Q2
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.
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As
most of you know, yesterday, July 18th was the first anniversary
of Chemtrade Logistics. Happily, I think we have good reason
to celebrate, and I believe our unitholders and employees would
agree. We have over-delivered on the expectations that were set
during the IPO, and the outlook continues to be promising.
Today,
however, we're here to review the second quarter results, so
let me get on with that.
Once
again, the results were in line with our expectations. Cash available
for distribution in the second quarter was approximately $5.4
million which was generated from revenue of $51.4 million and
EBITDA of $6.5 million.
As
anticipated, these numbers were slightly lower than the first
quarter results when our North American business had the seasonal
contribution of the low cost sulphuric acid from a regeneration
facility that has excess capacity in the winter months.
North
American results were affected in the second quarter by an unscheduled
interruption of production at the Kidd Creek smelter which in
turn affected our liquid SO2 facility. Effectively we lost half
a month's production, so the gross margin of $7.2 million for
the North American business was very satisfying given those circumstances.
Overall,
end-use customer demand remained firm. In North America, we expect
some further tightening of acid supply and upward pressure on
prices over the next few months. Supply is tightening due to
a number of factors.
Because
of a labour dispute, Noranda's Horne smelter has been operating
at reduced rates since June 18 and the smelter is currently taking
a three-week shutdown. The Horne smelter produces more than 500,000
tonnes of sulphuric acid a year. We understand that this has
resulted in our major competitor declaring force majeure on its
customers. Other planned shutdowns such as the eight-week shutdown
of the Falconbridge Sudbury smelter have also affected supply.
We
expect to benefit from this supply / demand tightness and will
seek to strike an appropriate balance between increased cash
flow this year from high price spot sales and securing longer
term fixed price contracts which contribute to long term stability
of earnings.
BCT
Chemtrade, our international business, had another solid quarter,
posting gross margin of $3.1 million. The supply / demand characteristics
in the international market remain very tight. Nevertheless,
BCT was able to obtain some spot volume from England and Spain
which, again led to a very good quarter.
BCT
has also entered into a new business relationship in Chile with
a company that will act as our agent to continue servicing and
expanding on existing acid business in Chile and Peru. Our new
agent is an established mining and metallurgical services company
that is focused on the South American market and has extensive
expertise and contacts in the copper production industry. We
are very pleased to have entered into this relationship with
a well known and knowledgeable business partner.
One
other note of interest. As some of you may recall, Chemtrade
negotiated a five-year term loan at the time of its IPO. The
debt was non-amortizing for only the first two years. During
the second quarter we renegotiated this loan and extended the
non-amortizing term from July 18, 2003 to June 1, 2005. The ability
to obtain this extension well ahead of the old amortization date
speaks volumes about the strength of the business and the support
we have in the financial community. We also believe that renegotiating
at this time, well ahead of the start of amortization, is indicative
of management's close scrutiny of all matters which could affect
unitholders' distributable cash.
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This
new banking arrangement, together with the continuing strong
performance of the business, reinforces our confidence that the
distribution rate that we have established is sustainable.
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.
You
will recall that we increased our monthly distribution rate to
10 cents per unit from 9 cents, effective with the April distribution.
As well, we have declared a supplemental distribution for the
second quarter of 10 cents per unit, bringing the total distributions
applicable to the second quarter to 40 cents per unit.
Added
to the first quarter total of 38 cents per unit Chemtrade has
distributed $0.78 per unit for the first half of 2002.
At
the closing price on July 18 of $14.45 and taking into account
distributions paid or to be paid to unitholders of record on
June 28, and the supplemental distribution of 10 cents per unit
to be paid on July 31, the total return to an initial investor
exceeds 50%.
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To
summarize, our operations continue to meet or exceed our expectations
and as a result we have been able to deliver higher than anticipated
distributions to unitholders.
The
outlook for the business, and the tight controls we maintain
on costs and discretionary spending gives us continuing confidence
that we will continue to generate reliable and steady distributable
cash for unitholders and that the monthly distribution rate we
have established is sustainable.
We
now would be pleased to answer questions.
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