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Enhancing Our Existing Platform – The Acquisition of Marsulex Inc.
MARK DAVIS / President & CEO
3
Special Note Regarding Forward-looking Statements
This presentation contains certain statements which may constitute “forward-looking” statements within the meaning ofcertain securities laws, including the “safe harbour” provisions of the Securities Act (Ontario). The use of any of the words“anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions areintended to identify forward-looking statements. This presentation contains forward-looking statements about theobjectives, strategies, financial condition, results of operations and businesses of Chemtrade Logistics Income Fund. Thesestatements are “forward-looking” as they are based on current expectations about our business and the markets we operatein, and on various estimates and assumptions. Forward-looking statements in this presentation describe our expectations asof the date of this presentation. Our actual results could be materially different from our expectations if known or unknownrisks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, we cannot guarantee thatany forward-looking statement will materialize. Forward-looking statements do not take into account the effect thattransactions or non-recurring items announced or occurring after the statements are made may have on our business. Wedisclaim any intention or obligation to update any forward-looking statement even if new information becomes available, asa result of future events or for any other reason. Risks that could cause our actual results to differ materially from ourcurrent expectations are discussed in the RISK FACTORS section of our Annual Information Form. Further information canbe found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities,available on www.sedar.com.
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Enhancing Chemtrade’s Existing Platform
! One of the world’s largest suppliers of sulphur-based chemicals
! Leading processor of refinery spent acid
! Leading regional supplier of sodium chlorate and elemental sulphur
! Largest North American producer and marketer of ultra pure acid
! One of two producers of P2S5 in North America
! Leading marketer of sulphuric acid and other sulphur-based products
! Leading processor of refinery spent acid
! Leading provider of environmental compliance services to refineries
! Western Canada’s largest supplier of alum for water treatment
Acquisition of Marsulex significantly enhances Chemtrade’s size, scope and earnings stability
Platform supported by risk mitigating and fee-based contracts with a diversified customer base
Acquisition Aligned with Our Stated Strategic Objectives
Business Model
• Mitigates commodity risk
Operational Excellence
• Ensures sustainable earnings
Increased Size and Scale
• Drives diversity of earnings
Financial Prudence
• Accretive, maintaining distribution and balance sheet strength
Acquisition represents another milestone in Chemtrade’s execution of its four-pronged strategy
5
6
Addition of Complementary Industrial Chemicals Business
• Sodium chlorate
• Tall oil
• Hydrogen
Pulp Chemicals
• Elemental sulphur
• Sulphuric acid
International
Western Markets(2)
• Sulphuric acid
• Liquid SO2
• Acid Regeneration
• SHS
• Molten sulphur
• P2S5
Sulphur Products & Performance Chemicals
• Acid Regeneration
• H2S Processing
• Sulphur Recovery
• Ammonium Sulphate
• Sulphur Prilling
• Petcoke
Refinery Services(2)
• Sulphuric acid
• Liquid SO2
• Niche sulphur products
• Alum based water treatment
Revenue: $321.6
EBITDA (1): $ 65.2
Margin: 20%
Sulphur Products & Performance Chemicals
Revenue: $117.6
EBITDA (1): $ 44.0
Margin: 37%
Revenue: $78.0
EBITDA (1): $26.0Margin: 33%
Revenue: $48.3
EBITDA (1): $16.5
Margin: 34%
Revenue: $188.1
EBITDA (1): $ 25.4
Margin: nmf
Source: Company filings and public disclosureNote: 2010 financial metrics shown in C$ millions1. Excludes corporate costs.2. Marsulex legacy businesses (Refinery Services and Western Markets) illustrated with yellow borders; excludes Marsulex Environment Technologies (“MET”) segment.
Builds on Chemtrade’s Existing Business Portfolio
7
Acquisition Highlights
Transaction Value ! $419.5 million; excluding Marsulex’s MET segment
! All cash consideration
Key Statistics ! Combined 2010 EBITDA of ~$132 million (1)
! Additional $10 million of annual synergies expected
! Expected to be highly accretive to distributable cash per unit in year 1
! Significantly reduced payout ratio
Financing ! Fully underwritten:
! $460 million senior credit facility and revolver
! $130 million bought equity deal
Structure ! Transaction to be implemented by way of plan of arrangement
! Unanimously recommended by both Boards
! Irrevocably supported by Marsulex ~60% shareholder, Birch Hill Equity Partners
Conditions ! Marsulex shareholder approval of 66 2/3% of votes cast
! Customary regulatory and court approvals
Indicative Timetable
! Marsulex shareholders’ meeting to be held in late June 2011
! Anticipated transaction completion in late June 2011
Highly Accretive Acquisition
1. Excluding pro forma accounting adjustments of ~$4 million.
Highly Compelling Acquisition Rationale
8
• Expands strength in core competencies of regen, sulphuric acid and liquid SO2
• Diversifies customer mix, industry base and product portfolio• Enhances quality of earnings through risk-sharing and fee-based contracts
• Facilitates opportunity for logistical and vertical integration• Expands into attractive new end markets
• Offers highly realizable synergies and preserves balance sheet strength• Robust financial profile and accretion metrics• Improved liquidity and capital markets presence
Strategic
Growth
Financial
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9
Diversifies Product and Service Offerings
! Expands strength in core competencies and adds new product and service offerings! Aluminum sulphate (“alum”)
! H2S processing at Montreal
! Ammonium sulphate manufacturing
! Sulphur prilling
! Niche products, including: Aqua Ammonia and Hydrogen Sulphide
Source: Company Filings, Chemtrade Management GuidanceNote: Based on 2010 revenue. Excludes Chemtrade International segment and inter-company revenue.
Strategic Growth Financial
Chemtrade Revenue Combined Revenue
Acid & SO2 Refinery Services Performance Chemicals Pulp Chemicals Automobile Lubricants
$370 million $561 million
Aluminum Sulphate Other
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Diversifies End-Use Markets
! Diversifies end-use markets! Less reliance on pulp and paper industry
! Increased focus on the petroleum industry
Strategic Growth Financial
Chemtrade Revenue Combined Revenue
Source: Company Filings, Chemtrade Management GuidanceNote: Based on 2010 revenue. Excludes Chemtrade International segment and inter-company revenue.
Petroleum Pulp and Paper Chemicals Distribution Metals and Mining Fertilizer Electronics Other
$370 million $561 million
Water Treatment
11
Enhances Quality of Earnings
! Similar to Chemtrade, Marsulex reduces its exposure to typical commodity risks through risk-sharing and fee-based contracts
! Risk-sharing contracts mitigate but do not eliminate the effects of movements in the price of the product or certain raw materials
! Fee-based contracts completely eliminate the risk of product and raw material pricing
! Chemtrade is acquiring high quality earnings
! Approximately 75% of Marsulex 2010 gross profit is derived from risk-sharing or fee-based contracts
• Almost $29 million or 38% of gross profit comes from fee-based arrangements with little or no commodity risk
• The balance, approximately $27 million, is earned through risk-sharing agreements
! Attractive margin profile
• Addition of two businesses with a combined EBITDA margin greater than 35%
Strategic Growth Financial
Acquisition of high-quality earnings; Marsulex boasts similar risk-sharing and fee-based contracts
$69
$119
$81 $76
2007 2008 2009 2010
Enhances Quality of Earnings (continued)
! 2008: unprecedented record year
! 2009: strong despite global recession
! 2010: remained strong despite some supply disruptions and incidents at Beaumont
Strategic Growth Financial
Chemtrade
EBITDA (2)
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Revenue (1)
$55 $57 $56 $56
$10
2008 2009 2010 Adjusted
Marsulex excluding MET
EBITDA (2)
633%
7(#34
88.9/00
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Revenue (1)
Source: Company financials, public disclosure and Chemtrade management guidance1. Based on 2010 Revenue.2. Excluding pro forma accounting adjustments.
12
! Western Markets: arrangements with Sherritt bear many risk-sharing attributes similar to Chemtrade’s Vale agreement
! Regen assets: contracts contain pass-throughs for natural gas (a principal raw material)
! Montreal/Fort McMurray: earnings are fee-based
Acquisition bolsters earnings stability and facilitates Chemtrade’s growth prospects
Synergies
13
Opportunity for Logistical and Vertical Integration
! Operational and Commercial Opportunities
! Extends sulphuric acid and SO2 businesses into Western Canada
• Opportunity to integrate North American acid and SO2 businesses
! Opportunity for logistical integration of Toledo facility with existing acid regen facilities, providing potential for freight, logistics and operational advantages
! Leverage Syncrude and Suncor relationships to grow business
! Western Markets provides diversification into new chemicals, such as alum
• Vertical integration opportunity given alum business is key user of acid
! Additional size, scope and scale enhances ability to drive best practices, realize benefits from improved processes, and better attract and develop our people
Strategic Growth Financial
14
Strategic Growth Financial
Plant
Office
Marsulex
Legend
Warehouse
Manufacturing Facility
Chemtrade
Conversion Tolling Facility
Intermodal Transfer Station
Office
Customer Service Storage Centre
PlantPlant
OfficeOffice
Marsulex
Legend
WarehouseWarehouse
Manufacturing FacilityManufacturing Facility
Chemtrade
Conversion Tolling FacilityConversion Tolling Facility
Intermodal Transfer StationIntermodal Transfer Station
OfficeOffice
Customer Service Storage CentreCustomer Service Storage Centre
Expands into Attractive New End Markets
Puerto Mejillones Terminal
Essen, Germany
Rotterdam Terminal, Netherlands
Zug, Switzerland
! Addition of a number of new products and services
! Particularly aluminum sulphate (“alum”), where Marsulex is the leading supplier in Western Canada
! H2S processing at Montreal (Quebec) and Toledo (Ohio) facilities
! Sulphur prilling at Mount Vernon
! Expands footprint into Western Canada and Northwestern U.S.
! Particularly critical for sulphuric acid and liquid SO2 businesses
! Strategic relationship with Syncrude at Fort McMurray
! Long-term fee-based contract with potential for expansion as Syncrude grows its Mildred Lake facility
! Potential to benefit from growth in the oil sands
! Strategically located regen plant expected to benefit from continued growth in oil sands production
New Products, Services and Geographies
Fort McMurray, AB
Fort Saskatchewan, AB
Saskatoon, SK
Calgary, AB
Mount Vernon, WA
Prince George, BC
Whiting, IN
Garyville, LAPort Arthur, TX
Baytown, TX
Texas City, TX
Corpus Christi, TX
Toronto, ON
Montreal, QC
Toledo, OH
Cherry Point, WA
ROHIT BHARDWAJ / Vice-President, Finance & CFO
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Offers Highly Realizable Synergies and Preserves Balance Sheet Strength
! Cost Synergies
! $10 million annual run-rate " fully phased in by Q1 2012
• Decrease in SG&A expenses due to the elimination of management fees, salaries and other costs
! Balance Sheet Strength
! Strong near-term cash flow generation supports de-leveraging
Transaction Value: $419.5 million
Credit Facility $460 million ~$383 million drawn to fund acquisition and re-finance existing debt
Bought Deal $130 million New issue of 9.6 million units @ $13.60 per unit
Senior Debt to EBITDA (1) ~2.9x Combined
Notes: Leverage metrics include pro forma run-rate synergies of $10 million 1. Senior leverage includes Fort McMurray project level debt; EBITDA excludes pro forma accounting adjustments.
Strategic Growth Financial
17
Robust Financial Profile and Accretion Metrics
! Expected to be highly accretive
! 31% to 2010A DCPU on a combined basis
C$ millionsChemtrade Marsulex Adjustments (1) Combined
Cash flows from operations $60.5 $54.6 $(2.8) $112.4
Changes in non-cash working capital and other items
(4.8) (12.4) 2.7 (14.4)
Maintenance Capex (14.8) (12.9) -- (27.7)
Distributable Cash 41.0 29.3 (0.0) 70.3
DCPU $1.34 $1.75
Source: Company Filings, Chemtrade Management Guidance, based on 2010 actuals1. Adjusted per 2010 pro forma financial statements. Includes additional adjustments for Incremental run-rate synergies (net $8.8 million) and MET/Stablex management fees (less: $7.2 million). 2. Chemtrade maintenance capital expenditure expected to be ~$19 million on a go-forward basis.
3. Excludes Marsulex one-time capex of $7.9 million, primarily environmental expenditures at Cairo, OH and Toledo, OH. Chemtrade management estimates legacy Marsulex businesses acquired will require approximately $16.3 million of one-time capital expenditures in the years H2 2011 through 2013.
4. Assumes 40.2 million units outstanding.
2010 Combined Metrics
Strategic Growth Financial
(2)
(4)
(3)
18
Robust Financial Profile and Accretion Measures (continued)
85%
48%
82%
90%
69%
2007 2008 2009 2010 Combined
<**=(>0?"#@)"A=@"2*0B0CD.8-0E0=*"@
! No change to current distribution policy
! Cash flow to be used to reduce indebtedness over time
! ~30% of distributions to qualify as taxable Canadian dividends
! Do not expect to pay any taxes under SIFT rules
Distribution Policy Substantially Reduced Payout Ratio
Source: Company Filings, Chemtrade Management Guidance, based on 2010 actuals1. Unprecedented record year.
(1)
Strategic Growth Financial
69% combined payout ratio; substantially reduced from 90%
19
Improved Liquidity and Capital Markets Presence
World Class Pro Forma Profile in Industrial Chemicals Space
Increased Coverage and Liquidity
Strategic Growth Financial
Increased Capital Markets Presence
2010 EBITDA
Analyst Coverage
Volume Traded (1)
Kemira $256 14 401.3
Olin Corp $190 9 817.9
Arch Chemicals $150 6 120.1
Canexus $ 69 5 227.8
Median -- 8 314.6
Chemtrade (2) $ 76 4 100.6
Marsulex (2) $ 75 3 6.2
Combined (3) $142 -- --
Source: Company financials and BloombergNote: Market data as of May 4, 2011. EBITDA normalized for one-time items.1. Average daily volume traded over the last twelve months (000’s of shares/units).2. 6 discrete research analysts cover Chemtrade and Marsulex.3. Only includes MLX businesses being acquired excluding pro forma accounting adjustments. Includes $10 million of run-rate synergies.
! Pro forma company will be a ~$1 billion+ enterprise value North American chemicals concern
! Equity issuance will represent a ~30% increase to the existing float
Highly Compelling Acquisition Rationale
20
• Expands strength in core competencies of regen, sulphuric acid and liquid SO2
• Diversifies customer mix, industry base and product portfolio• Enhances quality of earnings through risk-sharing and fee-based contracts
• Facilitates opportunity for logistical and vertical integration• Expands into attractive new end markets
• Offers highly realizable synergies and preserves balance sheet strength• Robust financial profile and accretion metrics• Improved liquidity and capital markets presence
Strategic
Growth
Financial
Distributable Cash Reconciliation
Appendix A
22
Distributable Cash Reconciliation
2010 Combined Distributable Cash
Distributable Cash (Pro Forma) $68.7
Less: MET Management Fee (5.7)
Less: Stablex Management Fee (1.5)
Less: Birch Hill & Directors’ Fees (1.2)
Add: Run-Rate Synergies 10.0
Adjusted Distributable Cash $70.3
C$ millions
Source: Company Filings, Chemtrade Management Guidance, based on 2010 actuals1. Adjustment to reflect non-recurring operating earnings of pro forma entity.2. Included in $10 million of run-rate synergies.
(1)
(1)
(2)
Overview of Selected Significant New Products and Services
Appendix B
24
Aluminum Sulphate (“Alum”)
Supply and Demand
! On-site manufacturing at Calgary, Fort Saskatchewan, Prince George, and Saskatoon
! Batch process that combines readily available raw materials (including sulphuric acid produced at Prince George or available from Sherritt by contract)
! Produced in both dry and liquid forms
! Targeted towards regional markets
! Freight sensitive product in liquid form owing to >50% water content
! Demand is highly correlated with economic and population growth
! Growth derived from oil sands has resulted in increased need for municipal and waste water treatment
! Marsulex is the key supplier of alum in Western CanadaUses
! Municipal and industrial water treatment
! Pulp and paper industry process water treatment and paper sizing
! Lake restoration, treatment and nutrient inactivation
! Potential treatment for oil-sands tailings basins
Operations
25
Fort McMurray (Ammonium Sulphate)
Operations
Economics
! Facility located on Syncrude’s Mildred Lake site
! Unique technology used to scrub emissions, producing granular ammonium sulphate fertilizer as a value-added by-product
! Provides disposal / placement service for by-product ammonium sulphate slurry from the emissions control system of Syncrude’s upgrader coking process
! Essential process to ensure environmental compliance ! Facility governed by a long-term contract
! Fixed fee with price escalators on direct costs and sulphur price netback
! Potential for growth alongside Syncrude as capacity expands
! Co-investment opportunities
! Potential to benefit from growing oil sands industry
26
Montreal (H2S Recovery)
Operations
! Sulphur recovery plant, pipeline connected to Suncor refinery
! Converts by-product H2S from the refinery into molten sulphur using a Claus plant
! Residual emissions of SO2 (tail gas) are captured to ensure compliance with environmental regulations (produces SBS solution)
! Owns and operates plant which includes proprietary technology for the tail gas recovery unit
! Continuous operation: 365 days/year, 24 hours/day
! Exceptional reliability: +/- 1 hour outage in the past 50 years
! Governed by a long-term contract
! Long-term relationship with Suncor
! Fixed fee with price escalators on direct costs
Economics
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