Q2 2009 Results Conference Call
Mark Davis
Good morning, ladies and gentlemen. Thank you for joining us for our conference call and webcast today.
Joining me today is Rohit Bhardwaj, our Chief Financial Officer.
Before I commence the review, I would remind you that our presentation contains forward-looking statements that are based on current expectations, and are subject to a number of uncertainties and risks, and actual results may differ materially. Further information identifying risks, uncertainties and assumptions, and additional information on certain non-GAAP measures referred to in this call can be found in the disclosure documents filed by the Fund with the securities regulatory authorities, available at www.sedar.com.
Chemtrade continues to deliver strong results even in these challenging economic times. Distributable cash for the second quarter was 36 cents per unit, which was 16% better than that achieved in the first quarter of this year. These results reflect the improvements in some of our businesses compared to the first quarter. Despite the lower economic activity during the first half of the year, Chemtrade generated distributable cash over this period in excess of our distributions and continues to maintain its strong balance sheet.
While Rohit will comment on how our second quarter results compare to last year, I will mostly be comparing them to the first quarter of this year. The economic conditions were much different in 2008 than they have been so far this year so the comparison to the first quarter may be more instructive if these general economic conditions continue.
The economy continues to affect demand for our products especially within the SPPC segment. Sales volumes for our SPPC products continued to be depressed in Q2, although, as we mentioned during our Q1 conference call, demand appears to have stabilized. Certain of our SPPC products – for example, sodium hydrosulphite used in the newsprint market – saw a continued reduction in sales volume due to demand. Other products, such as merchant acid, recorded lower sales volumes this quarter than last as we built inventory to prepare for the Vale Inco maintenance turnaround which, as you likely know, has now been extended due to labour reasons.
As we noted on the last call, we prepared for Vale Inco’s normal maintenance shutdown and possible labour disruption by building inventory and securing additional sources of supply. When Vale Inco announced an extended shutdown of the smelter we were already prepared, and when the labour disruption also became a reality we had everything in place to maintain supplies to our customers. As we announced on July 13, we don’t expect any disruption to our supply of sulphuric acid or liquid SO2 to our customers as a result of the current strike at Vale Inco. I will have some additional comments on this after Rohit’s review of the financials.
From a financial perspective, some of this volume loss was countered by the renewed contribution from our regen acid business. The Beaumont plant was a key contributor to the improved SPPC results. After a lengthy shutdown of almost five months and some problems encountered in the first quarter during the re-start, the plant ran smoothly for the second quarter and made a big difference to the performance of our sulphur products business. So, despite lower volumes the SPPC segment generated higher EBITDA in the second quarter than in the first quarter.
Even in the face of a sluggish economy, our Pulp and International segments continued to perform well. All of our businesses are focussed on maximizing profitability in very tough markets while still ensuring that we take the right steps to position ourselves for any changes in economic activity.
In summary, in the second quarter Chemtrade again generated distributable cash in excess of our distribution rate despite continuing to experience volume and pricing pressure arising from the low level of general economic activity.
It’s still difficult to predict whether demand for our products will increase for the balance of the year, but I will have a little more to say on that after Rohit reviews the financial results in more detail.
Rohit Bhardwaj
Thank you, Mark and good morning everyone. As Mark noted, the second quarter is best compared with the first quarter this year for a more meaningful assessment of how the business is doing. Therefore, I will look at the year over year changes as well as referring where appropriate to the changes from the first quarter this year.
For the three months ended June 30, 2009, distributable cash after maintenance capital expenditures was $11 million, or 36 cents per unit compared with $24.1 million, or 72 cents per unit in 2008. The main reason for the decline was significantly lower results in our SPPC and International segments. The 36 cents per unit generated this quarter compares favourably to the 31 cents we earned in the first quarter of the year.
EBITDA for the second quarter of 2009 was $17.5 million compared $30.3 million in the second quarter of 2008. Second quarter EBITDA is down slightly from the $18.3 million earned in the first quarter, but these numbers mask the stronger earnings generated by the businesses. This year’s second quarter results include an LTIP expense of $2.2 million compared with a pick-up of $3.4 million in the first quarter, a swing of $5.6 million. On the other hand, the results also include a partial payment of $2.3 million for our business interruption insurance claim relating to the incident at Beaumont last August. So, on a net basis the three business segments generated almost $5 million more EBITDA in Q2 than they did in Q1.
Revenue for the second quarter was $124.6 million, a decline of $37 million over the first quarter this year and $150 million lower than the second quarter last year. The revenue decline versus the first quarter was almost equally attributable to SPPC and International, whereas for the year over year decline, International accounted for about two-thirds and SPPC one-third.
Net earnings for the quarter were $13.6 million compared with $13.8 million last year and $1.3 million in the first quarter this year.
Turning to the segmented results for the quarter, SPPC generated revenue of $77.9 million and EBITDA of $15.2 million compared with $127 million and $23.9 million, respectively, in 2008. Comparison with the first quarter is more meaningful when revenue was $99.7 million and EBITDA was $9.1 million. The lower second quarter revenue reflected generally lower volumes and prices for sulphuric acid. However, EBITDA increased for a number of reasons, including our Beaumont plant operating for the entire quarter, lower costs of alternative supplies and storage resulting from the Beaumont downtime, and lower turnaround costs as most of our plants had taken their turnarounds in the first quarter. The SPPC results, which were $6.1 million higher than the first quarter, do include the business interruption insurance recovery of $2.3 million. Without this insurance recovery EBITDA in the second quarter was still $3.8 million higher than Q1.
Pulp Chemicals reported second quarter revenue of $13.2 million compared with $14.4 million in 2008, reflecting lower volumes of sodium chlorate. EBITDA was $4.7 million compared with $5.0 million. Lower costs partially offset the lower volumes. We are seeing our volumes approaching historic rates and above the rates achieved in Q1 of this year.
International reported revenue of $33.5 million for the second quarter compared with $132.9 million in 2008 and $50.2 million for the first quarter this year. This year over year decline reflected the significantly different global demand conditions and pricing for sulphur and sulphuric acid this year. While the decline in sales revenue from the first quarter to the second also reflects volume and selling price pressure, EBITDA in the second quarter actually improved from the first quarter as our market knowledge and infrastructure again enabled us to execute on opportunities created in a very volatile market. Recall that many of our supply contracts effectively adjust our cost of sales for changes in sales price, so a large increase or decrease in International revenues does not necessarily reflect changes in the earnings of this business.
Maintenance capital expenditures in the second quarter were $3.8 million compared with $3.2 million in 2008. This is consistent with our guidance that capital expenditures for 2009 are expected to run at a higher rate than those incurred last year.
Ignoring unrealized foreign exchange losses, Corporate costs of $7.4 million during the second quarter of 2009 were similar to the second quarter of 2008. However, this represented an increase of $8 million relative to the first quarter this year when we had a recovery of $0.5 million. Most of this was related to LTIP (which valuation fluctuates with movements in unit price), with some lesser amounts related to unrealized losses on our natural gas swaps versus gains in the first quarter, and lower realized foreign exchange gains.
Turning to our balance sheet and liquidity, we remain in sound shape. We had less than $1 million outstanding on our operating line of credit at the end of the second quarter. This left us with more than US$ 65 million room on our line of credit. Our Net Debt:EBITDA for the purposes of our credit agreement remained below 2:1 and our term debt does not mature until August 2011.
Finally, a brief update on our insurance claims. As noted, we received US$2.5 million during the quarter with respect to our business interruption claim. This was an interim payment and we still have considerable work ahead of us to conclude this claim.
We are closer to finalizing our property damage claim and have so far received US$7.7 million against our claim of US$9.8 million. We hope to conclude this claim during the third quarter.
I’ll now hand the call back to Mark.
Mark Davis
Thank you, Rohit.
While economic conditions remain difficult, we continue to find ways to strengthen our business, and position ourselves for the future while still generating significant distributable cash. Despite material reductions in demand for many of our products in the first half of the year, Chemtrade generated distributable cash comfortably higher than our distribution rate, and the results for the second quarter were significantly stronger than the first. This is not to say that we don’t continue to face challenges. We do, but we remain confident that we can meet these challenges. As I mentioned on our last call, in 2007 before the run up in commodity prices, we set an annual distribution rate of $1.20 per unit on the basis that it was sustainable even in bad times. We still believe this to be the case.
While the combination and complexity of our businesses sometimes makes Chemtrade difficult to understand or analyze, it also provides a good diversified foundation of earnings. Demand for most of our products was lower in the first half of this year than last year, but there are signs that demand has stabilized. Lower demand and lower pricing is not, however, a full analysis of our ability to generate earnings. Although demand may be lower, certain key raw materials such as caustic soda for SHS, and sulphur for our manufactured acid have also dropped significantly in cost, providing some offset to lower sales volumes. Additionally, certain of our products are obtained under risk mitigating contracts which offset some of the effects of weaker market pricing. All of this does not make us immune from significantly lower demand levels, but it does temper the effects of this economic environment.
I wanted to talk a little more today about merchant sulphuric acid, as it is the largest volume of product we sell and a significant contributor to our earnings. As most of you know, acid reached historically high pricing levels in 2008. Acid is generally a regional market and pricing was governed by regional supply-demand economics. The changes in published prices are indicative of what is happening in the market place, even if the quoted prices themselves may not reflect actual selling prices in our core sales regions. This year in all regions, acid pricing has come under pressure as producers seek to place their volume into an industrial base that is suffering and has reduced demand. In Chemtrade's case, the majority of acid we sell in North America is obtained under our risk sharing agreement with Vale Inco. This agreement provides that Vale Inco obtains the majority of price increases and bears the burden of the majority of any price decreases. This agreement was lessened the effect on Chemtrade of acid prices moving lower.
What may be of more interest to many is the availability of acid supply as Vale Inco is currently enduring a work stoppage. We have previously stated that due to a variety of measures taken by Chemtrade, we have sufficient acid to keep our customers supplied. We continue to assure our customers that we have adequate supply, be it from inventory, our own production sources or other third parties. Although Vale Inco has not produced acid since early May, we have secured alternative supply resulting in our inventory levels continuing to be higher than we traditionally carry as further comfort to our customers.
In these challenging economic times, Chemtrade will continue to perform due to our portfolio of businesses and our risk-mitigating business model. Moreover, we will be well positioned to take advantage of an improved economy and pick-up in general industrial demand when the time comes.
Thank you for your attention. Rohit and I would now be pleased to answer any questions you have.
OPERATOR: Ladies and gentlemen, we will conduct the question and answer session. If you have a question, please press the * followed by the 1 on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be polled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys.
One moment, please, for your first question. Your first question comes from James Long, a private investor. Please go ahead.
JAMES LONG: Yes, good morning, gentlemen.
MARK DAVIS (President & Chief Executive Officer, Chemtrade Logistics Income Fund): Hi, James.
ROHIT BHARDWAJ (Vice President, Finance & Chief Financial Officer, Chemtrade Logistics Income Fund): Good morning.
JAMES LONG: Hi. A question just on the insurance claim. I think it was explained during your comments and in the MD&A. You received $2.5 million U.S. this quarter and you said that you already received U.S. 7.7. I don’t sort of recall that you mentioned that you received any claims prior to this quarter. So is there some sort of a catch-up in disclosure, if you will, or has this been reflected previously?
ROHIT BHARDWAJ: James, I’ll break it into two things for you to keep this clean. One is the business interruption claim and the other’s a property damage claim. Looking at the business interruption claim, we had received nothing prior to this quarter and we got the $2.5 million. Of that, about $0.5 million related to payroll coverage, which had been set up in our books as a receivable. So the only pick-up of the P&L is roughly $2 million U.S. in the second quarter.
On the property side, we were spending money all through Q4 of last year, and Q1 of this year, in repairing the plant. Against that, we received the $7.7 million. We had received some actually back even in Q4, but that had no impact from a P&L perspective because as we were incurring the expenses to rebuild the plant, we were setting up receivables from the insurance company. So as we were receiving cash, we were just offsetting it against the amounts we had set up as receivables.
Our notes to our statements did mention that we had been receiving some money as we were going. So on that front, we did receive some money in Q2, but we received some money earlier as well. Did that help?
JAMES LONG: Yes. My second question relates to the international division. As I looked at it, the revenues obviously are down year over year and also down by a lesser extent quarter over quarter. However, the EBITDA margin seems to have increased significantly quarter over quarter. Can you sort of explain that?
MARK DAVIS: EBITDA margin as a percentage of revenue?
JAMES LONG: Yes, yes, EBITDA margin, yes.
MARK DAVIS: Yes, as we said for years, remember, for a lot of that product actually is what we realize on selling price helps determine what our costs of product is because a large number of these are matched contracts. So your margin in absolute numbers stays relatively the same. So when you compare it to revenue, obviously your percentage EBITDA margin gets jerked around. So we’ve said for years frankly that you should not analyze this business, the international business in particular, as a percentage of revenue.
JAMES LONG: So in terms of EBITDA let’s say on a per-volume basis or per-tonne basis, quarter over quarter, that probably wouldn’t change that much?
ROHIT BHARDWAJ: That would not change that much. Again, it changes for different reasons, but it wouldn’t change because of higher pricing. It could change based on a mix of supply and demand and a bunch of different things, but not just because pricing is higher or lower. That’s generally less volatile than as a percentage of revenue.
JAMES LONG: I know that you’re not going to disclose volumes, exact volumes and pricing, but in terms of percentages, just roughly quarter over quarter what would the changes be in terms of pricing and volumes for the international?
ROHIT BHARDWAJ: Pricing would be massive because the volumes have changed, but if you look at the top line number, revenue declined by almost $100 million in the international segment. And I’d say a large part of that is pricing. International pricing really went up far more than the North American business, and then has come down far more than the North American business. So a big chunk of that is price.
JAMES LONG: OK. Just moving to the SPPC then, I just want to ask you the same question. In terms of volumes and pricing sequentially what would be the percentage changes roughly?
MARK DAVIS: Sequentially, it’s hard. You mean Q1 and Q2?
JAMES LONG: Yes, Q1 and Q2.
MARK DAVIS: Volume is down Q2 to Q1, but again you have to do by product, right? So again, what we said before, on merchant acid actually, our volume is down partially because we’re preparing for an Inco shutdown, right?
JAMES LONG: Right.
MARK DAVIS: Regen volume we processed is probably up because actually the Beaumont plant was running for the full quarter, right? SHS volume, which is sold primarily to newsprint, continues to suffer because the newsprint market continues to contract. So it’s awfully hard to generalize on that. Pricing is probably off 20 per cent on merchant acid, give or take quarter versus quarter.
JAMES LONG: OK. And your final question: just on maintenance capex, is the $20 million still a good number for ’09?
ROHIT BHARDWAJ: Yes. We are right now halfway through the year at roughly half that rate.
JAMES LONG: OK.
ROHIT BHARDWAJ: And it’s looking that’s a good guideline.
JAMES LONG: Thanks very much.
MARK DAVIS: Thanks.
JAMES LONG: Thank you.
OPERATOR: Your next question is from Nima Billou, of Bloom Investment Counsel. Please go ahead.
NIMA BILLOU: Good morning.
MARK DAVIS: Hi, Nima.
ROHIT BHARDWAJ: Good morning.
NIMA BILLOU: Hi. On the sulphuric acid, the SPPC segment as a whole, you’d mentioned you’d started to see some signs that the market’s stabilizing. I mean, what are your key markets? Is it fertilizer, is it looking at base metals pricing? What’s giving you a little bit more hope?
MARK DAVIS: Yes. I guess actually everything. But if you start at the beginning, most of the North American merchant acid we sell, we sell to general industry, not to fertilizer, not to the metals market.
NIMA BILLOU: OK.
MARK DAVIS: And so if you assume that our customer base is reflective of North American industry, we’ve been trending this for a while, and over the last couple of months probably now, market demand has actually stabilized at the level that it’s at. And if you want any glimmer of hope, for the last couple of weeks it actually looked a little better, but I’m not willing to say that yet because it’s only been a couple of weeks.
NIMA BILLOU: No, agreed. I mean, a couple of weeks does not a trend make. But it’s nice to see at least…
MARK DAVIS: It’s nice to see. There is some noise too for our international business, which does sell some product into the metals business and the fertilizer business. You do actually again hear things about those markets firming up.
NIMA BILLOU: Yes.
MARK DAVIS: And in the for-what-it’s-worth category, the most recent industry publication has said that the trade of sulphuric acid market is showing some signs of improvement, as demand in fertilizers and metals appears to be strengthening.
NIMA BILLOU: OK.
MARK DAVIS: So...
NIMA BILLOU: And in terms of securing alternate supply, are you… was there any reason as to why you didn’t disclose the other party given that we’d want to know whether that supply is reliable, secure, and how big it is?
MARK DAVIS: Because right now it’s a variety of suppliers.
NIMA BILLOU: OK.
MARK DAVIS: We don’t want to have all of our eggs in one basket…
NIMA BILLOU: Well, that’s a good…
MARK DAVIS: Yes. And again, we have our own production facilities too and can obtain acid from a number of sources.
NIMA BILLOU: OK, so you’re not dependent on anyone if something happens to them and there goes your alternate source.
MARK DAVIS: That’s correct.
NIMA BILLOU: OK. Looking also at the working capital side, I know you’re building inventory to serve your customers, and you’re taking that sort of balance sheet burden in a sense. But are you seeing any harsher terms imposed by suppliers? Is that part of it as well too to become more current on payables?
ROHIT BHARDWAJ: OK. On the inventory side, do keep in mind that if you look in terms of absolute dollars, inventory was actually pretty unchanged between March 31st and June 30th.
NIMA BILLOU: Yes.
ROHIT BHARDWAJ: Even though there may have been, there was a little increase in volumes, but on the other hand it’s cheaper, so the costs are coming down, so it’s pretty flat, so it’s not really a working capital burden. And the AP side, no, I wouldn’t say there are any harsher terms, but there were a few sort of unusual items in our accounts payable at the end of the year and some lingering on in Q1. That was just typical timing of year kind of stuff.
NIMA BILLOU: OK.
ROHIT BHARDWAJ: Nothing significant.
NIMA BILLOU: OK, so it’s just sort of the ebb and flow whether it falls into one quarter or another. It’s not…
ROHIT BHARDWAJ: Exactly.
NIMA BILLOU: … a symptom of tightening business conditions.
ROHIT BHARDWAJ: No, it isn’t.
MARK DAVIS: No, no.
NIMA BILLOU: OK. I think that’s it. Thanks very much.
MARK DAVIS: Thanks, Nima.
ROHIT BHARDWAJ: Thank you.
OPERATOR: Your next question comes from Bert Powell, of BMO Capital Markets. Please go ahead.
BERT POWELL: Hey, Mark.
MARK DAVIS: Good morning, Bert.
BERT POWELL: How are you?
MARK DAVIS: I’m well, thank you.
BERT POWELL: Good. On the international side, I’m just wondering, that’s a pretty good performance this quarter. I’m just wondering can you share with us a little bit more detail on that? Like normally that’s just a straight kind of trading business and there’s some volume, but historically you guys have been pretty good at picking off things here and there. I’m just wondering this quarter how much of that was just straight normal business versus you guys being able to use your position to make sure you maximized your return?
MARK DAVIS: I don’t think actually there has been any straight and normal business for anyone in the last six months.
BERT POWELL: OK. Like typically the way we think about that business, I’m just trying to figure out, really the question is, Mark, how sustainable is it at these levels?
MARK DAVIS: We’ve never thought it was going to actually be sustained at these levels for the year, right?
BERT POWELL: Yes.
MARK DAVIS: Yes, I think the guys did a bunch of great work in the quarter, right? But that level is probably higher than what’s sustainable.
BERT POWELL: OK. OK. And then just going to Vale Inco, you’ve got the volume to meet your customer demand. I’m just wondering in terms of costs, if I think about normally going out, you’ve got a pretty good routine down in terms of delivering that out to your customer base. Now that you’re going to go and have to get it from different sources, I’m just wondering what the logistical stress will be in terms of incremental costs from places that maybe you just normally don’t go. And that’ll be part of one of that.
And part two would be what you’re doing in terms of buying that third-party acid to meet your obligations would certainly, economically I would think, look different – and it could look better, it could look worse, I don’t know – relative to what the deal is with Vale and what that contract contemplates in terms of making you whole for had that just continued a normal course.
MARK DAVIS: Right. Let’s try answering some of that.
BERT POWELL: OK.
MARK DAVIS: I think it’s going to put a bunch of logistical stress on our organization to source the product and deliver it from unusual sources with quality and all that stuff. And as I’m sure a bunch of my logistics guys will listen to this call, I’ll tell you that I’m confident that they’ll be able to meet that challenge, to keep our customers happy, to get good quality product and to minimize the cost of logistically getting it there.
BERT POWELL: OK.
MARK DAVIS: Some of it actually will probably cost more to get to the customers.
BERT POWELL: Yes.
MARK DAVIS: Some of it might cost less, OK? It really depends on where we end up sourcing it from. And as I said since we’re looking at multiple supply source points.
BERT POWELL: Yes.
MARK DAVIS: It’s hard to generalize on that. So net-net, I guess I’m comfortable my guys will figure out actually how to minimize logistics costs when they shouldn’t be drastically different.
BERT POWELL: OK. And then what about just the absolute purchase cost of the acid relative to what the cost base would be out of Vale?
MARK DAVIS: It’s a difficult question to answer for a number of reasons. Let me try this… I think in the short term, in the short term, maybe the medium term is, the costs shouldn’t be significantly different. I don’t think we’re going to get financially harmed by it.
BERT POWELL: OK. So if I look at the EBITDA margin out of that business this quarter, and assuming when you make your comments about stability we’re talking about the liquid, powder SHS, we’re talking about the re-gen business and the merchant and your remarketing efforts, that the EBITDA margin of, you know, ignoring the insurance recovery of just under 17 per cent, does that look like a good number in the context of the volumes today?
MARK DAVIS: I think it’s in the game, yes.
BERT POWELL: OK. There’s no turnarounds this quarter?
ROHIT BHARDWAJ: No.
MARK DAVIS: No major ones.
ROHIT BHARDWAJ: No, nothing major.
BERT POWELL: OK. And one of the things that I have a hard time with always is your corporate costs, Rohit. Those things move around a lot, and I guess there is a lot of detail in your press releases. But I’m wondering if you could just help me understand if you didn’t meet your return thresholds, what would be the maximum benefit to G&A on the LTIP expense for this year if that turned out to be the case?
ROHIT BHARDWAJ: One thing I’d like to point out so that people know where this is disclosed, typically there is a whole bunch of disclosure in the notes to our financial statements – I think it’s Note 5 in this case – that talks about our LTIP plan. And what it tells is two things. It tells what the expense in the quarter was for LTIP. And secondly what it tells you is what is the cumulative accrual that’s sitting on the balance sheet at the end of the quarter. It so happens that at Q2, those two are the same.
That’s only because in Q1 we had reversed our entire accruals down to zero. So the accrual sitting at the end of Q2 is the expense for Q2, but in other quarters it could be different. If you look at that Note, it’ll tell you that at the end of the quarter we had $2.2 million sitting in the accruals. So the maximum reversal that can happen of course then is $2.2 because the number can’t go negative, which means that if our unit price goes below where it was at the end of Q2, and it goes below a minimum threshold level, then the maximum pick-up can be $2.2 million. Conversely if pricing rises from the end of the quarter, then the expense would go up.
BERT POWELL: OK. And then last question just on foreign exchange. Obviously the Canadian dollar’s been strong recently relative to the U.S. dollar. Rohit, could you just walk us through how that flows through your P&L if we start, you know, we’re going to get into comparing, as I think you’ve rightly done this quarter, Q2 to Q1, we’ll start looking Q3 to Q2, what that is likely to mean for you guys?
ROHIT BHARDWAJ: Sure. The biggest item actually from a P&L perspective is an unrealized FX, which could be significant, but that gets excluded both from our definition of EBITDA and the cash.
BERT POWELL: Right.
ROHIT BHARDWAJ: And that’s shown separately on the P&L. So that’s potentially a big number because as you’ll recall, all of our long-term debt is in U.S. dollars.
BERT POWELL: Yes.
ROHIT BHARDWAJ: But if the Canadian dollar gets stronger, we have these massive gains coming through. But they get backed out from EBITDA and D cash.
BERT POWELL: Yes.
ROHIT BHARDWAJ: So what’s left is realized FX gains. And those are now much smaller. We don’t have a lot of hedge positions. And as you’ve pointed out, our sensitivity to the U.S. dollar has gone down a lot and it’s less than $100,000 per penny movement. So I don’t think you should expect to see really significant changes on a realized level, which is what is more meaningful from an EBITDA and D cash perspective. The biggest noise will be this unrealized stuff, which is backed out anyway.
BERT POWELL: OK, perfect. Thank you.
ROHIT BHARDWAJ: You’re welcome.
MARK DAVIS: Thanks, Bert.
OPERATOR: Your next question comes from Nima Billou, of Bloom Investment Counsel. Please go ahead.
NIMA BILLOU: Hi. Just a follow-up question. I mean, given the business climate, is there any update on your distribution policy or is there any temptation I guess to convert to a corporation and pursue more of a growth agenda, given potentially depressed asset prices?
MARK DAVIS: Our distribution policy is, as you know, set by the board, and we’re quite comfortable with it, where it is right now. As far as converting to a corp and pursuing growth initiatives, we actually don’t think we have to convert to a corp to pursue growth initiatives.
As we’ve said a couple of times, because we have so much non-Canadian sourced income, the taxes that are coming in at the end of 2010 did not have a material effect on Chemtrade because the non-Canadian sourced income just flows through.
So what would actually encourage us to convert to a corp if necessary would be actually a change in the capital markets that would prevent us from using our current equity to actually pursue growth acquisitions. And I guess at least currently we don’t actually think that poses an impediment for us.
NIMA BILLOU: OK. So for now, it’s status quo until something might necessitate, either a very large acquisition or the capital market situation?
MARK DAVIS: I think that’s correct.
NIMA BILLOU: OK. Thank you.
MARK DAVIS: Thanks.
OPERATOR: Ladies and gentlemen, if there are any additional questions at this time, please press the * followed by the 1. As a reminder if you are using a speakerphone, please lift the handset before pressing the keys.
Your next question comes from Benoît Laprade of Scotia Capital. Please go ahead.
BENOÎT LAPRADE: Thank you. Just a quick one for you, Rohit. Capex, is $20 million still a good number for 2009 as a whole?
ROHIT BHARDWAJ: Yes. We are roughly at half that level halfway through the year, and we still think that’s a good indicator.
BENOÎT LAPRADE: Pretty much spread evenly between Q3 and Q4 or is there any seasonality?
ROHIT BHARDWAJ: That’s harder to pin down. I would say there’s no reason why it should be too much off Q3 or Q4. Maybe Q3’s a bit higher, but it’s hard to predict with precision the timing of conclusion of projects. So for your purpose, you can assume yes, both would be equal.
BENOÎT LAPRADE: Great. Thank you.
OPERATOR: Gentlemen, there are no further questions at this time. Please continue.
MARK DAVIS: I’d like to thank you all for joining us for the call today, and we’ll talk to you all at the end of next quarter. Thanks very much.
OPERATOR: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
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