Chemtrade Logistics Income Fund Reports Operating Results for Full Year 2016 and Fourth Quarter
TORONTO, February 27, 2017 – Chemtrade Logistics Income Fund (TSX: CHE.UN) today announced results from continuing operations for the three months and year ended December 31, 2016. The financial statements and MD&A will be available on Chemtrade’s website at www.chemtradelogistics.com and on SEDAR at www.sedar.com.
On February 24, 2017 Chemtrade entered into a definitive agreement to sell its International business segment to Mitsui & Co., Ltd. (“Mitsui”). The transaction, which is subject to relevant regulatory approvals, is expected to close during the second quarter of 2017. In the December 31, 2016 financial statements and in comments below, the International segment has been treated as a discontinued operation.
Consolidated revenue from continuing operations for the year ended December 31, 2016 was $1.1 billion which was $60.2 million lower than 2015. The decrease was due primarily to lower selling prices for sulphuric acid and sulphur in Sulphur Products & Performance Chemicals (“SPPC”) and lower volumes of certain specialty products in Water Solutions & Specialty Chemicals (“WSSC”). Net loss from continuing operations for 2016 was $1.2 million, compared with the $58.0 million net loss from continuing operations in 2015. Net earnings for 2015 were negatively affected by a non-cash goodwill impairment charge of $88.7 million recognized in WSSC.
In 2016, Chemtrade issued convertible unsecured subordinated debentures and used the net proceeds to repay U.S. dollar long-term debt, resulting in a realized foreign exchange loss of $20.3 million. Chemtrade also expensed $8.5 million of transaction costs in the fourth quarter of 2016 related to the acquisition of Canexus Corporation. The foreign exchange loss and Canexus acquisition costs are both included in reported results for the year ended December 31, 2016.
For the year ended December 31, 2016, cash flow from operating activities was $153.0 million, or $2.21 per unit, compared with $162.0 million, or $2.35 per unit in 2015. Distributable cash from continuing operations after maintenance capital expenditures(1) for 2016, excluding the foreign exchange loss and acquisition costs, was $128.5 million, or $1.86 per unit, compared with $122.7 million, or $1.78 per unit in 2015.
Adjusted EBITDA from continuing operations(1) for 2016 before the foreign exchange loss and the acquisition related costs was $209.2 million compared with $220.9 million in the previous year. Adjusted cash flow from operating activities from continuing operations(1) was $144.5 million compared with $174.8 million in 2015.
Chemtrade President and Chief Executive Officer, Mark Davis, said, “During 2016, in addition to focusing on our normal course business initiatives, we had an added focus on optimizing our portfolio of businesses. We continue adding breadth and diversity to the portfolio. We started up one new water solutions plant and commenced construction of another. We are expanding our potassium chloride operation and constructing a new adjuvants facility. During the year we also conducted a strategic review of our International segment, resulting in the February 24 execution of a definitive agreement for sale of the International business to Mitsui. Obviously, the biggest future change in our portfolio will come from the agreement to acquire Canexus Corporation. The Canexus businesses will significantly expand our sodium chlorate business and diversify our portfolio with the addition of chlor-alkali products, and Brazilian earnings as well as providing a platform for expansion in Brazil.”
For the fourth quarter of 2016, revenue from continuing operations was $251.7 million, a decrease of $25.7 million from 2015. The decrease was primarily due to lower selling prices for sulphuric acid and sulphur in SPPC and lower volumes of certain products in WSSC. Net earnings from continuing operations for the fourth quarter of 2016 were $6.4 million compared with a net loss of $82.6 million for the fourth quarter of 2015. The net loss in 2015 was primarily due to a goodwill impairment of $88.7 million recognized in the WSSC segment during the fourth quarter of 2015.
Adjusted EBITDA from continuing operations(1) for the fourth quarter of 2016, excluding acquisition related costs, was $40.1 million compared with $47.1 million in the fourth quarter of 2015. The decrease is mainly attributable to the cessation of production at Chemtrade’s sulphuric acid plant in Augusta, Georgia and the temporary reduction in production at Chemtrade’s potassium chloride plant in Midlothian, Texas that is undergoing expansion.
Cash flow from operating activities was $49.8 million compared with $69.0 million generated during the fourth quarter of 2015. Adjusted cash flow from operating activities from continuing operations(1) was $31.0 million compared with $33.8 million generated during the fourth quarter of 2015. Distributable cash after maintenance capital expenditures from continuing operations(1) for the fourth quarter of 2016, excluding the acquisition related costs was $19.7 million or $0.28 per unit compared with $6.0 million or $0.09 per unit in 2015.
In the fourth quarter of 2016, SPPC generated revenue of $141.9 million compared to $158.7 million in 2015. The main reason for the decreased revenue, year-over-year, was lower selling prices for sulphuric acid and sulphur. Adjusted EBITDA(1) for the quarter was $30.9 million compared with $33.2 million in 2015. The primary reason for the decrease was the cessation of production at Chemtrade’s Augusta, Georgia plant resulting from the dedicated customer’s decision to wind down its caprolactam operations.
WSSC segment reported fourth quarter revenue of $109.8 million compared with $118.8 million in 2015. Adjusted EBITDA(1) was $20.3 million compared with $27.4 million generated in 2015. Adjusted EBITDA(1) was affected by operational issues at a water chemicals manufacturing plant and by reduced operating rates at the specialty chemicals plant in Texas where the first phase of an expansion was implemented.
Corporate costs during the fourth quarter of 2016 were $19.6 million, compared with $13.5 million in the fourth quarter of 2015. The primary reason for the difference was $8.5 million of acquisition costs related to the Canexus acquisition.
Mr. Davis said, “Our continuing businesses are performing well and we look forward to integrating the Canexus operations once closing occurs. We continue to strengthen our business with completion of the organic growth initiatives underway in our water treatment, potassium chloride and adjuvants businesses and are exploring other organic opportunities. We will continue investing in our people and our assets to ensure Chemtrade’s ability to deliver long-term sustainable earnings.”
Distributions declared in the fourth quarter totalled $0.30 per unit, comprised of monthly distributions of $0.10 per unit.
Chemtrade operates a diversified business providing industrial chemicals and services to customers in North America and around the world. Chemtrade is one of North America’s largest suppliers of sulphuric acid, spent acid processing services, inorganic coagulants for water treatment, sodium nitrite, sodium hydrosulphite and phosphorus pentasulphide. Chemtrade is a leading regional supplier of sulphur, sodium chlorate, liquid sulphur dioxide, potassium chloride, and zinc oxide. Additionally, Chemtrade provides industrial services such as processing by-products and waste streams.
(1) Non–IFRS Measures
EBITDA and Adjusted EBITDA –
Management defines EBITDA as net earnings before any deduction for net finance costs, taxes, depreciation and amortization. Adjusted EBITDA also excludes other non-cash charges such as gains and losses on the disposal and write-down of assets, impairment of intangible assets, and unrealized foreign exchange gains and losses. EBITDA and Adjusted EBITDA are metrics used by many investors and analysts to compare organizations on the basis of ability to generate cash from operations. Management considers Adjusted EBITDA (as defined) to be an indirect measure of operating cash flow, which is a significant indicator of the success of any business. Adjusted EBITDA is not intended to be representative of cash flow from operations or results of operations determined in accordance with IFRS or cash available for distribution.
EBITDA and Adjusted EBITDA are not recognized measures under IFRS. Chemtrade’s method of calculating EBITDA and Adjusted EBITDA may differ from methods used by other income trusts or companies, and accordingly may not be comparable to similar measures presented by other organizations.
A reconciliation of EBITDA and Adjusted EBITDA to net earnings is provided below:
Cash Flow –
Management believes supplementary disclosure related to the cash flows of the Fund including the amount of cash available for distribution to Unitholders, repayment of debt and other investing activities provides useful additional information. A cash flows table presenting this information is included in the Fund’s MD&A filed on SEDAR. The table is derived from, and should be read in conjunction with, the consolidated statements of cash flows. Certain sub-totals presented within the cash flows table, such as “Adjusted cash flows from operating activities”, “Distributable cash after maintenance capital expenditures” and “Distributable cash after all capital expenditures”, are not defined terms under IFRS. These sub-totals are used by Management as measures of internal performance and as a supplement to the consolidated statements of cash flows. Investors are cautioned that these measures should not be construed as an alternative to using net earnings as a measure of profitability or as an alternative to the IFRS consolidated statements of cash flows. Further, Chemtrade’s method of calculating each measure may not be comparable to calculations used by other income trusts or companies bearing the same description.
A reconciliation of these supplementary cash flow measures to cash flow from operating activities is provided below:
Non-maintenance capital expenditures are: (a) pre-funded, usually as part of a significant acquisition and related financing;
(b) considered to expand the capacity of Chemtrade’s operations; (c) significant environmental capital expenditures that are considered to be non-recurring; or (d) capital expenditures to be reimbursed by a third party.
Caution Regarding Forward-Looking Statements
Certain statements contained in this news release constitute forward-looking statements within the meaning of certain securities laws, including the Securities Act (Ontario). Forward-looking statements can be generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “expected”, “intend”, “may”, “will”, “project”, “plan”, “should”, “believe” and similar expressions. Specifically, forward-looking statements in this news release include statements respecting certain future expectations about: the ability to close and timing of the sale of the International business segment; the ability to close, timing and expected completion date of the acquisition of Canexus; the ability to integrate and anticipated effects on Chemtrade’s business of the Canexus acquisition; our intention to execute on organic growth initiatives and opportunities and to invest in our people and assets; and our ability to deliver long-term sustainable earnings. Forward-looking statements in this news release describe the expectations of the Fund and its subsidiaries as of the date hereof. These statements are based on assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including without limitation the risks and uncertainties detailed under the “RISK FACTORS” section of the Fund’s latest Annual Information Form and the “RISKS AND UNCERTAINTIES” section of the Fund’s most recent Management’s Discussion & Analysis.
Although the Fund believes the expectations reflected in these forward-looking statements and the assumptions upon which they are based are reasonable, no assurance can be given that actual results will be consistent with such forward-looking statements, and they should not be unduly relied upon. With respect to the forward-looking statements contained in this news release, the Fund has made assumptions regarding: there being no significant disruptions affecting the operations of the Fund and its subsidiaries, whether due to labour disruptions, supply disruptions, power disruptions, transportation disruptions, damage to equipment or otherwise; the ability of the Fund to obtain products, raw materials, equipment, transportation, services and supplies in a timely manner to carry out its activities and at prices consistent with current levels or in line with the Fund’s expectations; the timely receipt of required regulatory approvals; the cost of regulatory and environmental compliance being consistent with current levels or in line with the Fund’s expectations; the ability of the Fund to successfully access tax losses and tax attributes; the ability of the Fund to obtain financing on acceptable terms; currency, exchange and interest rates being consistent with current levels or in line with the Fund’s expectations; and global economic performance.
Except as required by law, the Fund does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement.
Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available at www.sedar.com.
A conference call to review the fourth quarter and full year 2016 results will be webcast live on www.chemtradelogistics.com and www.newswire.ca on Tuesday, February 28, 2017 at 10:00 a.m. ET.
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For further information:
President & CEO
Tel: (416) 496-4176
Vice President, Finance & CFO
Tel: (416) 496-4177