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A Strong Start
Chemtrade had an outstanding debut.
The IPO raised gross proceeds of approximately
$130 million at a time when the market for new issues was not
particularly strong.
The performance of the business has exceeded
the expectations we outlined during the marketing of the issue.
The market performance of the units reflects
investors' confidence in the long term financial performance
of Chemtrade.
Distributions for the period from the IPO to the
end of December 2001 were $0.69 per unit, slightly higher than the
rate we anticipated during the IPO marketing. The unit price closed
at $12.35 on January 2, 2002 which, together with cash distributions
attributable to 2001, represented a total return to initial investors
of 30.4%. Since then additional distributions and an even higher
unit price have further enhanced total returns for unitholders.
This performance has outpaced both the TSE 300 and the Income Trust
indices.
We believe that the basis of our stock market
performance is driven by:
- achieving our stated financial goals; and
- an increasing understanding of our business
by the
investment community.
Chemtrade's business is somewhat unique among
public companies and certainly among income trusts. We will continue
our efforts to increase awareness of Chemtrade and the suitability
of our business model to the income trust structure.
Sound Financial Performance
Chemtrade posted solid financial results in its
inaugural fiscal year despite the uncertain economic conditions
that prevailed. Chemtrade's performance during these times underscores
the stability and reliability of the Chemtrade business. Revenue
for the period was $94.9 million which generated earnings before
interest, taxes, minority interest, depreciation and amortization
of $13.7 million. Cash available for distribution was $11.2 million,
or $0.861 per unit. Of this, $9.0 million, or $0.69 per unit, was
paid in cash distributions to unitholders, including the December
distribution paid in January 2002 and the fourth quarter supplemental
distribution of $0.11 per unit paid in February 2002.
Annualized, these distributions exceed $1.50 per
unit, which is higher than the rate anticipated during the marketing
of the IPO. We continue to believe these rates are sustainable and
plan to keep distributions at that level until we are satisfied
that an increased rate of distributions can be sustained.
Stability and Sustainability
Chemtrade's objective is to ensure the stability
and sustainability of distribution payments to unitholders. Our
on-going focus is to ensure that every aspect of our operations
is conducted with this objective in mind. By providing reliable
and value added services to both our producer and end use customers
we build long term relationships that form the foundation of our
business. These relationships allow us to obtain a reliable source
of useable by-products from our producer customers and deliver them
to a diverse end use customer base. Our contracting strategy with
producers and the diverse end use customer base enable Chemtrade
to mitigate commodity price changes. This business model delivers
the stable, sustainable earnings upon which our distributions are
based.
The strong foundation of our business was certainly
evident in 2001. For example, the impact of the interruption to
production at our Timmins liquid sulphur dioxide facility in August
(very shortly after completion of the IPO) and the dramatic reduction
in certain end use customer inventories towards year end was offset
by strong spot sales by BCT Chemtrade and by the dampening effect
of our very diverse customer base. The strength of the business
enabled us to exceed the cash available for distribution we had
anticipated during the IPO process despite the unforeseen events.
Growth
While stability and sustainability of cash flow
are key objectives of Chemtrade, we are also actively seeking opportunities
to grow sales and earnings and increase distributions to unitholders.
Our strategy for growth includes expanding our
base of producer customers, extending the services we provide to
existing customers, leveraging our existing core skills and infrastructure,
and making selective acquisitions that will be immediately accretive
to distributable cash.
The new agreement with Irving Oil entered into
in November 2001 is an example of achieving growth by expanding
our services for existing customers. (See the Review of Operations
- North America for more details). This new long-term agreement
is expected to generate revenue in excess of $30 million over its
10 year life. At the same time, we also extended an existing sulphur
removal agreement with Irving for a further 10 years.
We also expect growth to be generated from the
removal of increased volume of by-product produced as a result of
customers meeting stricter environmental regulations. For example,
last year our largest and longest-term customer, Inco, announced
that they will further reduce SO2 emissions at their Sudbury smelter
by 2006. Under the terms of our exclusive long-term agreement with
Inco, Chemtrade will remove and market the increased output, and
we are already in discussions with Inco on the subject.
People
The establishment of Chemtrade Logistics as a
separate entity was much more than simply a name change, and involved
every member of the organization over an intense period of several
months. The dedication of all our employees resulted in a smooth
transition that made the process essentially seamless for our existing
customers.
I would also like to thank our Board of Trustees
for their guidance and counsel on our new role as a public organization
with reporting requirements and obligations to our many unitholders.
Outlook
The launch and early performance of Chemtrade
Logistics Income Fund has met our highest expectations. We are confident
that the leadership position we have established and the market
dynamics of the sectors we serve will enable us to maintain the
steady and reliable financial performance we have recorded for many
years.
We will maintain a conservative distribution policy
that will retain sufficient funds for business growth and ensure
a sustainable level of cash distributions to unitholders.
Mark Davis
President & Chief Executive Officer
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