Chemtrade Logistics



Mark Davis, President & CEO Good morning, ladies and gentlemen. I'm pleased to review with our unitholders, Chemtrade's operations and performance in 2004. Before Vic and I make our presentations, I would like to introduce other members of the senior management team who are here today.

		• Claudio D'Ambrosio, Chief Operating Officer • Doug Cadwell, Vice-President, Sulphur Products & Performance Chemicals • Maryann Romano, Director, Human Resources

The other member of the team, Ernst Kohler, who is President of BCT Chemtrade, was unable to be here today as he is busy integrating our new German business which we'll describe later.

		2004 was the first year that fully included results of the two major acquisitions we completed since our 2001 IPO – Performance Chemicals at the end of 2002, and Pulp Chemicals in August 2003.

		The key objectives of these acquisitions was to diversify our sources of earnings, add scope and scale, and, of course, increase our distributable cash.

		Our cash distributions per unit have increased by 22% since our IPO. The benefits of our acquisition strategy are very apparent. Despite a Canadian dollar that appreciated significantly since our IPO, competitive pressure on some of our products, and increasing raw material costs, Chemtrade continued its history of generating distributable cash in excess of total distributions paid to unitholders.

		Vic will review the financial performance in more detail, but in terms of distributable cash, which is our key measure of financial performance, Chemtrade generated $43.1 million of distributable cash in 2004 and declared distributions of $41.8 million. In per unit terms, this meant $1.87 per unit of distributable cash, and cash distributions of $1.80 per unit.

While our acquisition strategy was an important element of our overall performance last year, it is just one element of Chemtrade's four strategic thrusts that we outlined at last year's AGM. These strategies support our ability to deliver reliable and sustainable distributions to unitholders. Chemtrade's four strategic thrusts are:

		1. A business model that mitigates commodity risk; 2. A focus on ensuring sustainable earnings; 3. Increased size and scale leading to diversity and growing distributions; and 4. Financial prudence.

Before reviewing 2004 in more detail I wanted to say a few words about sustainable earnings. Growth of an organization benefits all stakeholders. Since our IPO Chemtrade has shown an ability to grow and growth will continue to be a major focus for us. However, growth is only possible through successful execution of what we have called “sustainable earnings”.

		In mature businesses, such as Chemtrade's current product portfolio, the ability to execute numerous initiatives is essential to ensure the strength and longevity of the business. When we talk about a focus on sustainable earnings we are focused on executing initiatives including operational excellence (which encompasses safeguarding our employees and communities, and increasing efficiencies), cost control, effective relationship management, successfully integrating our acquisitions

and incremental growth opportunities. Although we did not complete a major acquisition in 2004, I think that our team performed extremely well on each of these key sustainability initiatives. We had an excellent safety record last year, completed a small incremental growth acquisition, extended a significant contractual source of earnings, integrated our previous acquisitions, and executed a myriad of smaller initiatives to improve efficiencies and solidify our business.

		Just one specific example. Our SHS products faced both cost and competitive pressures. A substantial portion of these negative pressures was offset by our ability to execute initiatives that improved efficiencies thereby reducing costs and solidifying our customer base through longer term contracts. These and other similar initiatives result in a stronger and more sustainable business for the future.

		I would now like to review our 2004 operations in a little more detail.

		First, I want to talk about SPPC, and in particular, our SHS products. Chemtrade is the only producer in North America able to offer customers either liquid or powder SHS. Liquid SHS has a shorter life span than powder SHS, and customers for our liquid product are generally located close to our plants. Accordingly, they are able to benefit from the service level we can provide as well as the convenience of receiving product in an immediately usable form.

		Early in 2004, as mentioned in our 2Q conference call, we became concerned that the increase in raw material costs and the potential that competing product from China could adversely affect our margins. Our response was to take aggressive action to secure our customer base, and reduce costs.

We made significant progress on both fronts. In fact our total SHS volume in 2004 was substantially the same as 2003 and our 1Q 2005 volume was actually a little higher than the same period the previous year. Further, approximately 85% of our US and Canadian volume of powder SHS is now under contract, and more than 60% of that extends to or past the end of 2006. Most importantly, our largest customer is under contract for the next four years for all of their sites, including their Alabama site.

		At the same time we were securing our customer base we were successfully reducing our controllable cost structure. We were able to reduce many costs in the business from headcount reductions to improved yields. However, in the fourth quarter the cost of caustic soda, an important input in the manufacture of SHS, increased substantially, putting pressure on margins. I'll have more to say on how we're addressing this challenge a little later.

		Our Sulphur Products, particularly sulphuric acid had a strong year. Overall, Sulphur Products had a good year, with higher volumes and revenue than 2003. The acid market remained tight with no new supply evident in the market while the SO2 market continues to be stable. In October we extended our SO2 marketing agreement with Falconbridge. The term on the previous agreement, which was in place at the time of our IPO, ran until December 2005 . The renewed agreement now runs to December 2010 securing our supply of this product.

		2004 was the first full year contribution from Pulp Chemicals, which we acquired in August 2003. Canfor purchased over 60% of the sodium chlorate produced by the Prince George plant despite experiencing some operating problems during the year. Since Canfor is such a large customer of Pulp Chemicals, operating rates at Canfor have a noticeable impact on our results; however, we also have excellent third party customers that provide opportunities for additional sales. In fact, in the fourth

quarter last year during a Canfor maintenance shutdown that lasted longer than originally scheduled we were able to place excess volume with our other third party customers. The increased volume resulted in fourth quarter results that were ahead of the same period in 2003.

		We have two real volume opportunities going forward. First, in 2005 we expect that Canfor will be able to run without the operating issues experienced in 2004. Secondly, we have now secured a new long-term third party sales contract. This additional volume will assist us in operating and selling product at close to our production capacity even if Canfor's demand varies from time to time.

Pulp Chemicals is operating well. Our relationships with key customers are excellent. There's no doubt that in 2004 Pulp Chemicals made a substantial contribution to the stability of our distributions to unitholders.

		Our international operations, BCT Chemtrade, had another good year in 2004. Sulphuric acid prices were high which resulted in significantly increased revenue for BCT Chemtrade. However, as Vic will explain, because many of our sales are derived from matched contracts, our margins remained steady.

		Earlier this week we announced the purchase of Ruhr Schwefelsäure GmbH and its subsidiary Ruhr Transport GmbH. RS is the leading sulphur removal company in Germany and I would like to take just a few minutes to review this acquisition and explain how, like our other acquisitions, it meets our objective of broadening our sources of earnings and distributable cash.

		Although BCT Chemtrade is based in Europe, it operates primarily in global markets. Its products, sulphur and sulphuric acid, are obtained through removal services contracts with customers in Europe and South America, but for the most part are then exported to non-European end-use customers throughout the world, particularly in South America.

		For some time, we have been looking for a complementary European business, and RS is an excellent fit. The majority of RS's earnings are derived from the removal and sale of liquid sulphur from various oil and gas industry desulphurization plants in western and central Europe. RS has a 20% share of this total market. In Germany, which accounts for a bit less than one-third of the total European market, RS has a 36% share, making it the leading removal services company by a comfortable margin.

		The balance of RS earnings are derived from the removal and sale of sulphuric acid, primarily in Germany, where the company has an estimated 18% share of the market. Approximately half of the total volume of sulphuric acid handled by RS is from involuntary production such as copper and zinc smelters, and the balance from merchant producers and sulphur conversions.

		The company has an impressive customer list, with sulphur removal customers including oil refiners such as BP, Shell and Exxon. It has long-term intake contracts with these customers, including one long-term contract accounting for 35% of its volume that is in effect until 2017. On the sales side, some of our blue chip customers include Bayer, Degussa and BASF.

		The combination of our existing business and RS will create the largest European operator in the industry, but more importantly, it provides us with a more diversified and balanced portfolio in Europe. As part of Chemtrade, RS will have improved access to international markets for sulphur and sulphuric acid, and the combined logistics operations of their trucks and trailers and our storage facility at Rotterdam, should produce cost savings for the group.

We're pleased with the acquisition of RS. It will be immediately accretive for unitholders, and provides an excellent base for pursuing additional opportunities to increase earnings and distributable cash from our international operations. I'll now hand the presentation over to Vic, after which I will have some comments on our outlook for 2005.

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

		Because of the Performance Chemicals and Pulp Chemicals acquisitions, our year-over-year results are not directly comparable. However, looking at revenue, EBITDA and distributable cash for the past three years, it is quite clear how Chemtrade has grown.

		However, looking at revenue, EBITDA and distributable cash for the past three years, it is quite clear how Chemtrade has grown. In broad terms, the 2003 numbers reflect the addition of Performance Chemicals and 2004 reflects the addition of Pulp Chemicals.

Revenue for 2004 was $346 million compared with $291 million in 2003, and EBITDA for the purpose of calculating distributable cash was $52.6 million compared with $44.5 million in 2003. Distributable cash for 2004 was $43.1 million, a 23.5% increase over the $34.9 million generated in 2003. SPPC results for 2004 were below 2003 results due primarily to competitive price pressures on our powder SHS products that emerged early in the year, and raw material cost increases later in the year. Pulp Chemicals, International and our other SPPC products all had a strong year.

		Our key measure of performance is distributable cash, and as Mark indicated, we continued our track record of generating more distributable cash than needed to maintain our targeted annual distribution rate of $1.80 per unit.

		Looking at the segmented results for the full year, only SPPC and International are directly comparable. Since Pulp Chemicals was acquired in August 2003 its 2004 results are not directly comparable. Unitholders may have noticed that International's revenue in 2004 was over 40% ahead of 2003. This reflected the higher global prices for sulphuric acid. However, because many of our contracts are matched contracts, or fee-based, our margins tend to be steady.

We did, however, benefit from some volumes increases and cost reductions. As noted earlier, Sulphur Products had a good year, and the lower overall earnings in SPPC are attributable to the raw material increases and pricing pressure on powder SHS. In 2004 we added a fourth, non-operating segment – Corporate – which includes the costs of corporate activities such as information technology, finance and human resources that are not directly allocated to an operating segment. The increase in 2004 over 2003 reflects the increased scope of the business following the Pulp Chemicals acquisition as well as expenses incurred in the fourth quarter spent on professional advisors in connection with acquisition activities.

		Last evening we announced our first quarter results and I would like to review those before closing with some comments on how we're managing the stronger Canadian dollar and on some changes we made to our credit agreements last year.

		For the three months ended March 31, 2005, cash available for distribution was $11.3 million, or 48 cents per unit, generated from revenue of $80.9 million and EBITDA of $13.4 million. In the first quarter last year, distributable cash was $12.3 million, or 54 cents per unit, revenue was $80.9 million, and EBITDA was $15.1 million.

Net earnings for the first quarter this year were $4.2 million compared with $6.2 million last year. Our Pulp Chemicals and International segments achieved results similar to last year, but our SPPC segment reported lower earnings than 2004.

		Looking at the segmented results, SPPC generated EBITDA of $9.5 million in the first quarter compared with $11.6 million last year. The major reasons for the decline were increased raw material and product costs, and the acid inventory build in preparation of Inco's maintenance shutdown. SPPC's decrease in revenue is primarily a result of foreign exchange and the holding of the additional acid inventory.

Recall that our hedging policy, which I will discuss in a minute, hedges cross border cash flow not U.S. dollar revenue. Accordingly, the increased value of the Canadian dollar in 2005 vs. 2004 adversely affected the revenue line and SPPC EBITDA.

		Our SHS products faced increasing raw material costs and, with respect to powder SHS, the competitive threat of Chinese material. We have explained initiatives we were taking to combat these pressures, primarily securing our customer base and reducing costs. I won't go over that ground again except to say that we now have for the bulk of our powder SHS sales under contract our control of manufacturing costs were instrumental in delivering our first quarter results.

		In fact, our first quarter 2005 powder sales volumes were ahead of the first quarter last year. However, as we noted previously, we did suffer some margin compression primarily due to raw material cost increases, particularly caustic soda.

The competitive pressure from Chinese product appears to have lessened although we do not think it has disappeared. We believe the reasons include our success in securing most of our powder customers with longer term sales contracts, a customer preference for a shorter supply chain and superior service offering, and the increasing costs faced by the Chinese in both production and transportation costs. The larger issue for us continues to be the higher prices for caustic soda, a major input for SHS manufacture. Caustic costs were again higher in the first quarter, and we expect further increases, albeit smaller ones, in the second and third quarters before leveling out later in the year. These costs, as we noted in our last call, will have an impact on our SHS business this year, but we continue pursuing initiatives to mitigate the impact.

		Demand for sulphur products, particularly acid, remained strong. While we benefited from increasing acid pricing this was partially offset by increased product cost and a reduction of the sulphuric acid volume we could have sold had we not had to build sulphuric acid inventory in preparation for the Inco maintenance shutdown later this month. The inventory will enable us to maintain supply to our customers during the three-week turnaround but since Inco did not take a similar shutdown last year, reduced the amount of product we had available for sale in 2005 when compared to 2004.

		Overall, SPPC performed well but the results were below last year. Our team continues to take decisive steps to deal with both the cost and competitive issues facing SHS. Although raw material cost increases are currently compressing margins, when they return to normal levels we will be well positioned with a solid customer base, secure customer contracts and a more efficient manufacturing operation.

		Pulp Chemicals reported EBITDA of $5.1 million for the quarter, which was unchanged from last year. Although revenue was lower than last year, due largely to lower sales to third parties than anticipated, margins were improved, resulting in EBITDA in line with 2004. With the new third party sales contract now in place, we expect volumes for the remainder of this year to exceed 2004 volume.

		BCT Chemtrade's results were level with last year, reporting EBITDA of $1.4 million. Once again revenue was significantly higher than last year, but because BCT Chemtrade matches contracts for buyers and sellers, the margins remain relatively constant. Corporate costs for the first quarter improved to $2.6 million compared with $3 million last year.

		Turning to our capital structure, in March last year we amended our credit agreement with our principal bankers, which ensures that the earliest maturity date of our term bank debt is now March 2009. At the same time we extended the term of our debt, we also entered into a four-year interest rate swap that resulted in an all-in interest rate of less than 5%. The swap currently lasts until 2008.

		Finally, a few comments on how we are managing the stronger Canadian dollar. Prior to the Pulp Chemicals acquisition, approximately 60% of the Fund's EBITDA and distributable cash was generated in US dollars. With the inclusion of Pulp Chemicals, this declined to approximately 50% in 2004, and at the Fund's expected exchange rates in 2005, we estimate approximately 40% of both EBITDA and distributable cash will be generated in US dollars.

We also have a policy of hedging a portion of the US dollars generated that must be converted to Canadian dollars. We roll these hedges forward for an 18-month period. At April 30, 2005, approximately 85% of planned transfers for 2005 and 21% of 2006 planned transfers had been hedged. Thank you. I will now hand the presentation back to Mark.

Mark Davis, President & CEO Thank you, Vic. Most of our efforts in 2004 were directed towards improving the businesses we own. We believe we've enhanced all of our businesses including SHS products.

		We've improved efficiencies throughout the business, improved our SO2 product position with purchase of customer contracts early in 2004 and extending the Falconbridge agreement, added new demand to Pulp Chemicals, and recently expanded our European business through the RS acquisition. Finally, regarding SHS, our product that faced the biggest challenges, we have successfully secured most of our customer base and have improved many aspects of our cost structure.

		The main challenge we continue to face is the increasing cost of caustic soda. As we noted in our fourth quarter conference call, caustic soda is a product that goes through pricing cycles. Currently, prices are being driven higher by a number of factors including a slight reduction in production capacity, high natural gas prices and high industry demand from what has been a strong North American economy. These factors will change and some new capacity has also been announced although it won't come on stream until 2006.

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.

		Looking ahead, 2005 will be a challenging year, mostly because of the high caustic prices I referred to, and the scheduled three-week maintenance shutdown at our major sulphur products supplier. However, we should continue to benefit from higher acid pricing, better Pulp Chemicals volumes and operating efficiencies, and the RS acquisition. Although 2005 distributable cash may be less than the amount generated in 2004, we believe our annual distribution rate of $1.80 per unit is sustainable.

		Looking beyond 2005, caustic pricing should be returning to historical levels, we expect increased sulphuric acid volumes from Inco as they comply with more stringent environmental regulations, Pulp Chemicals should operate at capacity and we will have the added contribution from our expanded European business.

		We will also continue to look for new growth opportunities. Our criteria for that have not changed – they must be within our core competencies, and they must be accretive for unitholders. Thank you for your attention.