Chemtrade Logistics





Mark Davis, Chief Executive Officer Good morning, ladies and gentlemen. I'm pleased to review with Chemtrade's unitholders, our operations and performance in 2005. Before Rohit and I make our presentations, I would like to introduce other members of the senior management team who are here today. I'll ask them to stand as they are introduced.

		• Dave Masotti , President & Chief Operating Officer • Doug Cadwell, Vice-President, Marketing • Maryann Romano, Vice President, Human Resources • Leon Aarts , Vice President, Sales

The other members of the team, Ernst Kohler, President of BCT Chemtrade, and Tab McCullough, Vice-President, Manufacturing, were unable to be here today. As you know, 2005 was a financially challenging and disappointing year for Chemtrade. However, the year also saw us complete a number of initiatives that, we believe, substantially strengthened Chemtrade, improved our quality of earnings, and will provide long-term benefits for unitholders.

		During the year we completed three strategic acquisitions that significantly expanded our business portfolio, while we also continued our initiatives to improve operating efficiencies. Unfortunately, from a financial perspective these positive achievements were more than offset by the high raw material and energy costs we incurred in the second half of the year, and the temporary shutdown of one of our newly acquired plants due to Hurricane Rita.

		Rohit will have some comments about our financial performance later, but first, I would like to describe the two chemical businesses we purchased from Peak in August 2005 and the Kemmax business we acquired in Germany in May 2005. The Peak acquisitions were the largest since our IPO, and all three acquisitions add important new dimensions to Chemtrade.

		Industrial chemicals, the industry in which Chemtrade operates, is one where size and scale are important. During the almost five years since our IPO, Chemtrade has substantially enhanced its size and scale, primarily through acquisitions, and this is reflected in our greatly increased revenues and asset value.

But more importantly, • Our product portfolio has grown. • Our geographic reach has expanded across North America and been enhanced in Europe. • We have diversified our earnings; and • We have diversified the end markets we serve.

		All of our acquisitions have been consistent with Chemtrade's four-pronged growth strategy, which is: 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 of earnings.

In May last year we purchased Kemmax, the leading sulphur removal company in Germany.

		Our original international business, BCT Chemtrade is based in Europe, but 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.

		Kemmax is an excellent complement to the business we had been conducting. The majority of Kemmax'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. Kemmax has a 20% share of this total market. In Germany, which accounts for a bit less than one-third of the total European market, Kemmax has a 36% share, making it the leading removal services company by a comfortable margin.

		The balance of Kemmax's earnings is 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 Kemmax 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 legacy BCT Chemtrade business and Kemmax created the largest European operator in the industry, but more importantly, it provided us with a more diversified and balanced portfolio in Europe, improved access to international markets for sulphur and sulphuric acid, and the combined logistics has produced cost savings for the group.

		Then in August we acquired the regen and P2S5 businesses from Peak. As I said, this was our largest transaction since the IPO. The total cost, including all related transaction costs was approximately $220 million Canadian. Let me tell you some more about these businesses and how they fit within our strategy and business model.

		We acquired two businesses – the regen/sulphuric acid business and the phosphorous pentasulphide business. These are quality stable businesses where a large portion of the earnings is generated by contracts that adjust the customer's price for changes in the cost of the major raw material.

		As you can see from this map, these new businesses took Chemtrade into new geographic areas in North America. The Refinery Services 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 Phosphorous Specialties business is located in Lawrence, Kansas.

		Refinery Services processes various types of sulphuric acid – including regenerated sulphuric acid (or “regen”), merchant, and ultra pure. The foundation of the Refinery Services 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. Oil refineries are the largest producers of spent acid. Refinery Services has a significant market share of the regen acid business in the U.S. Gulf Coast area, and it is the only regen facility in the U.S. Rocky Mountain district.

		Refinery Services' regen business is based on 2-5 year contracts, which form the foundation of its earnings. These contracts adjust pricing to pass through charges in natural gas, the main raw material input cost. This contractual basis helps mitigate the financial impact of cyclical movements of natural gas pricing.

		The Phosphorous Specialties business is one of only two North American producers of P2S5, which is a performance chemical used primarily as a strategic ingredient in the lubricating oil and grease additive markets for the automotive industry.

		Let me briefly describe how these businesses fit with our growth strategy.

Both Refinery Services and Phosphorous Specialties 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 was already a significant part of our portfolio of products. The 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. We significantly diversify our product offering. Phosphorous Specialties' earnings are solely derived from a product (P2S5) that we did not previously market; and Chemtrade did not previously process spent acid. Refinery Services incrementally expands our existing merchant and ultra pure acid businesses. The acquisition improves the quality of our earnings. The majority of Refinery Services' 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 that tend to mitigate traditional chemical commodity cyclicality – Refinery Services contractually, and Phosphorous Specialties due to industry structure. All of our businesses are good quality operations, and I'll now hand the presentation over to Rohit to review their financial performance, after which I will have some comments on our outlook for 2006.

Rohit Bhardwaj, VP, Finance & CFO Thank you, Mark and good afternoon ladies and gentlemen.

		Because of acquisitions, our year-over-year results are not directly comparable. In broad terms, however, the 2005 numbers reflect the Refinery Services and Phosphorous Specialties acquisitions in August and the Kemmax purchase in May.

		While aggregate revenue, EBITDA and distributable cash growth all illustrate the increased size and scope of Chemtrade, the per unit numbers show the impacts of escalating raw material costs and of Hurricane Rita.

Looking at the segmented results, only Pulp Chemicals is directly comparable. Sulphur Products & Performance Chemicals generated revenue in 2005 that was 10% higher than in 2004, primarily reflecting the addition of the Refinery Services and Phosphorous Specialties businesses in August.

		Unfortunately, the EBITDA contribution of the new businesses was offset by lower results from SHS products because of higher raw material and energy costs. Further, EBITDA was also negatively impacted by a shutdown of the Beaumont plant as a result of Hurricane Rita.

		Although sales volumes of SHS were in line with our expectations for the year, input costs were significantly higher. In particular, caustic soda, sodium formate and natural gas were all more expensive than expected. To give you an idea of the impact, input costs for SHS products were over $5 million higher in 2005 than in 2004.

Even though we implemented a number of cost reduction initiatives and implemented a price increase later in the year, they could not offset the full extent of the increasing costs. I should add that our customers have been very understanding of the circumstances, and we are grateful to them for working with us to find reasonable solutions. In addition to increasing raw material and energy costs, Hurricane Rita's impact on our 2005 results was significant. As you know, the hurricane forced our Beaumont plant to be off line for essentially a month. We were comparatively lucky in the sense that none of our employees was injured and that the plant sustained a limited amount of physical damage, for which we recorded a fixed asset write-down of $0.6 million in the third quarter. The greater impact was on our operations. We estimate the impact of the hurricane on the business, including plant downtime and market disruptions, to have reduced distributable cash by approximately $3 million. Our business interruption insurance policy covers losses in excess of approximately $300,000, and we expect to recover a substantial portion of the balance. The claim will be submitted in the next month, and I should note that we have not factored any recovery into our results or into our estimates of distributable cash for this year.

		Pulp Chemicals posted improved revenue and EBITDA for the year. This reflected strong demand from our key customer, Canfor, whose plants ran at close to full capacity for most of the year, and the addition of a new third party customer in the second half of the year. Our Prince George plant ran at full rates for much of the year.

		International had a solid year in 2005. The 62% increase in revenue reflected the acquisition of Kemmax in May, as well as higher prices for sulphuric acid. Because many of our contracts for sulphuric acid are matched contracts, or fee-based, our margins tend to be steady. The higher EBITDA, therefore, was primarily due to the inclusion of Kemmax's earnings.

		Turning now to our results for the three months ended March 31, 2006...

		... revenue was $122 million compared with $81 million in the first quarter of 2005. This again demonstrates the additional size that Refinery Services, Phosphorous Specialties and Kemmax has added to Chemtrade, but operational issues at our Beaumont and Shreveport plants offset the full benefit.

		Looking at the segmented results, the major reason for the higher EBITDA generated by SPPC were the Refinery Services and Phosphorous Specialties assets, offset by the continued impact of high costs and some volume pressure on our SHS products. We also experienced some operational issues at our Shreveport and Beaumont plants, which resulted in those plants processing less regen acid and producing less merchant acid than we had anticipated.

These operational issues, which were also a factor for some of our customers, were a result of the sudden interruption of production caused by the hurricanes. Although our customers, and the Beaumont plant, generally ran at full rates, the plants experienced some difficulties in maintaining those rates. In fact, one major customer's regen demand was about 15% lower than either of us expected as the customer struggled with a number of minor interruptions in its process. We estimate that the additional downtime and spending on the Shreveport plant and the Beaumont operating issues adversely affected distributable cash in the first quarter by over $1 million. We expect that these issues will decrease as Beaumont completes its major maintenance shutdown in the second quarter and the customers take their own first quarter or second quarter shutdowns in preparation for the heavy summer gasoline season.

		With respect to input costs for the regen business, although gas prices were lower for part of the first quarter than the high points reached in the fourth quarter, we were not able to realize this fully as Shreveport was taking its annual maintenance turnaround, and the operational upsets at Beaumont caused our fuel utilization to be higher than normal.

With respect to SHS, input costs for sodium formate, natural gas and caustic soda were over $1 million higher than the first quarter last year. It appears as though caustic soda prices may have peaked and have started to slowly decrease. Natural gas pricing is also down, but this remains a relatively volatile market. We continue to expect some further increases in formate costs in the second quarter. Some of the impact of the higher costs was offset by the price increase we announced in December, but as we stated earlier, the price increases are not sufficient to recover all of the increased costs.

		Pulp Chemicals reported higher first quarter revenue and EBITDA compared with 2005. The improved results reflected high operating rates by Canfor's plants and sales to our third party customer that we added in the second quarter last year. You may recall that Canfor purchases over 60% of our output under a 10-year contract that adjusts Canfor's price for changes in key raw materials such as power and salt.

		International also reported higher revenue and EBITDA for the first quarter, primarily reflecting the Kemmax acquisition in May 2005.

Maintenance capital expenditures for the 1st quarter were $1.4 million and $0.2 million for 2005. The increase in maintenance capital spending reflects the additional capital requirements related to the 2005 Acquisitions. As we said when we purchased these assets, we expected to spend about $1 million on certain one-time items, and this was pre-funded as part of the acquisitions.

		We now believe that the amount of pre-funding was too low, and an amount of approximately $2.5 million to be invested in the two years following the acquisitions would have been a more reasonable level of pre-funding. Some of these additional expenditures are related to improving the reliability of these recently acquired assets. Consequently, our level of capital expenditures in 2006 is likely to be higher than previously estimated.

		Finally, an update on our U.S. dollar hedging program. As we have noted before, because our US and International operations report in US dollars, the Fund is exposed to fluctuations in the Canadian/US dollar exchange rate. The Peak acquisition added another US-based business.

At the Fund's expected exchange rate in 2006, we estimate approximately 60% of both EBITDA and distributable cash are generated in U.S. dollars. To manage the predictability of our cash flows, we have entered into a series of foreign exchange contracts that hedge that portion of Chemtrade's U.S. dollar based cash flow that is expected to be converted into Canadian dollars. As of March 31, 2006, approximately 72% of planned transfers for the remainder of 2006 and 68% of 2007 planned transfers had been effectively hedged at $0.8318 and $0.8305, respectively. I'll now hand the presentation back to Mark.

Mark Davis, Chief Executive Officer 2005 was a challenging year for Chemtrade and some of the issues have continued in the first half of 2006. Last year after talking about our four strategic thrusts, I highlighted sustainable earnings.

		I said that it was essential for mature businesses such as Chemtrade to execute the numerous initiatives required to ensure the strength and longevity of the business. I stressed the need to focus on operational excellence, cost control, effective relationship management and successful integration of our acquisitions. In our terminology, operational excellence includes safeguarding our employees and communities, and increasing efficiencies.

The issues that affected Q1 and will affect Q2 this year can and will be cured by our focus on operational excellence. We will spend the capital necessary to ensure that our plants are safe for our employees and surrounding communities.

		We also will spend the funds necessary to ensure more reliable operations going forward. Rohit has discussed the amounts, which although larger than planned are relatively modest. We rectified a number of significant reliability concerns in Q1 and Q2. Accordingly, although we will continue to enhance the reliability of our operations each year, we now expect more reliable operations than we have experienced since the Peak acquisition.

		Chemtrade has certainly faced its share of issues in the last half of 2005 and the first part of 2006. However, we believe that we continue to improve the strength and sustainability of Chemtrade's earnings. Compared to the beginning of 2005.

• Our product portfolio has grown, • Our geographic reach has expanded across North America and been enhanced in Europe • Our sources of earnings are more diverse; and • We have diversified the end markets we serve

		All of these factors should position us well for the future. Thank you for your attention.