Q1
2002 Results Conference Call
Good
morning, ladies and gentlemen. Thank you for joining us for our
conference call and webcast this morning.
Also
joining me today is Vic Wells, Vice President, Finance and Chief
Financial Officer. Vic and I will answer any questions you may
have following my brief remarks.
___
As
all of you know, Chemtrade Logistics commenced operations in
July 2001, so this is only our second full quarter reporting
period.
The
results for the first quarter of 2002 were in line with our expectations.
Cash available for distribution in the first quarter was approximately
$6.4 million which was generated from revenue of $50 million
and EBITDA of $7.2 million.
Although
they were slightly behind the exceptionally strong fourth quarter
results, once again we were significantly ahead of the level
anticipated in the IPO marketing materials.
Both
our North American business and BCT Chemtrade, our international
business, posted solid performances.
BCT
posted gross margin of $2.6 million, down from the strong results
in Q4 but in line with our expectations.
You
will recall that the BCT Q4 results were driven by unusually
high spot sales. In the first quarter of this year, the international
market for both sulphuric acid and sulphur has tightened appreciably.
As
previously discussed, BCT is a supply driven business. Due to
the tightness in the market, opportunistic spot volumes on the
supply side were not available. This lack of product is the primary
difference between BCT Chemtrade's results and their results
in the fourth quarter.
The
North American business generated gross margin of $8.3 million,
again, down slightly from the strong Q4 results but significantly
ahead of the numbers indicated during the IPO marketing.
As
we noted in the news release, the North American operations benefited
from the new contract with Irving Oil and from a seasonal increase
in low cost sulphuric acid volumes from a regeneration facility
that has extra capacity in the winter months.
On
the end-customer side, demand for our product remained firm.
The weakness towards the end of the year that we mentioned in
our last conference call was temporary, and demand appears to
have returned to normal levels. This is a good sign that our
customers have weathered the economic downturn.
With
respect to costs of the business, we continue to benefit from
the low interest rate on our third party debt and carefully monitor
capital expenditures and discretionary spending.
___
This
continuing strong performance has enabled us to maintain a higher
distribution rate than we anticipated during the marketing of
the IPO.
As
you know, our intention is to pay out approximately 75% of the
distributable cash earned each month. We then pay supplemental
distributions after the end of the quarter.
For
the period from July 18 to December 31, 2001, total distributions
were 69 cents per unit, including the supplemental distribution
paid in February this year.
For
the first quarter, we have declared monthly distributions totaling
27 cents, and a supplemental of 11 cents per unit, making a total
of 38 cents for the quarter. The regular March distribution and
the first quarter supplemental will be paid at the end of this
month.
On
Friday we announced an increase in the monthly distribution to
10 cents per unit.
We
said in the past that we wouldn't increase the distribution rate
until we believed it was sustainable. The increased rate reflects
our confidence in the stability of the level of business we have
achieved and distributable cash we will generate each month.
We
believe that the 10 cent monthly level more appropriately reflects
our intention to distribute 75% of available cash on a monthly
basis and then make a supplementary distribution following the
end of the quarter.
We're
pleased with the level of distributions we have been able to
pay since the IPO. Initial investors, of course, have enjoyed
excellent returns.
At
the closing price on March 28 of $13.92 and taking into account
distributions paid or to be paid to unitholders of record on
March 28, the total return is approximately 49%. And adding the
supplemental distribution of 11 cents per unit to be paid on
April 30, the total return is almost 50%.
___
To
summarize, our operations continue to surpass our expectations
and as a result we have been able to deliver higher than anticipated
distributions to unitholders.
We
believe the higher monthly distribution rate we have just established
is sustainable, and is a reflection of the confidence we have
in the current and future outlook for the business.
The
outlook is favourable, and the early signs of an improving economy
are beginning to show in demand from our end customers.
Longer
term the outlook is also positive. Environmental regulations
call for more emissions to be captured and more sulphur to be
removed from gasoline, all of which means more by-product to
be removed.
We
have mentioned before the reduced emissions levels that Inco
has committed to by 2006 and the positive impact that will have
on Chemtrade as a result of our exclusive removal agreement with
Inco.
As
well, there are other changes taking place in the industry which
could have an indirect benefit for Chemtrade.
For
example, the recent announcement that Noranda will permanently
close its Gaspé copper smelter at the end of April will
remove over 200,000 tonnes per annum of sulphuric acid from the
market. Replacing that volume for end customers may offer some
opportunities for Chemtrade.
For
all of those reasons, we are confident about the immediate and
long-term outlook for Chemtrade, and that will be continue to
generate reliable and steady distributable cash for unitholders.
We
now would be pleased to answer questions.
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