDA contributions or margins? And secondly, to confirm, 100% of the new segment is coming out of the SWC segment and nothing from EC, is that correct?

8:42 Yeah, so yes, it's all coming from SWC. And at this stage, we are not ready to give you that breakout, but starting Q1, when we release Q1 in May, we will give you all the lines that you typically now see at our reporting segments.

9:01 Okay, I see. Thanks. I'll turn it over. Thank you. Thank you. And your next question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.

9:13 Hi, good morning. I just wanted to play out the order of magnitude of what the year might look like. So is it like the last couple of years where sequentially Q1 EBITDA higher, sequentially Q2 EBITDA higher, sequentially Q3 EBITDA even higher than that, highest year, then a drop down seasonally in Q4? Is that order of magnitude the way to look at it?

9:34 Q2 and Q3 tend to be our highest quarters. One thing to keep in mind this year is it's the North Vancouver turnaround year, which is in Q2. So Q2 will have a negative impact of those costs. And in terms of, you know, sequentially Q1 and Q4 tend to be the weakest ones. And the other thing to keep in mind is a little bit depends on how caustic is evolving as well. So the seasonality impact is really Q3, Q4 being strong. specific factors that come into play in any given quarter around commodity pricing.

10:12 And Joel, to add to that, part of that is going to depend on what happens with sulfur. So that could play into it. And then obviously, as we're looking at caustic soda, caustic soda is As we're in the first quarter, caustic soda is weaker than what we put in our assumptions. And so we are planning on the second half of the year being stronger for caustic than in the first half.

10:48 Okay, that's helpful. And then on corporate costs, what should they look like in 26 or 25 years?

10:54 So firstly, the way we look at corporate costs, we look at in two buckets. One is kind of our what we call program expenses, and the other is long-term incentives that fluctuates based on how the units are doing. 2025, as you know, our unit appreciated considerably, so that resulted in higher output costs. So once we normalize for all that, we expect 2026, corporate costs on the program line to be similar to 2025. And it's a new kind of outlook for LTIT, but that really does change. And so you can, you know, we've given you that detailed assumption on LTIT between 22 and 28 million baht. And we came in at around, you know, a little bit higher, on the high end of the range in 2025. So based on that, you can kind of model it out.

11:51 Thank you. Thank you. And your next question comes from the line of Zachary Ebershed from National Bank Financial. Please go ahead.

12:03 Good morning, everyone. Morning. I was hoping you could give us some more detail on the timing and scope of the heavy maintenance plan for the SWC segment this year.

12:16 Yeah, I can... I'll do that. So we have on the SWC side, our region acid plants are tied in to gasoline producers. And so we tend to take longer outages that are tied in with our customers. So we have one of our customers that does a significant turnaround every five years, but we have We have more heavy turnaround than what we've had the past couple of years. And so that's going, it's not anything unusual compared to what we've done over the past 10 years. But our turnarounds can be a little bit lumpy.

13:03 So our turnarounds in 26 are going to be a little heavier than what we saw over the last two years. But that's pretty much tied to the schedule for our significant customers.

13:17 Gotcha. Thank you. And on the Tulsa facility upgrades, what drove the decision for those investments? And also if we tie in Cairo, how much of the future volume is currently spoken for?

13:31 Okay. So what came out of that is so as we have, as we work with with our significant customers, the fabs, and as we have brought up our Cairo facility, our fabs, The fabs are also looking for redundancy in supply and trying to get as close to the quality at our KRO facility as possible. So what drove it was requests from our major customers, the fabs, for redundancy of supply in between plants. So we have been operating the Tulsa facility for many, many years. And we took some of the learnings from KRO and have made investments in Tulsa. And those investments, we're very pleased with the quality of what we've been able to achieve in Tulsa.

14:32 So the Tulsa material is, it's sampled, it's going through the approval process at the FABS, but that's really what drove it was request from the FABS for redundant supply and we took some of the key learnings. Tulsa, you know, will not, still Cairo will be our highest quality plant for sure. but we've made investments for Tulsa that we believe will meet advanced node quality. So we're pretty happy with the quality improvements there, and, again, we're working closely with FABs now on approvals.

15:14 Beauty, thanks. And then just circling back on that, how are those approval processes going for Cairo? So far, so good.

15:25 We have a lot of samples out. So we have a lot of samples out. I'll say the feedback we're getting is quite positive. Probably I won't share more other than the fact that we do see volume ramping up, sales volume ramping up in the second half of the year. So that's kind of on plan. We're excited about that. and we'll have more details to come, but lots of samples out and starting sales in the second half.

16:01 Great, Collier. Thanks. Thank you. Thank you. Once again, should you have a question, please press star followed by the one on your telephone keypad. And your next question comes from the line of Gary Ho from the Jordan Capital Market. Please go ahead. Go ahead.

16:18 Thanks. Good morning. Sorry, I jumped on the call late. I'm not sure if this was asked, but just on the sort of pricing environment, it feels like the spot pricing is a bit lower than the $4.50 you assumed in your guidance. I know there's some commentary and prepared remarks. Can you maybe elaborate on your confidence level there will be a recovery in pricing in the back half of the year?

16:39 Hey, Gary, this is Scott. We'll hit my – We'll add some color there too. Yeah, look, caustic soda is lower. It's lower than our assumptions, what we put in the assumptions. And the reason for that is tied to basically to some oversupply, particularly in China. It's tied to, right now, weaker production of aluminum, aluminum in Asia, and also tied in with the overall weakness and pulp, pulpit and paper. So I, but I think the, the, what we're, I hate to say what we're hoping for. I think that partly the reduced prices that we're seeing right now were based on some shipments right before Chinese new year. And so I'm hopeful that after Chinese New Year, they'll come back and prices will rebound a bit. But I think it may take through second quarter to see a rebound. But we're planning on prices to return closer to our planned level in the second half of the year.

18:01 And we speak with the industry analysts obviously very frequently. And so the fundamentals that drive chlorine demand, which is mainly construction activity, and caustic, which is battery and alumina, the fundamentals have not changed. And so it's very difficult always in Q1 to get direction with the Chinese New Year holiday, which is pretty prolonged. But when we've talked to them, they have a pretty strong belief that the trend that's there will resume and continue with cost stabilizing up for the next few years.

18:41 Okay, great. And then second question, I listened in on the rezoning call from the North Van facility process earlier this week. I know it's early days, but assuming that gets approved, how does the growth CapEx look like there? At first glance, looking at some of the slides, Seems like it's a decent undertaking. Correct me if I'm wrong. There's additional chlorine rail car loading building. There's removal of all existing liquid chlorine equipment amongst others. So how should we think about the magnitude of that? And just want to make sure that the $35 to $55 million of growth capex does not include any spend related to the North Van rezoning efforts.

19:21 So Gary, you are correct that the 35 to 50 of our growth capex does not assume any money associated with North Vancouver. So our plant is a, we spend, you know, out of our typical 120 to 130 of sustenance capital, you know, a fair amount of that goes to the North Vancouver plant. And over a, five, six, seven-year period, I don't think there will be a noticeable difference in our sustenance capital budget tied to the safety upgrades. We will be, as you call out, assuming that the rezoning is successful, we will be building up a new chlorine-loaded facility.

20:14 We'll be getting rid of liquid chlorine. But I think those projects and will come close to being included in our standard assessments capex budget for that site over a period of several years. So, yeah, again, I don't think it's going to be, we're not expecting or planning on a noticeable increase in our assessments capex budget tied to that.

20:42 Okay, great. Thanks for those comments. And maybe if I can sneak one more in. Rohit, just These releases were based on unaudited financials. I don't think that was the case last few years. Just wondering if you can provide a few comments on the reporting side of things.

20:59 Sure. So, you know, when you have an audit versus a quarterly review, there's less leeway for auditors in completing their testing and their files. There's a lot more rigor to it. And every year it's always a rush to, you know, to get it all completed. And I think this year, the one additional factor which delayed it a little bit is the timing of the closing of Polytech. There's a lot more work that needs to be done when you do an acquisition in terms of, you know, it's nothing earth-shattering, but there's just a lot of things you've got to do, including valuing their assets. And we only closed this deal, you know, towards the end of November, which didn't give much time and put a lot of pressure on the audit that's already typically got pressure to it.

21:47 But, you know, it's fairly innocuous. There's no numbers. We feel good about the numbers because I've released them, and we're hoping that the order will be concluded, you know, in short order in this case, and then we file all the full disclosure documents. But there's really no issues here. It's pretty innocuous.

22:07 Okay, perfect.

22:08 Okay, those are my questions. Thank you. Thank you. Thank you. And your next question comes from the line of Zachary Evershed from National Bank Financial. Please go ahead.

22:19 Hey, thanks for taking my second round. When you guys refer to merchant and region asset pricing, we're turning to historical ranges this year. Is there a specific year or period that we should use as the baseline for comparison there?

22:34 So I think what – so merchant, what happened was, as you mentioned – there were some disruptions with some of our competitors, and so we had some spot business that we picked up and got to higher pricing. And Regen, you know, was not as, didn't have as much effect on it, but so I think Regen will be not much different than 2025. And Merchant will be a bit lower, and again, it's hard to really point to a specific year because sulfur is such a big variable in pricing for merchant assets, but what you can assume is that the merchant asset will be off in 26 a little bit compared to 25. But, again, we're talking at the margins here. We're not talking about, you know, anything too significant.

23:22 Yeah. And what I'll say is that I think it's important to continue to emphasize that our region business performance has been – steadily improving that, you know, not by leaps and bounds, but steadily improving year over year for several years. So, and we expect that to continue. So very, very pleased with the performance there, tied in with our reliability, our production, tied in with the outlook for alkali production in North America. So strong business, strong business, slight growth, but our business performance has been steadily improving step-by-step over the past many years. Merchant does tend to bounce around, and yeah, it's kind of hard to look at any, certainly last year was a very, very strong year for merchant, but as Rohit just said, that's tied to some of our competitors having outages.

24:29 And with our reliability, we stepped in and supplied. But I think you'd probably go back and look at 23 and 24. I think those were more normal years for Merchant.

24:42 And it's good to remind you that, you know, about half of our volume in Merchant Asset is by-product asset that we get from smelters. And the way we've structured those contracts is is that the smelter or our supplier gets the lion's share of price-less freight movements. So that business tends to be relatively stable. It was just the spot opportunities that came up that were unusual. So generally, the actual pricing, we're not as affected by pricing. We do take volume risk, but price tends to generally be passed through to our supplier.

25:20 Gotcha. Thanks. And just one last one on the water chemical contracts in terms of sequencing through the year as you reprice with expiries. Any particular quarters that will see a larger volume or bigger clumps of renewals?

25:35 Well, not so much renewals, but there is seasonality there. So you do tend to get heavier in the summer months. So that's just normal seasonality, but not so much on the timing of contracts.

25:50 Gotcha, thanks. I'll turn it over. Thank you. Once again, should you have a question, please press star four by the one on your telephone keypad. And there are no further questions at this time. I will now hand the call back to Mr. Scott Fruch for any closing remarks.

26:13 Well, thank you. Thank you, operators. I'd like to thank everyone for joining the call. Today, 2025 was a record year for ChemTrade. As I said in the remarks, I'd like to thank all of our employees for their hard work and great results in 2025. Thanks for attending the call today and have a great day. Thank you. This concludes today's call. Thank you for participating. You may all disconnect.