Q3
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.
___
There
are no real surprises to report. As a general statement, the
very attributes that Chemtrade brings as an income trust, namely
stability and sustainability, often mean there is little substantive
change from quarter to quarter.
As
you have seen in the news release, Chemtrade had another strong
quarter. The year over year comparisons are not strictly comparable
because we didn't commence operations until July 18 last year.
However, with just a two week difference, it is pretty obvious
that our 2002 performance is comfortably ahead of last year.
In
the latest period, cash available for distribution was $5.5 million,
generated from revenue of $52.2 million and EBITDA of $6.9 million.
This compares with cash available for distribution of $4.4 million,
revenue of $43.8 million and EBITDA of $4.4 million for the slightly
shorter period ended September 30, 2001.
In
the latest period and for the nine months, revenue exceeded our
expectations, mostly as a result of the strong sales volume of
sulphuric acid, Chemtrade's major product. Gross margin generated
was also strong at $10 million for the quarter, or 19.2% of revenue,
and $31.2 million for the nine months, or 20.3% of revenue.
North
American results were ahead of expectations for the third quarter.
Revenue was $29.7 million and gross margin was $7.4 million which
reflected lower product cost and stable conditions in our end-use
customer markets. The result was also an improvement over the
second quarter which was affected by an interruption of production
at the Kidd Creek smelter.
BCT
Chemtrade generated revenue of $22.5 million, principally in
Europe and South America, gross margin of $2.6 million, and EBITDA
of $2.1 million for the period. These results exceeded our expectations.
EBITDA includes a one-time gain of $1.1 million resulting from
the negotiated settlement of a contract in South America. Market
conditions for BCT remained tight, with little additional supply
of acid or sulphur available for them to be able to take advantage
of spot sales as they did in the first and second quarters this
year. However, BCT's results for the nine months are still ahead
of expectations.
Although
the gain on the contract settlement is material on an EBITDA
basis it is subject to our partner's minority interest and taxes.
This is the reason for the increase in those amounts on our income
statement. From a distributable cash perspective the one-time
gain contributed approximately 2 cents per unit. Accordingly,
even without this gain our earnings continue to support our $1.60
annualized distribution rate.
___
In
the third quarter we maintained the same distribution rate that
we established in the second quarter, that is, a monthly distribution
of 10 cents per unit, with a supplemental distribution for the
quarter of an additional 10 cents per unit. This makes total
distributions attributable to the third quarter of 40 cents per
unit. Distributions attributable to the nine months to the end
of September total $1.18.
We
continue to believe that this rate of distribution is sustainable.
The outlook for the sulphur and sulphuric acid markets continues
to be tight both internationally and in North America. While
this may adversely impact our fourth quarter, we remain confident
that we can maintain the current rate of cash distributions for
the balance of 2002.
___
We
are pleased with the performance we have delivered for unitholders
this year, and indeed, since our inception. We will continue
to focus on delivering stable and sustainable distributions by
optimizing the operations and management of our existing businesses.
However,
we are also seeking opportunities to expand the business and
increase distributions to unitholders and I would like to take
a couple of minutes now to tell you how we are approaching that.
Our
strategies for growth include:
-
Expanding the group of producers to which we supply removal
services
-
Increasing the sales value of our commercial by-products by
upgrading them to higher value products
-
Expanding the products and services we supply to our end-use
customers, and
-
Leveraging our core competencies in service and infrastructure.
We
believe that opportunities exist in each of these areas and we
have been looking at a number of different potentials, although
none has yet reached the stage of certainty.
Within
this broad strategic framework of growth potentials we thought
we would provide you with some more guidance of what we see as
key elements for any such opportunity.
Our
criteria for an acquisition or expansion project include the
following:
-
It must build off our existing core competencies
-
It must have stable, sustainable earnings either as a result
of contracts, the nature of the industry, or product/service
differentiation
-
It must have minimal sustenance/maintenance capital expenditure
requirements, and
-
Ideally, it must have further growth potential
Finally,
and this goes without saying, any acquisition must be accretive
for our existing unitholders. We continue to work on expanding
our existing business organically and through acquisitions that
fit the criteria listed above.
The
ultimate measure of our success, of course, is unitholder value,
and the overall return for our unitholders has been quite positive.
If
you took the unit closing price as of September 30, 2002 and
added to it distributions attributable to that period, an initial
investor would have realized a return of more than 60% since
the IPO. This compares very favourably with the income trust
universe.
We're
proud of these results and believe that by continuing to deliver
outstanding service to our customers, by maintaining strict financial
discipline in all aspects of our operations, and by careful expansion
of the business that we will achieve even better returns for
unitholders.
Thank
you for your attention. We would now be pleased to answer questions.
|
