Chemtrade Logistics





Mark Davis, Chief Executive Officer Good morning, ladies and gentlemen. I'm pleased to review our 2006 operations and performance with Chemtrade's unitholders. 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 • Sue Paré, Associate General Counsel • Maryann Romano, Vice President, Human Resources

The other members of the team, Doug Cadwell, VP Marketing, Leon Aarts, VP Sales and Tab McCullough, VP Manufacturing, were unable to be here today. At last year's annual meeting we outlined the two dominant issues we anticipated facing in 2006, those being the operating reliability of our regen plants and the impact of escalating raw material and energy costs on certain parts of our business.

		Two other unexpected events occurred during the year. First, an interruption of our salt supply had an adverse impact on our fourth quarter results. The second event, the Federal Government's proposed tax changes, affected our unit price and led to our examination of strategic alternatives, a process that is still ongoing.

		During the year we took aggressive steps to deal with the two foreseeable issues — operating reliability and raw material costs. The strength and longevity of our business is dependent on operational efficiency and reliability and these goals must be a daily focus of our organization.

At two of the regen facilities we acquired in 2005, Beaumont and Shreveport, it became apparent early in 2006 that an enhanced capital program was necessary to bring those plants up to our operating and reliability standards.

		That extra spending, and the additional downtime needed during the scheduled maintenance shutdowns to implement the upgrades, had an adverse impact on our first and second quarter results, but the plants are now operating with improved reliability. Continuing to improve our reliability and efficiency each year will remain a key goal.

The other significant issue we faced in 2006 was the continuing impact of increasing input costs at our powder SHS operation in Leeds, South Carolina. Over the last few years we have faced escalating raw material and energy costs in the SHS business.

		As an example of the magnitude of the increases we were dealing with, raw material costs for our SHS products in 2005 were $5.7 million higher than in 2004, and the trend was continuing in 2006 even though energy costs and caustic soda prices had stabilized somewhat. The price of sodium formate, the other key input in powder SHS, was not abating, however, and the production of powder SHS was no longer economically viable for Chemtrade.

		A key issue in our decision to cease production of powder SHS at Leeds was finding a way to ensure that our customers continued to receive a reliable supply of product. We achieved this by entering into an innovative long-term supply and marketing agreement with Guangdong ZhongCheng Chemicals of the People's Republic of China. ZC is the world's largest and, we believe, the lowest cost producer of powder SHS.

Our agreement with ZC came into effect in October and I'm pleased to say the changeover went very smoothly and all our customers continued to receive product. Under the agreement with ZC, Chemtrade is now ZC's exclusive marketer in Canada, the United States and, for non-textile uses, in Mexico. We also have supply and marketing rights in other geographic markets. We're pleased with the arrangement because it provides opportunities for us to expand this part of our business, but without the manufacturing risk. It was a tough decision to close the Leeds plant, which took place at the end of December. The financial impact on our 2006 results was significant, and as Rohit will explain, there is some spillover into 2007. However, we strongly believe it was the right one because it has strengthened Chemtrade and made our overall operations more secure.

		The unexpected impact on our operations came late in the year when the salt supplier for our Pulp Chemicals operations declared Force Majeure because of production and supply problems brought about by severe weather and operating problems. This caused us to curtail production at our Prince George plant. Although the problem was resolved relatively quickly, the interruption was enough to reduce production by about 30% for the month of December.

When the disruption occurred, we were already in the process of changing our salt supplier. That changeover, which was successfully implemented by the end of the year, also incurred some additional costs in the fourth quarter as we loaded our supply chain with salt from our new supplier.

		Although we faced a number of challenges during 2006 in some of our businesses, it is worth noting that in spite of this, distributable cash for the year, before the fourth quarter Leeds restructuring charge, was $49.1 million, or $1.46 per unit. This demonstrates that our broadly based business is able to withstand a number of challenges and still remain profitable.

In December we announced that we were adopting a new annual distribution rate of $1.20 per unit, which, based on the distributable cash generated in 2006 should result in a lower payout ratio and increase the security of our distributions.

		The initiatives we launched and successfully executed during the year have strengthened and stabilized Chemtrade operationally and financially, and we will continue to look for ways to improve the reliability of all our operations and produce products at the lowest possible cost.

		Just the other day we announced a new initiative that will strengthen our business. We have purchased Olin Corporation's U.S. liquid SHS business. The cost was US$7.3 million, some of which is subject to earn out provisions.

		Under the agreement, Olin will now produce product for Chemtrade. The benefits of the transaction for Chemtrade are that it expands our customer base, and also gives us added flexibility in supplying our customers from the Olin plants in Charleston, Tennessee and Augusta, Georgia, or from our own plant in Leeds, South Carolina.

Financially it is also attractive. We expect the new contracts will generate an EBITDA return of 20% on the capital invested to purchase the contracts. I'll now hand the presentation over to Rohit for his review of the financial results for 2006 and the first quarter of 2007, after which I will have some comments on the outlook for 2007.

Rohit Bhardwaj , VP, Finance & CFO Thank you Mark, and good morning, ladies and gentlemen. Because of the Kemmax purchase in May 2005 and the Refinery Services and Phosphorous Specialties acquisitions in August 2005, the full year results for 2006 and 2005 are not directly comparable.

		Revenue, EBITDA and distributable cash continued to grow in 2006 as a result of the increased size and scope of Chemtrade. The per unit numbers, however, show the impacts of escalating raw material costs and the other operational issues Mark referred to. In the case of distributable cash, the impact of the restructuring costs related to the Leeds plant closure is also included.

Because they had such a significant impact on the year's results, I will start by explaining the charges related to the Leeds plant. Rising input costs and declining demand resulted in lower cash flow from assets used to manufacture powder SHS and we therefore recorded a non-cash impairment in the value of these assets of $12.3 million. We took that charge in the third quarter. Subsequent to that we announced that we would stop producing powder SHS at the Leeds facility. We recorded $2.7 million in the fourth quarter for costs related to severances and other costs required to effect a smooth closure of the plant. Of this amount, $1.3 million is a long-term liability as it's unlikely to be paid within the next year. We expected to record approximately $1.5 million in future periods, substantially all of which was charged in the first quarter of 2007. For 2006, including the $2.7 million of restructuring costs, cash available for distribution was $46.4 million, or $1.38 per unit. However, excluding those restructuring costs, distributable cash for the year was $49.1 million, or $1.46 per unit. We achieved these results despite the unexpected production loss at Pulp Chemicals in the fourth quarter. Looking at the segmented results, due to the acquisitions in 2005 in the SPPC and International segments, only Pulp Chemicals is directly comparable.

		Sulphur Products & Performance Chemicals generated revenue of $285 million in 2006, almost 26% higher than in 2005. This reflected the additional revenue from the Refinery Services and Phosphorous Specialties acquisitions in 2005, offset partially by reduced revenue from other SPPC products, primarily SHS.

Excluding restructuring costs associated with the cessation of production of powder SHS, EBITDA for 2006 was $50.2 million compared with $38.4 million in 2005. The benefits of the 2005 acquisitions were partially offset by the reduced SHS revenues and higher input and freight costs.

		Pulp Chemicals posted revenue of $52.6 million in 2006, up from $51.5 million in 2005. This reflected robust demand from Canfor, Pulp Chemicals' largest customer. The increase would have been higher except for the production interruption in the fourth quarter due to our major salt supplier declaring Force Majeure. This disruption, together with generally higher costs for electricity and salt resulted in EBITDA for the year of $20.9 million compared with $21.5 million in 2005.

International had another solid year in 2006. The increase in revenue reflected the acquisition of Kemmax in May 2005, as well as higher prices for certain commodities.

		Because many of our contracts for sulphuric acid are matched contracts, or fee-based, our margins tend to be steady and do not directly fluctuate with revenue fluctuations. The higher EBITDA, therefore, was primarily due to the inclusion of Kemmax's earnings and the increased margin related to higher volumes, offset partially by the negative impact of the stronger Canadian dollar.

		Turning now to our results for the three months ended March 31, 2007, which we announced yesterday.

		For the three months ended March 31, 2007, including a $2 million of restructuring and associated inventory revaluation costs, cash available for distribution was $6.6 million, or 20 cents per unit. However, excluding those restructuring and inventory revaluation costs, first quarter distributable cash was $8.6 million, or 26 cents per unit compared with $11.6 million or 35 cents per unit in 2006.

		As I mentioned, we recorded $2.7 million in the fourth quarter for costs related to severances and other costs required to effect a smooth closure of the Leeds SHS plant, and we had expected to record approximately $1.5 million in future periods. We recorded substantially all of these costs in the first quarter. Additionally the accounting rules required us to revalue our inventory at the lower cost of the ZC purchased material, which adversely affected results by another $500,000.

		On this same pre-Leeds basis, EBITDA for the first quarter was $13 million compared with $15.7 million in 2006 generated from revenues of $128.7 million and $121.9 million respectively.

The principal reasons for the revenue increase over last year were generally higher volumes and prices for sulphuric acid in our North American Sulphur Products business and in International, offset by lower revenue from our regen operations because of the maintenance shutdowns of both Beaumont and Shreveport in the first quarter this year, as well as the prolonged shutdown of a major customer. Last year only Shreveport took its turnaround in the first quarter. Turning to the segmented results, the restructuring and inventory revaluation costs of $2 million were included in SPPC segmented results. My comments on SPPC performance relative to 2006 will exclude these costs.

		SPPC generated revenue of $72.9 million and EBITDA of $9.5 million in the first quarter compared with $68.3 million and $11.5 million, respectively, in 2006. There are a number of issues that led to this result.

This segment was positively affected by additional volume and robust pricing on our merchant acid and ultra pure products, the benefits of which were tempered by the addition of a second major maintenance turnaround in the first quarter, the extended maintenance turnaround taken by a major customer and higher costs for zinc. Despite similar volumes and prices from Performance Chemicals, margins declined. Margins were negatively impacted by higher zinc costs in the first quarter of 2007 relative to the first quarter of 2006. The production of liquid SHS uses zinc and generates zinc oxide. Consequently, we have a natural hedge for the price of zinc as we buy zinc and then sell zinc oxide based on the London Metal Exchange (LME) pricing. Despite a rapid decline in price of zinc during the first quarter of 2007, average zinc prices were almost double the levels experienced during the first quarter of 2006 and affected SHS results by approximately $0.9 million. This declining trend also had a negative impact on our results, as our zinc oxide sales pricing tends to lag zinc purchases by approximately two months and therefore in a rapidly falling market our zinc oxide sales revenues are out of step with our zinc purchases. This resulted in an additional cost of approximately $0.6 million, which would have been avoided under more stable market conditions.

		Pulp Chemicals reported first quarter revenue of $14 million compared with $13.3 million in 2006, and EBITDA was $4.8 million, compared with $5.5 million in 2006. The decrease in the first quarter 2007 net earnings and EBITDA is primarily the result of an increase in costs for salt, both for the new supply and during the transition, not all of which could be recovered from customers. A portion of these costs are not expected to continue since they relate to finalizing the transition of salt suppliers.

		International reported revenue of $41.7 million for the first quarter compared with $40.4 million in 2006. The increase reflects generally higher volumes and prices for sulphuric acid. Increased competition in European markets resulted in EBITDA of $1.4 million compared with $1.7 million last year.

		Corporate costs for the first quarter were $2.6 million compared with $3 million in 2006. The decrease of $400,000 is mainly due to receipt of the net insurance proceeds of $0.9 million from our Hurricane Rita claim. This was a long and complex process, and the amount we received was in line with our expectations. This was partially offset by a decrease in foreign exchange gains recorded and an increase in certain corporate costs.

Finally, I would like to briefly recap the announcement we made in early January regarding the revised credit agreement and redemption of all outstanding Convertible Debentures.

		The revised credit agreement increased the amount that can be borrowed under the Fund's senior credit facilities by $50 million. Part of the increased facility was used to redeem the debentures, which took place on February 6. The total amount used, including principal, accrued and unpaid interest, was approximately $17 million.

The annual interest cost savings as a result of the redemption will amount to approximately $0.6 million. The other item to note about the revised agreement is that it also increased the maximum allowable total debt to EBITDA ratio from 3:1 to 3.5:1. Although we were well within this limit allowed by the original agreement at year end, the increased limit gives us added financial flexibility. I'll now hand the presentation back to Mark

Mark Davis, Chief Executive Officer 2006 was a busy and challenging year for Chemtrade. We executed a number of initiatives to improve our operating reliability, eliminate the production most exposed to commodity raw material costs, and integrate our new SHS and salt supplies into our supply chain. These initiatives have strengthened and stabilized our business operationally, and financially.

		Some of the positive impact of these achievements is being offset in 2007 by higher costs for freight and salt, not all of which can be passed on to customers. As you saw from the first quarter numbers, this is having an impact on our results this year, but we will continue to seek ways to mitigate the impact of these pressures.

Because of the maintenance shutdowns of our two largest regen plants in the first quarter and the impact on earnings and cash flow, we expect to deliver stronger earnings in the second half of the year.

		As you have seen, we move aggressively to address any problems we identify with our businesses. We take a long-term view that operational reliability, cost control and effective relationship management are essential to the long-term success of Chemtrade.

We continue to focus on improving our businesses and delivering value to our unitholders. Thank you for your attention.