Chemtrade Logistics







Mark Davis, President & CEO Thank you, and good morning ladies and gentlemen. Chemtrade is in an industry, industrial chemicals, where size and scale are important. During the four years since our IPO, Chemtrade has substantially enhanced its size, scale and diversity of earnings primarily through acquisitions.

		Over this period, , our asset value has substantially increased , our market capitalization increased by 300%, and our geographic reach has expanded across North America and been enhanced in Europe. Additionally, we have diversified our earnings such that the source of the majority of our EBITDA at the time of our IPO now represents less than 20% of EBITDA.

		Most importantly, Chemtrade's increased scale and diversity supports our key financial objective of delivering reliable, sustainable and growing distributions to unitholders and has lead to a 25% increase in distributions since the IPO.

		Just over a month ago, we completed our largest acquisition. I would like to use most of our time today to describe the acquisition and how it fits into our growth strategy and business model. Of course, Vic will also spend a little time reviewing relevant financial matters.

Chemtrade continues to pursue its four-pronged strategy for delivering reliable, sustainable and growing distributions to unitholders. Those strategic thrusts are:

		1. A business model that seeks to mitigate commodity risks; 2. A focus on operational excellence to ensure sustainable earnings; 3. Financial prudence; and 4. Increased size and scale leading to diversity and growing distributions.

		The Peak acquisitions that we announced on August 2 are the largest of the three material acquisitions we have completed since our IPO.

		Similar to our other acquisitions, it meets our objectives of diversifying our sources of earnings, adding scope and scale to our business, and, of course, increasing distributable cash. Let me tell you some more about our new businesses and how they fit within our strategy and business model.

We acquired two businesses – Peak Sulfur and Peak Chemical – for a total cost, including all related transaction costs, of approximately $220 million Canadian. Vic will provide additional financial details later but on an aggregate basis the purchase price represents a multiple of about 7 times pro forma EBITDA.

		These are quality stable businesses where a large portion of the earnings are generated by contracts that adjust the customer's price for changes in the cost of the major raw material. We expect that these businesses will not only continue to contribute earnings at this rate, but that results will improve as we move forward.

As you can see from this map, these new businesses take Chemtrade into new geographic areas in North America. The Peak Sulfur business, which is by far the larger of the two, operates from its four plants in Beaumont, Texas; Shreveport, Louisiana; Riverton, Wyoming; and Tulsa, Oklahoma. The Peak Chemical business is located in Lawrence, Kansas.

		Sulfur processes various types of sulphuric acid – including regenerated sulphuric acid (or “regen”), merchant, and ultra pure. As we have mentioned with respect to our original business, sulphuric acid is one of the most widely used chemicals in the world and is a key input in many different industries. The foundation of the Sulphur business is the regen/spent acid operations. In most chemical processes where sulphuric acid is used, it is totally consumed.

In other processes, however, the acid is only partially consumed and becomes “spent” acid. Spent acid is sent to regeneration facilities where it is then processed into merchant grade sulphuric acid. Peak Sulfur's regen business is based on 2-5 year contracts, which form the foundation of its earnings. The Peak Chemical business in one of only two North American producers of phosphorous pentasulphide, or P2S5 , which is a performance chemical used primarily as a strategic ingredient in the lubricating oil and grease additive markets for the automotive industry. Before describing the operations and the assets we have just acquired, let me add a few comments why we believe this acquisition fits with our growth strategy and business model.

		• Both Sulfur and Chemical produce, sell and distribute industrial chemicals, which is consistent with our core competencies. In fact, the majority of the acquired business is based on sulphuric acid, a chemical that is already a significant part of our portfolio of products.

		• The Sulfur and Chemical businesses diversify our end use markets. Most of the revenues are derived from the refinery and automotive lubricant industries, which adds substantial new end markets for Chemtrade and reduces our reliance on the pulp and paper industry, as you can see from this chart.

		• We significantly diversify our product offering. Chemical's earnings are solely derived from a product (P2S5) that we do not currently market and Chemtrade did not previously process spent acid. • Sulfur incrementally expands our existing merchant and ultra pure acid businesses.

• The acquisition improves the quality of our earnings. The majority of Sulfur's earnings are derived from 2 to 5 year term Regen or Spent contracts that adjust pricing to changes in certain input costs, particularly natural gas, the key raw material input. • Business model fit. Both businesses have characteristics which tend to mitigate traditional chemical commodity cyclicality – Sulfur contractually, and Chemical due to industry structure. Let me now describe the businesses in a bit more detail.

		Sulfur As I noted, the Sulfur business produces regen, merchant, and ultra pure acid, but it generates most of its earnings by processing spent acid for refineries and chemical operations. The balance of its earnings is derived from sales of merchant acid to pulp mills and other industries, and from ultra pure acid sales to the electronics industry.

Oil refineries are the largest producers of spent acid. The sulphuric acid is used by refineries in the production of alkylate, which is an octane enhancer. The spent acid generated in the refining process is sent to a regen plant for reprocessing. Sulfur has a significant market share of the regen acid business in the U.S. Gulf Coast area; it is the only regen facility in the U.S. Rocky Mountain district, and it is one of only five producers of ultra pure sulphuric acid in North America.

		The regen market represents a very attractive opportunity for Chemtrade. According to industry reports, the overall U.S. regen market is expected to grow as refinery alkylate production increases, with the most significant increase in demand being in the Gulf Coast area, where Sulfur's two main plants are located. Sulfur's regen business and the quality of its contracts were a key to this transaction.

		About half of Sulfur's total capacity is used to service regen accounts. The regen industry is characterized by medium to long-term contracts. Over 70% of Sulfur's regen volume is under contract until or past the end of 2007. Approximately another 11% is supplied by truck where Sulfur's plants are the logical geographic facility, making it difficult for more remote regen plants to compete. Accordingly, over 80% of regen volume is very secure through the end of 2007.

In addition to the multi year term of the regen contracts the other key element of all Sulfur's regen contracts is price adjustments for changes in input costs. At a minimum these contracts provide that the customer's price is adjusted for changes in the price of natural gas, which is the main raw material. Many of the regen contracts are also adjusted annually for changes in labour costs.

		Regarding merchant acid, we have a long history of successfully marketing this product and the acquisition lets us expand into new geography.

Three of Sulfur's four plants – Riverton, Tulsa and Shreveport – are relatively remote geographic locations, and are thus somewhat protected from competition in the merchant acid market. Typically, there are few regional competitors and these Sulfur plants have significant logistical advantages. Many of Sulfur's customers are served by truck, which creates further competitive advantages.

		Finally, Sulfur also participates in the ultra pure acid market. Ultra pure acid is sold into the electronics industry. Chemtrade already participated in this market with production from its Ohio plant.

		Chemical The Chemical business is one of only two North American producers of P2S5 and has a market share of about 25%. P2S5 is a performance chemical, which, when combined with zinc oxide, produces a chemical that is a very effective engine wear, and corrosion inhibitor.

Although there are some applications for P2S5 other than the automotive market, such as agriculture and mining, the bulk of P2S5 sales are to the automotive lubricants industry. Virtually all of Chemical's sales are into this lubricants industry. Chemical has two major customers who dominate the lubricant market. Pricing of P2S5 tends to track changes in the price of elemental phosphorous, the main raw material, which represents approximately 65% of total cost. Both Chemical and its competitor obtain phosphorous at the same price. Not surprisingly, in a two-player market with common raw material costs, price of P2S5 has tracked changes in that raw material. Volume has also been consistent as customers are inclined to support both of the suppliers. The P2S5 plant is located in Lawrence, Kansas.

		The production assets for both Sulfur and Chemical are in good shape. The Sulfur plants typically take shutdowns of 10 days every 12 – 18 months and preventative maintenance programs allow for uptime to be more than 95%. At the P2S5 plant, all three reactors have been replaced since 2002, and there is a rebuilt spare reactor on site.

Maintenance capital expenditures for all these plants are estimated at approximately US$3.3 million per year. I'll now hand over to Vic to discuss the Chemtrade's recent financial performance as well as some results for the new businesses and pro formas for the first half of this year.

Victor Wells, VP Finance & CFO Thank you, Mark and good morning ladies and gentlemen.

		I would like to start this morning with a very brief summary of Chemtrade's results for the first half of the year. Obviously, further details can be found in our publicly released financial statements and MD&A.

		For the first half of this year, distributable cash was $20 million, or 85 cents per unit . This was generated from revenue of $185.6 million and EBITDA of $25.5 million. The two most significant issues we faced in the first 6 months of 2005 were the higher cost of caustic soda, and an extended Inco shutdown in the second quarter. Both of these issues affected our SPPC segment of the business. In addition to

these market and operational factors, we also accelerated some $250,000 of capital spending in International that had originally been scheduled for the third quarter. If this capital spending had not been brought forward, and if the Inco shutdown had not lasted longer than originally planned, we estimate distributable cash for the first half of the year would have been about $1million or 4 cents a unit higher than the actual results. As many of you know, we have been faced with rising caustic soda prices for the last year or so. Since our acquisition of Performance Chemicals in 2002, we have been pursuing methods to mitigate the effect that the price cyclicality of caustic soda has on our earnings. As we noted on our second quarter conference call, we have now made arrangements to enter into a long-term agreement with our major supplier of caustic soda. This agreement will provide protection from price increases over the next year, and moving forward should allow us to reduce the cyclical impact of this raw material input.

		Despite the expected higher caustic prices in Q3 and Q4, we believe that our new agreement will mean that the price we paid in Q2 should be the peak price faced by Chemtrade. Essentially, the agreement disconnects our caustic price from the supply/demand characteristics of the chlor-alkali cycle, and instead, links it to changes in natural gas pricing, which is the major raw material input for caustic production. Natural gas prices can be readily hedged, and

we will enter into appropriate hedges to stabilize this input cost. The fact that our sales volume of SHS is holding, and that we have contained future caustic soda price increases is very good news for the business. Let me now take you through how we financed the Peak acquisition and have a look at their first half actual results, and some pro formas.

		The total cost of the acquisition was approximately $220 million Canadian, which included $166.75 million US in purchase price and all related transaction costs. To close the transaction, we arranged for a new $360 million credit facility under which we borrowed $330 million, i.e., $220 to fully pay for the acquisition and related costs and another $110 to refinance our existing term debt.

At the same time we also entered into a $155 million bought deal for 9,968,000 units, which closed on August 17. The net proceeds of the bought deal were used to reduce the debt incurred at the time of closing the acquisition. Following this debt repayment, Chemtrade has a pro forma debt to EBITDA ratio of about 2:1. The key terms of the new facility are that it is a 4-year facility that increases our term debt by approximately $70 million at more favourable terms and greater flexibility than our current arrangements.

		Looking briefly now at the new businesses, for the six months ended June 30, 2005 net sales were approximately US$37.3 million versus US$33.4 million for the same period in 2004. Most of the increase came from improvements in the Sulfur business. Over the same 6-month period, EBITDA in 2005 was US $9.8 million, an increase of over 30% versus 2004 EBITDA.

On an EBITDA margin percentage basis, EBITDA for this 6-month period improved from about 22% in 2004 to about 26% in 2005. Again, the major improvement came from the Sulfur business. The principal reasons for the increase in revenue and EBITDA were an increase in pricing on certain regen contracts and a shift in volume from lower margin merchant acid production to higher margin regen sales.

		On a pro forma basis for the first 6 months of 2005, the combined business, that is Chemtrade and the two Peak businesses, would have produced EBITDA of $40.2 million, and distributable cash of $30.8 million, or $0.92 cents per unit on a basic basis. This compares with EBITDA of $25.5 million and distributable cash of $20 million, or 85 cents per unit, that Chemtrade actually generated.

		As indicated, the entire Peak business is located in the US. We have hedged approximately 80% of our anticipated cross border cash flows from the Peak business for the next 3 years at rates that are very close to matching the exchange rate realized on the purchase price, thus significantly reducing any currency risk from acquiring this US business. This actual rate was also used in the pro forma numbers mentioned above.

Even after this negative forex adjustment, which accounts for about one cent per unit of distributable cash, the pro forma distributable cash of 92 cents per unit is an 8% increase in distributable cash per unit. I'll now hand the presentation back to Mark.

Mark Davis, President & CEO Thank you, Vic. As announced at the time of the acquisition, we increased our annual rate of distributions by $0.04 per unit effective with our August distribution. This is the same approach we have taken in our previous acquisitions, i.e., an increase following an acquisition and then running the new business while we consider whether a further increase to a higher level is sustainable. Based on this approach, we believe that even after the increase in distributions that our payout ratio will return to more historical level than where it was for the first 6 months this year.

		To implement the increase in distributions, we have increased our monthly distributions from $0.11 per unit to $0.1133 per unit. Our regular 12 cents per unit quarterly supplemental distribution remains unchanged. We are now working hard to integrate the new businesses into Chemtrade.

		To summarize, we believe we have made significant progress this year in strengthening our business, diversifying our earnings and positioning Chemtrade for future growth. As mentioned in other forums, we have solidified our powder SHS customer base and have now improved our cost position with regard to caustic soda. In May this year we increased the scale of our international business with the acquisition of Kemmax in Germany.

Industry experts seem to agree that 2005 should be the high water mark for caustic pricing. In the meantime, we have succeeded in reducing our caustic usage and will continue pressing for further improvements. When the caustic cycle turns down, we believe that our stronger customer relationships and improved operating efficiencies will result in a stronger long-term business. Finally, our recent addition of the Peak businesses has:

		• substantially changed the scope and scale of our operations; • improved the quality of our earnings; • diversified our earnings and customer base; and • added to distributable cash. Thank you for your interest.