Chemtrade Logistics Income Fund reports operating results for full year 2017 and fourth quarter

TORONTO, Feb. 13, 2018 /CNW/ - Chemtrade Logistics Income Fund (TSX:  CHE.UN) today announced results from continuing operations for the three months and year ended December 31, 2017. 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 March 10, 2017, Chemtrade completed the acquisition (the "Acquisition") of all the issued and outstanding common shares of Canexus Corporation ("Canexus"). The first quarter results included roughly three weeks of contribution from the acquired businesses. The second, third and fourth quarters included full quarters of contribution from the acquired businesses. Due to the Acquisition, Chemtrade reconfigured its business segments and introduced a new segment called Electrochemicals ("EC"). EC includes Chemtrade's legacy sodium chlorate business and all of the newly acquired businesses. Comparative financial reporting has been re-stated to conform with the current period presentation.

On February 24, 2017, Chemtrade entered into a definitive agreement to sell its International business segment to Mitsui & CO., Ltd. ("Mitsui"). The transaction closed during the second quarter of 2017. The International segment is treated as a discontinued operation in the financial statements.

Revenue from continuing operations for the fourth quarter of 2017 was $386.7 million, an increase of $134.9 million from 2016. This increase was primarily due to revenues of $150.3 million generated by the newly acquired businesses, partially offset by lower revenues in the Sulphur Products & Performance Chemicals ("SPPC") segment.

Net earnings from continuing operations for the fourth quarter of 2017 were $45.5 million compared with $6.4 million during the fourth quarter of 2016. Relative to the fourth quarter of 2016, net earnings during the fourth quarter of 2017 were higher due to the additional earnings of the newly acquired businesses, partially offset by higher depreciation and amortization.

Distributable cash after maintenance capital expenditures from continuing operations⁽¹⁾ and before the acquisition-related costs for the fourth quarter of 2017 was $15.3 million, or $0.16 per unit (2016:  $19.7 million, or $0.28 per unit). Distributable cash during the fourth quarter of 2017 was lower than 2016, as maintenance capital expenditures during the fourth quarter of 2017 were $15.0 million higher than the fourth quarter of 2016 and there was a large income tax recovery recorded in the fourth quarter of 2016. The per unit amounts are based on a weighted average number of units outstanding of 92.6 million units in the fourth quarter this year, versus 69.2 million units outstanding last year.

Adjusted cash flows from operating activities from continuing operations⁽¹⁾ for the fourth quarter were $41.4 million (2016:  $31.0 million).  During the fourth quarter of 2017, a decision was made to close Canexus' former head office in Calgary and a provision of $8.6 million was recorded with respect to this long-term lease.  Adjusted EBITDA from continuing operations⁽¹⁾ for the fourth quarter of 2017 before this provision was $70.0 million compared with $40.1 million in the fourth quarter of 2016, excluding the acquisition costs incurred in 2016.  The increase is mainly attributable to the contribution of approximately $40.5 million from the new businesses in the EC segment, partially offset by lower EBITDA in SPPC.

For the full year 2017, Consolidated revenue from continuing operations was $1.5 billion, which was $401.9 million higher than 2016.  The increase was due primarily to contributions from the acquired businesses of approximately $500.7 million, offset by lower revenues in SPPC.  Adjusted EBITDA from continuing operations for 2017 before the foreign exchange loss and acquisition-related costs was $301.7 million compared with $209.0 million in the previous year.  Distributable cash from continuing operations after maintenance capital expenditures and before the foreign exchange loss and the acquisition related costs, was $157.7 million, or $1.79 per unit, compared with $128.3 million, or $1.86 per unit in 2016 (excluding the foreign exchange loss and acquisition-related costs incurred in 2016).  The per unit amounts are based on a weighted average number of units outstanding of 88.2 million units in 2017, versus 69.1 million units outstanding last year.

Mark Davis, President and Chief Executive Officer of Chemtrade, said, "Our most important achievement of the year was the acquisition and integration of Canexus.  The acquired businesses gave us a strong position in the sodium chlorate and chlor-alkali markets in North America and Brazil and significantly increased our earnings.  The integration went smoothly, and we achieved the synergies we expected.  Demand for Chemtrade's core products remained firm throughout most of the year.  However, several operational and supply issues during the year meant our financial results did not fully reflect the true potential of our expanded business.  This included a fourth quarter production interruption at our newly acquired chlor-alkali plant in North Vancouver.  While financial results for the year could have been higher, our strategy of building a diversified product portfolio enabled us to generate Distributable cash well in excess of our distributions."

In the fourth quarter of 2017, SPPC generated revenue of $126.6 million compared to $141.9 million in 2016. Adjusted EBITDA for the quarter was $22.9 million, which was $8.1 million lower than 2016.  During the fourth quarter, three products in this segment experienced weakness: (i) sodium bisulphite, or SBS, a by-product of the merchant sulphuric acid production process, due to a transition to self-marketing; (ii) sulphur, due to turnarounds at suppliers and the loss of a customer; and (iii) sodium hydrosulphite, or SHS, due to lower sales volume compared to the fourth quarter of 2016.

The Water Solutions & Specialty Chemicals ("WSSC") segment reported fourth quarter revenue of $97.6 million compared with $96.5 million in 2016. Adjusted EBITDA was $16.4 million compared with $16.7 million generated in 2016.

The EC segment reported revenue of $162.5 million, most of which is attributable to the newly acquired businesses. Adjusted EBITDA, which was negatively affected by approximately $8.0 million due to the two-week production interruption at the North Vancouver chlor-alkali plant was $46.8 million.

Corporate costs during the fourth quarter of 2017 were $24.6 million, compared with $19.6 million in the fourth quarter of 2016. The higher costs in the fourth quarter of 2017 include an accrual of $8.6 million for future payments on the long-term lease for the Canexus office in Calgary, which has now been vacated.

Mr. Davis said, "Overall, the market outlook for 2018 is solid.  We expect demand for most of our products to remain steady to robust. The outlook for chlor-alkali is very strong, and with refineries running at high utilization rates, our regenerated sulphuric acid business should also be strong.  Our performance will be affected in 2018 by a larger number of plant turnarounds in the first half of the year and reduced supply of by-product sulphuric acid, but for the full year we expect improved earnings performance and continued reliable distributions for our unitholders."

Distributions

Distributions declared in the fourth quarter totalled $0.30 per unit, comprised of monthly distributions of $0.10 per unit.

About Chemtrade

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 chlorate, sodium nitrite, sodium hydrosulphite and phosphorus pentasulphide.  Chemtrade is a leading regional supplier of sulphur, chlor-alkali products, 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, 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 net earnings to EBITDA and Adjusted EBITDA is provided below:

		Three months ended				Year ended
($'000)		December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Net earnings from continuing operations		$	45,457	$	6,412	$	78,822	$		16,209
Add:
	Depreciation and amortization		55,880		34,334		204,447			146,228
	Net finance costs		19,721		12,937		86,073			62,751
	Income tax recovery		(61,464)		(26,015)		(92,692)			(75,002)
EBITDA			59,594		27,668		276,650			150,186
	Impairment of intangible assets		-		-		-			3,143
	Loss on disposal and write-down of assets		152		41		4,498			55,824
	Unrealized foreign exchange loss (gain)		1,708		3,897		2,027			(8,647)
Adjusted EBITDA from continuing  operations		$	61,454	$	31,606	$	283,175	$	200,506

Segmented Information

SPPC -

	Three Months Ended				Year ended
($'000)	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Revenue	$	126,555	$	141,931	$	500,435	$	592,507
Adjusted EBITDA		22,883		30,945		109,058		145,310
Impairment of intangible assets		-		-		-		(3,143)
Gain (loss) on disposal and  write-down of assets		380		-		(38)		(55,779)
EBITDA		23,263		30,945		109,020		86,388
Depreciation and amortization		(16,776)		(18,718)		(71,804)		(77,618)
Net finance costs		(3,164)		(1,825)		(18,676)		(17,194)
Income tax recovery		23,794		8,220		40,374		40,772
Net earnings	$	27,117	$	18,622	$	58,914	$	32,348

WSSC –

	Three Months Ended				Year ended
($'000)	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Revenue	$	97,631	$	96,491	$	420,873	$	425,783
Adjusted EBITDA		16,410		16,727		92,670		103,817
Loss on disposal and write-down of  assets		-		(41)		(25)		(45)
EBITDA		16,410		16,686		92,645		103,772
Depreciation and amortization		(13,222)		(13,520)		(53,387)		(59,822)
Net finance costs		(4,266)		(4,967)		(19,341)		(14,085)
Income tax recovery		38,200		17,731		61,645		33,725
Net earnings	$	37,122	$	15,930	$	81,562	$	63,590

EC –

	Three Months Ended				Year ended
($'000)	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Sodium Chlorate Sales Volume (000's MT)		101		18		365		65
Chlor-alkali Sales Volume (000's MECU)		41		-		183		-
Revenue	$	162,483	$	13,326	$	547,830	$	48,966
Adjusted EBITDA		46,763		3,577		156,720		12,182
Loss on write-down of assets		(532)		-		(4,435)		0
EBITDA		46,231		3,577		152,285		12,182
Depreciation and amortization		(25,882)		(2,096)		(79,256)		(8,788)
Net finance costs		(7,111)		(14)		(19,518)		(57)
Income tax recovery (expense)		340		(24)		(7,931)		131
Net earnings	$	13,578	$	1,443	$	45,580	$	3,468

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:

	Three months ended				Year ended
($'000)	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Cash flow from operating activities	$	62,168	$	49,790	$	151,298	$	153,009
Cash flow from operating activities of  discontinued operations		-		4,552		(3,809)		4,756
Cash flow from operating activities of  continuing operations		62,168		45,238		155,107		148,253
Add (deduct):
Changes in non-cash working capital and other items		(20,739)		(14,278)		32,436		(3,768)
Adjusted cash flows from operating activities		41,429		30,960		187,543		144,485
Less:
Maintenance capital expenditure		34,738		19,726		66,715		44,743
Distributable cash after maintenance  capital expenditure		6,691		11,234		120,828		99,742
Less:
Non-maintenance capital expenditure (2)		2,243		4,448		8,060		11,554
Distributable cash after all capital  expenditure	$	4,448	$	6,786	$	112,768	$	88,188

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 overall market and product demand, including for chlor-alkali and regenerated sulphuric acid; the effect of plant turnarounds and reduced by-product sulphuric acid supply on performance; the Fund's ability to produce an improved earnings performance and to deliver continued reliable unitholder distributions.  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 2017 results will be webcast live on www.chemtradelogistics.com and www.newswire.ca on Wednesday, February 14, 2018 at 10:00 a.m. ET.

SOURCE Chemtrade Logistics Income Fund

Mark Davis, President and CEO, Tel: [phone]; Rohit Bhardwaj, Vice-President, Finance and CFO, Tel: [phone]

Related Links

http://www.chemtradelogistics.com