Chemtrade Logistics Income Fund · TSX:CHE.UN
Chemtrade Logistics Income Fund — Investor Day (November 2022)
63 slides from Chemtrade Logistics Income Fund's investor day presentation, Nov 18, 2022
Slide 1: 2022 Investor Day
2022 INVESTOR DAY | November 18, 2022 1
Slide 2: Agenda
2022 Investor Day Agenda Topic Speaker Scott Rook Business Overview & Strategy President and Chief Executive Officer Nick Kovics Chlor-Alkali Market Dynamics Executive Director of Global Chlor-Alkali at OPIS Alan Robinson Group Vice President, Commercial Market Fundamentals and Growth Opportunities
Slide 3: Caution Regarding Forward-Looking Statements
CAUTION Certain statements contained in this presentation constitute forward-looking statements within the meaning of certain securities laws, including the Securities Act (Ontario). Forward- REGARDING looking statements can be generally identified by the use of words such as “anticipate”, “continue
Slide 4: Business Overview & Strategy
Business Overview & Strategy Scott Rook President and Chief Executive Officer 4 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 5: Chemtrade Business Overview
Chemtrade Business Overview ▪ Chemtrade operates a diversified business providing industrial chemicals and services to customers in North America and around the world ▪ Significant regional market share across products ▪ Defensive product portfolio and business model, focused on size, scale and dive
Slide 6: Chemtrade Financial Overview
Chemtrade Financial Overview CHE.UN Unit Price - Last Twelve Months Unit Price (1) $8.38 $9.50 $9.00 Market Capitalization (1) $966.4 million $8.50 $8.00 $7.50 Enterprise Value (1) $2.0 billion $7.00 $6.50 $6.00 Net Debt / Adjusted EBITDA (2) 2.4x Volume 2.0M 1.5M Distribution / Yield 1.0M $0.60 per
Slide 7: Historical Performance
Chemtrade Historical Performance Record results in 2022 reflect strong Adjusted EBITDA performance across the organization: (C$ millions) $420-$430 ▪ Improved and robust end-market demand across most key products ▪ Higher realized pricing for chlor- alkali products, merchant acid, Regen acid, and wa
Slide 8: Investment Highlights
Chemtrade Investment Highlights ▪ Extensive product portfolio with diversified exposure to industrial and consumer end-markets Market Leadership ▪ Significant regional market share across products including sulphuric acid, Ultrapure sulphuric acid, sodium chlorate, water chemicals, and caustic soda
Slide 9: Operating Segments
Chemtrade Operating Segments Electrochemicals (EC) Sulphur and Water Chemicals (SWC) Segment Segment LTM Revenue 40% 60% Electrochemicals Acids & Non-Acid Water SWC EC Chloralkali - #1 producer in UP Acid - #1 supplier to Alum - #1 supplier to Canada Semi- conductors (1) drinking water plants (1) LT
Slide 10: Strategic Blueprint for Success
Chemtrade Strategic Blueprint for Success Business Model Size, scale, and diversity of earnings with regional market leadership Financial Prudence Growth Maintain Organic growth financial and flexibility with opportunistic sound capital tuck-in M&A management Operational Excellence Continuous improv
Slide 11: Long-Term Growth Strategy
Chemtrade Long-Term Growth Strategy ▪ Chemtrade’s long-term objective is to deliver sustained earnings growth and generate value for our investors ▪ This will be accomplished by two primary factors: 1) Organic Growth 2) Operating Efficiencies – Productivity & Reliability ▪ This should result in unit
Slide 12: Macro Trends Impact on Chemtrade
Macro Trends Impact on Chemtrade Market End-market Trend Impact on Chemtrade 2-3x market growth over next 5 years, driving increased ultrapure acid Semiconductors demand Electric Vehicles Increased demand for caustic, ultrapure acid, merchant acid Gasoline Vehicles Slightly decreased regen acid dema
Slide 13: 3-5 Year Outlook
Chemtrade 3-5 Year Outlook Outlook for Base Business: ▪ Ultrapure Acid (UPA) Significantly Higher ▪ Regen/Merchant Acid Flat ▪ Sodium Nitrite Higher ▪ Water chemicals Higher ▪ Chlor-alkali Remaining strong; May decline due to cyclical nature, but mid- cycle pricing potentially higher than historical
Slide 14: Chlor-Alkali Market Dynamics
Chlor-Alkali Market Dynamics Nick Kovics Executive Director of Global Chlor-Alkali 14 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 15: Market Fundamentals and Growth Opportunities
Market Fundamentals and Growth Opportunities Alan Robinson Timothy Montgomery Group Vice President, Group Vice President, Commercial Manufacturing and Engineering 15 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strateg
Slide 16: EC Segment Chlor-Alkali Improvement
EC Segment Chlor-Alkali Improvement Strong chlor-alkali results year-to-date reflect a combination of factors: ▪ Improved plant reliability Higher production ▪ Increased end-market demand ▪ A well-executed biennial plant maintenance turnaround ▪ Higher MECU netbacks year-to-date (September 2022) up
Slide 17: EC Segment Sodium Chlorate Outlook
EC Segment Sodium Chlorate Outlook Sodium Chlorate ▪ Brandon, Manitoba plant is the largest and one of the lowest cost sodium chlorate plant globally* ▪ Utility costs are >60% of variable production cost: ▪ Chemtrade’s chlorate plants operate in energy regulated markets supplied by renewable hydroel
Slide 18: Organic Growth Projects: Ultrapure Acid
Organic Growth Projects Ultrapure Acid ▪ CHIPS Act in the US will continue to fuel Global Semiconductor Market Semiconductor growth of 2-3x over the next 5 years ▪ 8-10 new semiconductor fabrication plants currently under construction in the US ▪ Chemtrade has announced two organic growth projects –
Slide 19: Ultrapure Acid: Cairo, Ohio Expansion
Organic Growth Projects Ultrapure Acid Cairo, Ohio Expansion ▪ 60% increase in UPA capacity at Cairo, Ohio 3D Rendering of the Cairo, Ohio Expansion facility ▪ Significant technology upgrades being made ▪ Estimated capital cost of ~US$50-55 million ▪ 25%+ expected IRR ▪ Long-lead time equipment has
Slide 20: Ultrapure Acid: Cairo Site Excavation
Organic Growth Projects Ultrapure Acid Excavation at the Cairo, OH Site Warehouse Area UPA Plant 20 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 21: Greenfield Plant in Casa Grande, Arizona
Organic Growth Projects Ultrapure Acid Greenfield Plant in Casa Grande, Arizona (KPCT JV) Ultrapure Plant located ~40 Miles from Intel and TSMC~80FabMiles from TSMC ▪ JV 49% owned by Chemtrade TSMC ▪ Annual capacity of 100,000 MT of UPA ▪ Estimated capital cost of US$175-250 million ▪ 20%+ expected
Slide 22: Organic Growth Projects: Water Chemicals
Organic Growth Projects Water Chemicals ▪ Increasing regulations and population growth support heightened demand for coagulants New Pilot Plant across North America. ▪ Industry PACl/ACH demand is growing >5% per year; Chemtrade sales of PACl/ACH expected to be up >10% in 2022. ▪ Exploring expansion
Slide 23: Organic Growth Projects: Hydrogen
Organic Growth Projects Hydrogen ▪ Hydrogen expected to become a more significant energy source in a low carbon future ▪ Chemtrade uniquely positioned with “Green hydrogen” produced using hydro-electric power ▪ Prince George, BC project expected to commence in 2022; production expected to begin in 2
Slide 24: Organic Growth: Commercial Excellence
Organic Growth Commercial Excellence New organizational group formed to generate additional value Commercial Excellence ▪ Pricing Excellence – Focused analytics on maximizing margin ▪ Selling Excellence – Training, account planning, improving negotiation skills, and contractual strategies ▪ Customer
Slide 25: Operational Excellence
Operational Excellence Timothy Montgomery Group Vice President, Manufacturing and Engineering 25 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 26: Operational Excellence: Productivity and Reliability
Operational Excellence Productivity and Reliability Safety ▪ 25% reduction in recordable injury rate in 2022 vs. 2021 ▪ Focused on improvements in Engagement, Operating Discipline, and Conditions to build a zero-injury culture Reliability ▪ Have successfully reduced the cost of unplanned downtime by
Slide 27: Operational Excellence: Productivity and Reliability
Operational Excellence Productivity and Reliability Productivity New technology will deliver 4X ▪ We have delivered $15+ million savings each of current capacity per ACH reactor the last two years and are targeting achieving this level of savings in future years to offset annual inflation ▪ Chemtrad
Slide 28: Environmental, Social & Governance Strategy
Environmental, Social & Governance Strategy Emily Powers Group Vice President, Human Resources and Responsible Care 28 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 29: ESG Approach
ESG Strategy ESG Approach 1) The Sustainability Accounting Standards Board’s (SASB) metrics for the chemical industry and a five-factor materiality assessment developed by SASB were used to determine factors most likely to affect Chemtrade’s financial or operating performance 2) Chemtrade monitors a
Slide 30: Key ESG Targets for 2022 and Beyond
ESG Strategy Key ESG Targets for 2022 and Beyond ENVIRONMENTAL SOCIAL GOVERNANCE GHG and other air emissions Workforce Health and Safety Governance of Environmental and Social Issues • Reduce or offset 2021 baseline direct GHG • Achieve employee occupational • Demonstrate ESG leadership by reporting
Slide 31: GHG Emissions Reduction
ESG Strategy GHG Emissions Reduction Key targets: ▪ Reduce or offset 2021 baseline direct GHG emissions emitted from sources we own or control (Scope 1 emissions) by 50% by 2025 (1) ▪ Including all future acquisitions, maintain GHG intensity (kg GHG/kg product) below the chemical industry average Ho
Slide 32: Diversity
ESG Strategy Diversity Key targets: ▪ Maintain 30% women and achieve 50% designated groups on Board of Trustees by our annual meeting in 2024 ▪ Maintain 30% women and 50% designated groups in our Executive Officer Positions ▪ Achieve 50% representation by Black, Indigenous and people of colour (BIPO
Slide 33: Financial Strategy
Financial Strategy Rohit Bhardwaj Chief Financial Officer 33 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 34: Updated 2022 Guidance
Updated 2022 Guidance C$ Millions ▪ 2022 Adjusted EBITDA guidance increased in Q3 2022 for third consecutive quarter, primarily reflecting strong year-to-date results and ongoing strength in market fundamentals across Chemtrade’s product portfolio ▪ Midpoint of 2022 Adjusted EBITDA guidance is $425.
Slide 35: Balance Sheet Improvement
Chemtrade Balance Sheet Improvement Net Debt / LTM Adjusted EBITDA Numerous initiatives were recently undertaken to improve the balance sheet and increase financial flexibility, supplemented by improving earnings: 6.1x 6.0x 5.9x 1) Sale of specialty chemicals businesses 5.5x (potassium chloride and
Slide 36: Financial Prudence: Capital Structure and Allocation
Financial Prudence Capital Structure and Capital Allocation Equity (CHE.UN) ▪ 115.3 million units outstanding, as of November 8, 2022 ▪ Proceeds of recent $86.5 million equity financing to be used to partially finance previously announced Ultrapure sulphuric acid growth projects Long-Term Debt ▪ US$
Slide 37: Balance Sheet Improvement
Chemtrade Balance Sheet Improvement The recent initiatives undertaken by Chemtrade to strengthen our balance sheet and provide additional financial flexibility position the company well to balance our capital allocation priorities into the future. Capital Allocation Priorities: 1) Maintaining a prud
Slide 38: Distribution Sustainability
Chemtrade Distribution Sustainability LTM Payout Ratio (1) Distribution of $0.05/unit per month or $0.60/unit on an annualized basis. 72% 1) Current distribution level is sustainable, as highlighted by LTM payout ratio of 32% 48% 47% 2) Current distribution yield of 7.2% (2) offers an attractive ret
Slide 39: Defensive Attributes
Chemtrade Defensive Attributes Given numerous defensive attributes, our diverse product portfolio that is benefitting from a number of varied tailwinds, and our strengthened balance sheet, Chemtrade believes we are better-positioned than many chemical manufacturers, should an economic downturn occur
Slide 40: Cautionary Factors to Consider
Chemtrade Cautionary Factors to Consider While Chemtrade is confident in its defensive positioning and its organic growth potential over the medium-term, investors should keep in mind that 2022 was a record year for the company, with most products performing exceptionally well. ▪ Realized MECU netba
Slide 41: Closing Remarks and Q&A
Closing Remarks and Q&A Scott Rook President and Chief Executive Officer 41 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 42: Concluding Remarks
Chemtrade Concluding Remarks Chemtrade’s top priority is to continue generating value for our investors in the coming years and over the long-term 1) Robust foundation in place, with a diversified portfolio of key products where Chemtrade generally has a regional leadership position and that are exp
Slide 43: Thank You!
Thank You! 43 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 44: Appendix
Appendix 44 Chlor-Alkali Business & Markets & Operational Financial Closing Agenda Market ESG Strategy Appendix Strategy Growth Excellence Strategy Remarks Dynamics
Slide 45: Management Team
Chemtrade Management Team Management Team Scott Rook Rohit Bhardwaj Tim Montgomery Alan Robinson Emily Powers Susan Paré President and Chief Chief Financial Officer Group Vice-President Group Vice-President, Group Vice-President General Counsel and Executive Officer Manufacturing and Commercial Huma
Slide 46: Board of Trustees
Chemtrade Board of Trustees Board of Trustees Douglas Muzyka Lucio Di Daniella Dimitrov Emily Moore Luc Doyon Katherine Rethy David Mutombo Scott Rook Chair of the Clemente Chair of the Audit Chair of the Corporate Corporate Corporate CEO, Corporate Board Chair of the Committee Responsible Care Dire
Slide 47: Company History
Chemtrade Company History December 2002 August 2003 August 2005 July 2001 Acquired Peak Chemicals Acquired SHS Operations Acquired Pulp Chemicals IPO on TSX (Expanded Sulphuric Acid business; (Sodium Hydrosulphite) (Sodium Chlorate; Crude Tall Oil) diversified end markets) (Spun out of Marsulex) US$
Slide 48: SWC Segment Key Products
SWC Segment Key Products Key Products Primary End-Uses Competitive Advantages Key Competitors • Largest facilities are closely connected to Regen Ecoservices; Veolia North America; PVS Chemical Gasoline production customers (connected via pipeline at most sulphuric acid Solutions Inc. facilities) •
Slide 49: EC Segment Key Products
EC Segment Key Products Key Products Primary End-Uses Competitive Advantages Key Competitors Pulp & paper; soaps and detergents; aluminum; oil & gas exploration and Caustic soda refining; lithium-ion battery production; • North America: Access to low-cost hydroelectric • North America: Univar; ERCO
Slide 50: EC Segment Caustic Soda Outlook
EC Segment Caustic Soda Outlook Caustic Soda ▪ Historically high pricing in 2022, supported by strong demand, supply dislocations stemming from geopolitical conflicts, increased utility costs in Europe and Asia, and increased global freight costs ▪ Chemtrade’s access to low-cost hydroelectricity pro
Slide 51: EC Segment Chlorine and HCl Outlook
EC Segment Chlorine and HCl Outlook Chlorine ▪ Demand and pricing remain strong, benefitting from Long Term Market Demand tight industry supply and improved end-market demand (PVC; bleach products) 2018: Oil WTI: $65/bbl US & Can Rigs: 1,200 ▪ Prices expected to remain elevated through the balance o
Slide 52: 2022 Guidance Key Assumptions
2022 Guidance Key Assumptions Updated 2022 Prior 2022 2021 Key Assumptions Assumption Assumption Actuals Approximate North American MECU sales volume ~178K ~180K ~181K 2022 average CMA (1) NE Asia Caustic price index being higher US$360 US$350 N/A per tonne than the 2021 average North American produ
Slide 53: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios Non-IFRS financial measures are financial measures disclosed by an entity that (a) depict historical or expected future financial performance, financial position or cash flow of an entity, (b) with respect to their composition, exclude amounts that are included in, or in
Slide 54: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios Distributable cash after maintenance capital expenditures – Most directly comparable IFRS financial measure: Cash flows from operating activities Definition: Distributable cash after maintenance capital expenditures is calculated as cash flow from operating activities le
Slide 55: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios Distributable cash after maintenance capital expenditures per unit – Definition: Distributable cash after maintenance capital expenditures per unit is calculated as distributable cash after maintenance capital expenditures divided by the weighted average number of units
Slide 56: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios Net Debt – Most directly comparable IFRS financial measure: Total long-term debt, convertible unsecured subordinated debentures, lease liabilities, and long-term lease liabilities, less cash and cash equivalents Definition: Net Debt is calculated as the total of Long-ter
Slide 57: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios C$ Millions, except per unit metrics and ratios For the quarter ended Q4 2021 Q1 2022 Q2 2022 Q3 2022 LTM cash flow from operating activities $ 219.0 $ 262.6 $ 295.7 $ 357.8 Add (Less): LTM lease payments net of sub-lease receipts (51.6) (51.4) (51.3) (51.6) LTM (decreas
Slide 58: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios C$ Millions, except ratios For the quarter ended Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Long-term debt (1) $ 781.3 $ 745.3 $ 730.2 $ 714.2 $ 373.5 $ 524.1 $ 498.3 $ 377.5 Add (Less): Convertible unsecured 531.1 531.1 531.1 531.1 661.1 517.4 517.4
Slide 59: Non-IFRS Measures and Ratios
Non-IFRS Measures and Ratios Growth Capital Expenditures – Most directly comparable IFRS financial measure: Capital expenditures Definition: Growth capital expenditures is calculated as Capital expenditures less Maintenance Capital expenditures, plus Investments in a joint venture Why we use the mea
Slide 60: Total of Segments Measures
Total of Segments Measures Total of segments measures are financial measures disclosed by an entity that (a) are a subtotal of two or more reportable segments, (b) are not a component of a line item disclosed in the primary financial statements of the entity, (c) are disclosed in the notes of the fi
Slide 61: Total of Segments Measures
Total of Segments Measures C$ Millions Adjusted EBITDA – Most directly comparable IFRS financial measure: Net earnings (loss) Adjusted EBITDA for the year ended December 31 2018 2019 2020 2021 Net earnings (loss) $ (131.5) $ (99.7) $ (167.5) $ (235.2) Add (Less): Depreciation and amortization 214.5
Slide 62: Total of Segments Measures
Total of Segments Measures Adjusted EBITDA – C$ Millions Most directly comparable IFRS financial measure: Net earnings (loss) LTM Adjusted EBITDA for the quarter ended Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 LTM Net earnings (loss) $ (167.5) $ (90.1) $(108.6) $ (80.5) $(235.2
Slide 63: Supplementary Financial Measures
Supplementary Financial Measures Supplementary financial measures are financial measures disclosed by an entity that (a) are, or are intended to be, disclosed on a periodic basis to depict the historical or expected future financial performance, financial position or cash flow of an entity, (b) are
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