Strengthening and Expanding our Platform The Acquisition of General Chemical. December 2013

Transcription

1 Strengthening and Expanding our Platform The Acquisition of General Chemical December 2013

2 Special Note Regarding Forward-looking Statements This presentation contains certain statements which may constitute forward-looking statements within the meaning of certain 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 are intended to identify forward-looking statements. This presentation contains forward-looking statements about the objectives, strategies, financial condition, results of operations and businesses of Chemtrade Logistics Income Fund. These statements are forwardlooking as they are based on current expectations about our business and the markets we operate in, and on various estimates and assumptions. Forward-looking statements in this presentation describe our expectations as of the date of this presentation. Our actual results could be materially different from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, we cannot guarantee that any forward-looking statement will materialize. Forwardlooking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on our business. We disclaim any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason. Risks that could cause our actual results to differ materially from our current expectations are discussed in the RISK FACTORS section of our Annual Information Form and the RISKS AND UNCERTAINTIES section of our most recent Management s Discussion & Analysis. Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available on Note: unless otherwise specified, all dollar amounts in this presentation are in Canadian dollars. This presentation contains non-ifrs financial measures and data, including, but not limited to, EBITDA, EBITDA margin, distributable cash, free cash flow conversion, payout ratio, leverage and General Chemical s financial measures, which are prepared in accordance with US GAAP. 2

3 Strengthening and Expanding our Platform On December 4, 2013, Chemtrade entered into a definitive agreement to acquire General Chemical for US$860 million in cash (1) General Chemical s three operating businesses strengthen and expand Chemtrade s platform Water Treatment Chemicals Largest North American manufacturer of inorganic coagulants Builds on Chemtrade s existing Western Canadian platform Sulphuric Acid Critical sulphuric acid regen and production services provided primarily to overthe-fence pipeline customers under long-term contracts Complements Chemtrade s existing sulphuric acid and regen expertise with geographical expansion Specialty Chemicals Leading North American manufacturer of API (2) grade potassium chloride ( KCl ) Sole North American manufacturer of sodium nitrite Niche manufacturer of highefficacy vaccine adjuvants Provides Chemtrade with new avenues for growth 1. Subject to Purchase Price adjustments and customary closing conditions. 2. API: Active Pharmaceutical Ingredient. Strengthens our presence in water treatment chemicals and sulphuric acid; expands our platform into specialty chemicals 3

4 Acquisition Highlights Purchase Price US$860 million (1), all cash consideration Highly Accretive Acquisition LTM (2) Adjusted EBITDA of US$110 million (C$112 million) - Implies 7.2x purchase multiple including US$10 million of expected annual pre-tax synergies (7.8x w/out) - Highly realizable cost synergies fully phased-in within one year Key Statistics Highly accretive to distributable cash per unit: 16.7% on LTM basis (3) Financing Fully committed: Payout ratio reduces to 49.9% on LTM basis - US$1.0 billion senior secured credit facilities (US$600 million term loan and US$400 million revolver) - An approximate $300 million equity raise planned - Fully committed credit facilities for Purchase Price plus transaction expenses whether or not the planned equity raise is completed prior to closing Structure Transaction to be implemented through a Delaware merger Unanimously supported and recommended by Board of Trustees Conditions Customary closing conditions Expected Closing December, 2013 or early January, 2014 Note: All LTM metrics converted to C$ at LTM average CAD/USD FX rate of Subject to Purchase Price adjustment; Purchase Price converted to C$ at spot CAD/USD FX rate of as of November 29, LTM as of September 30, General Chemical capex adjusted to account for incremental run-rate maintenance capex of $7.1 million for annual maintenance capex of $20.9 million for General Chemical assets. Transformative acquisition expected to lead to meaningful DCPU accretion; Fully underwritten financing with expected transaction closing in early

5 Demonstrated Ability to Successfully Integrate Acquisitions CREATING A STRONGER, MORE RESILIENT BUSINESS SHS Operation Leading North American supplier of Sodium Hydrosulphite 2002 December Pulp Chemicals Leading regional supplier of sodium chlorate, toll processor of CTO Kemmax/Ruhrtrans Leading independent sulphur removal company in Germany Peak Chemicals Expanded sulphuric acid business, diversified end markets Marsulex Increased presence in core products, expanded geographic reach and enhanced quality of earnings General Chemical Further strengthens and expands Chemtrade s platform 2003 August 2005 May 2005 August 2011 June 2014 (Pending) 5

6 Transaction Continues Chemtrade s Strong Growth Trajectory Track Record of Growth (EBITDA) ($ millions) 12.7% Chemtrade General Chemical Synergies EBITDA Margin 15.1% 15.6% 15.4% 14.8% 13.9% 12.6% 12.7% 13.0% 11.8% 10.1% 21.2% $265 $10 $112 Continued expansion and strengthening of the Chemtrade platform 2002 to 2012 EBITDA CAGR of 18.3% Pro forma EBITDA increases by 85% (1) Industry-leading pro forma EBITDA margins Pulp SHS Chemicals Operation ($117 mm) ($98 mm) $44 $26 Kemmax/ Ruhrtrans; Peak ($216 mm) $54 $59 $65 $69 $119 $81 $71 Marsulex ($420 mm) $115 $142 $ Sept-13 PF LTM 1. Including pro forma annualized cost synergies of US$10 million, translated to Canadian dollars. Nearly doubles LTM EBITDA and results in industry-leading margins 6

7 Strategy is Delivering Superior Returns $700 $600 Total Return: Chemtrade Relative to S&P/TSX Composite Chemtrade $500 $400 $300 $200 S&P/TSX Composite $100 $0 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Source: FactSet Note: Market data as of November 29, Chemtrade has delivered a 16.4% CAGR since IPO vs. 7.2% for the S&P TSX during the same period 7

8 General Chemical Business Overview Water Treatment Chemicals Largest North American manufacturer of inorganic coagulants used in water treatment process - Products include Aluminum Sulphate, Other Aluminum Salts, Iron Salts, Alkali and Disinfectant Sulphuric Acid Regeneration and production services provided primarily to over-the-fence pipeline customers under long-term contracts - Acid Regeneration, High Strength Sulphuric Acid, Merchant Acid and By-Products Specialty Chemicals Provides niche chemicals Overview - Products include Sodium Nitrite and High-Purity Potassium Chloride and Vaccine Adjuvants (US$ millions) LTM Revenue US$390 million Corp/Other; $5 1% Speciality Chemicals $69 18% Sulphuric Acid $93 24% Water Treatment Chemicals $223 57% Note: LTM as of September 30, 2013 Broad geographic scope and diverse product portfolio 8

9 Water Treatment Overview Product Offering Overview 39 Facilities Serving Diverse Customer Base Products serve primarily municipal & industrial customers Aluminum sulphate ( Alum ) and related blends Most established coagulant used in water treatment Other Aluminum Salts Aluminum chlorohydrate ("ACH") and polyaluminum chloride ("PAC") used to remove impurities in water and manage ph Iron Salts (ferric) Can yield improved organic removal versus other coagulants Disinfectant Liquid aluminum sulphate used in distribution system disinfection Strategically located facilities in close proximity to established, stable customer base to minimize freight costs 9

10 Sulphuric Acid Overview Product Offering Overview Products serve primarily refineries & industrial customers An integrated, essential component of customers supply chains, providing over-the-fence supply of sulphuric acid and steam as key building blocks Three Pipeline-Connected Facilities Anacortes, WA Augusta, GA Richmond, CA Acid Regeneration Regeneration of spent sulphuric acid High Strength Sulphuric Acid Merchant Sales of sulphuric acid to a wide range of end customers in proximity to production plants Other By-products including sodium bisulphite ( SBS ), steam, and H 2 S processing Anacortes, Washington Richmond, California Augusta, Georgia Long-term, mostly take-or-pay contracts with cost pass-through provisions 10

11 Specialty Chemicals Overview Product Offering Overview Products and Facilities Customers include major pharmaceutical, food processing, chemical, nutritional, industrial and other companies Sodium Nitrite High-Purity Potassium Chloride Vaccine Adjuvants Sodium Nitrite - Sole North American manufacturer of sodium nitrite used in corrosion inhibitors, dyes, pigments, printing, food processing and emerging oil & gas applications Midlothian, TX Syracuse, NY Berkeley Heights, NJ API grade Potassium Chloride - Leading North American manufacturer of custom pharmaceutical formulations, food additive as salt alternative Three Facility Locations Syracuse, New York Vaccine Adjuvants - Niche manufacturer of animal vaccine adjuvants used in veterinary preventive medicine Midlothian, Texas Berkeley Heights, New Jersey Operates three manufacturing facilities fully compliant under federally-regulated guidelines 11

12 General Chemical has Well-Balanced End-Market Exposure Detailed End-Market Exposure End-Market Exposure Detailed End-Market Exposure Metals & Mining Metals & Mining: 2.0% Chemicals (Toll-contract) Salt Alternative Vitamin / Nutraceutical Tantalum Refinement Dialysis Processed Meat Custom Pharmaceutical Oil & Gas 9% Food / Pharma 9% Industrial & Manufacturing 35% Plastics & Fibres Paints & Dyes Metal Treatment Custom Pharmaceutical Regen / Hydrogen sulfide (H 2 S) Processing Pulp & Paper 11% Municipalities Agriculture Chemicals Pulp & Paper Mining Water Treatment 34% Metals Environmental Rendering Building Materials Note: Based on 2012 revenue data Revenue base supported by a variety of complementary end-markets 12

13 Acquisition Aligned with Chemtrade s Four-Pronged Strategy Growth Adds significant scale to Chemtrade s existing platform Meaningful growth opportunities in both Water Treatment and Specialty Chemicals Operational Excellence North American manufacturer with broad product portfolio of inorganic chemical solutions Attractive Business Model High quality earnings consistent with our risk mitigating business model derived through a diverse customer base, risk-shared contracts and market leading positions across different geographies Financial Prudence Industry-leading EBITDA margins and robust free cash flow conversion Highly accretive to DCPU and lowers payout ratio Maintains strong balance sheet 13

14 Growth: Attractive Growth Opportunities Water Treatment Chemicals Proprietary licensed alkali technology Lower maintenance ph corrector alternative to dry lime or caustic soda - 10-year exclusivity for 43 states and Canada - Allows General Chemical to provide efficient and non-hazardous alkali alternative Demonstrated platform for bolt-on acquisitions Specialty Chemicals Opportunities for new applications and end-market expansion - Sodium Nitrite Only FDA-approved provider for use in processed meat additives Potential oil & gas opportunities - Potassium Chloride Pharma, vitamin and nutraceutical applications Food additive as a salt alternative Other niche opportunities for further growth Augments existing portfolio with products serving new end-markets with attractive growth profiles 14

15 Operational Excellence: New Products, Services and Geographies Addition of a Number of New Products and Services Expands North American Geographical Footprint into Key New Markets Iron salts (ferric) PAC Proprietary licensed alkali technology Western Canada Chemtrade 23 General Chemical 45 Pro Forma 68 Eastern Canada API grade potassium chloride North-West U.S. North-East U.S Sodium nitrite Vaccine adjuvants Steam South-West U.S. South-East U.S Expands footprint into key new markets with broader product and service offering 15

16 Attractive Business Model: Broadens Chemtrade s End-Market Exposure Chemtrade Revenue Metals & Mining 7% Food / Pharma 2% Oil & Gas 23% Fertilizer 6% Industrial & Manufacturing 31% Metals & Mining Food / 6% Pharma 4% Oil & Gas 18% Fertilizer 4% Pro Forma Revenue Industrial & Manufacturing 32% Adds new municipal water treatment chemicals customer base Entry into new end-markets including food and pharmaceuticals provides additional growth opportunities Adds over 1,500 customers Pulp & Paper 29% Water Treatment 2% Pulp & Paper 23% Water Treatment 14% Note: Based on 2012 revenue data; General Chemical share of pro forma revenue converted to C$ at average 2012 CAD/USD FX rate of ; Industrial & Manufacturing includes chemicals, distribution, electronics, textile, utilities and other; Chemtrade revenue data excludes International segment Well-balanced, diverse revenue base with attractive new end-markets 16

17 Cumulative Revenue (%) Attractive Business Model: Business Model Enhances Quality of Earnings Diverse Water Treatment Chemicals Revenue Base 125% 100% Risk-Sharing Acid Business Model Long-term contracts that generally have take-or-pay as well as cost and capex pass-through provisions 75% Leading Market Positions in Specialty Market leadership enhancing quality of earnings: 50% 25% - Only N.A. manufacturer of sodium nitrite - Leading N.A. manufacture of API grade KCl, with custom formulations Facilities Critical and largely non-discretionary nature of water treatment chemicals add to business model resilience Exceptional Customer Base Attributes Diversity: no single customer represented more than 8% of General Chemical 2012 revenue Strong customer retention through provision of business-critical services Note: Based on Water Treatment Chemicals 2012 gross revenue 17

18 Financial Prudence: Highly Complementary Acquisition Chemtrade General Chemical Pro Forma Operating Profile Number of facilities Canada U.S. Int. Gross Revenue 2012 Split Canada U.S. Int n.a (2) (2) 28% 43% 29% 10% 90% n.a. 23% 57% 20% Revenue (C$ millions) $858 $396 $1,254 EBITDA (C$ millions) $143 $112 $265 (3) (5) Financial Profile (LTM Sep ) EBITDA Margin (%) 16.7% 28.2% 21.2% Capex (C$ millions) $48 $21 $69 Free Cash Flow Conversion (%) (1) 66.3% 81.3% 73.9% (4) (5) (4) (4,5) Distributable Cash (C$ millions) $86 n.a. $144 (4,5) DCPU (C$) $2.06 n.a. $ Free cash flow conversion defined as (EBITDA capex) / EBITDA. 2. General Chemical gross revenue split is based on location footprint. 3. Gross revenue. 4. Includes environmental liability payments; adjusted to account for incremental $7.1 million run-rate maintenance capex. 5. Includes pro forma annualized cost synergies. 18

19 Financial Prudence: Industry-Leading Margins and Robust Free Cash Flow Conversion Industry-Leading EBITDA Margins Robust Free Cash Flow Conversion (1) 21.2% 73.9% 16.7% 66.3% LTM EBITDA Margin Peer Benchmark: 14.3% LTM FCF Conversion Peer Benchmark: 61.8% Chemtrade Pro Forma Chemtrade Pro Forma Note: LTM as of September 30, 2013; General Chemical capex adjusted to account for incremental run-rate maintenance capex of $7.1 million for total maintenance capex at $20.9 million; Peer Benchmark based on median of LTM metrics for selected peers: Alzo Nobel, Arkema, Ashland, Axiall, Cabot, Canexus, Celanese, Clariant, Cytec Industries, Dow Chemical, DuPont, Eastman Chemical, Ecolab, Evonik, H.B. Fuller, Kemira, Koppers, Lonza Group, Methanex, Olin, Omnova, Penford, PPG Industries, Quaker Chemical, Rockwood Holdings, Royal DSM, RPM International, Solvay, Stepan, Superior Plus and Westlake Chemical 1. Free cash flow conversion defined as (EBITDA capex) / EBITDA. Significantly enhanced EBITDA margin and free cash flow conversion 19

20 Financial Prudence: Highly Accretive to DCPU and Reduces Payout Ratio ($/unit) Highly Accretive to DCPU Meaningful Reduction in Payout Ratio $ % 49.9% $2.06 DCPU (LTM) Payout Ratio (LTM) Chemtrade Pro Forma Chemtrade Pro Forma Source: Company filings Note: LTM as of September 30, 2013; Distributable cash is defined as EBITDA less interest, taxes and maintenance capex; does not include impact of pension & OPEB contributions; pro forma includes US$10 million of expected run-rate cost synergies and assumes taxable income reduced by interest expense resulting in approximately 50% of General Chemical EBIT taxable. General Chemical capex adjusted to account for incremental run-rate maintenance capex of $7.1 million for total maintenance capex at $20.9 million Modest cost synergies support meaningful accretion and payout ratio reduction 20

21 Financial Prudence: Maintains Strong Balance Sheet Sources of Financing US$1.0 billion Senior Secured Credit Facilities comprised of: - US$400 million revolver with US$150 million optional accordion 5-year term Senior Credit Facilities Approximately US$155 million available pro forma as of September 30, 2013 (1) - US$600 million Term Loan 5-year term No amortization over life of loan, bullet maturity, fully pre-payable without penalty An approximate $300 million equity raise planned Equity Raise Fully committed credit facilities for Purchase Price plus transaction expenses whether or not the planned equity raise is completed prior to closing Pro forma LTM senior secured leverage of 3.3x (2) Strong near-term cash flow generation supports de-leveraging 1. Includes US$216 million drawn on revolver plus ~US$30 million impact from outstanding letters of credit. 2. Senior secured leverage calculated as per credit agreement. Prudent use of incremental leverage capacity 21

22 Demonstrated Prudent Capital Management Strong Deleveraging Profile Since the Marsulex acquisition: Senior secured leverage has been steadily reduced from 2.8x post-acquisition to below 2.0x within one year Throughout this deleveraging process, we have maintained our annual distribution of $1.20/unit Senior Debt to LTM EBITDA 2.8x 2.5x 2.0x 2.0x 1.8x 1.8x 1.6x 1.7x 1.7x 1.6x 1.0x Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Proven Track Record of Maintaining Distributions Annualized Distributions per Unit $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 $1.20 Source: Company filings Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Chemtrade has proven its ability to reduce leverage while maintaining its distribution 22

23 Executing on our Four-Pronged Strategy Growth Operational Excellence Business Model Financial Prudence The acquisition of General Chemical strengthens and expands our platform 23

24 Appendix 24

25 DCPU Reconciliation Distributable Cash Bridge (LTM Current to Pro Forma) ($ millions) $10 $112 ($43) ($21) $144 Distributable Cash Impact ($ millions) Chemtrade General Chemical Adjustments Pro-Forma LTM EBITDA (2) Less: Cash Interest (19.5) -- (25.9) (45.4) Less: Taxes (1) (3.4) (15.1) (1.9) (20.4) Less Maintenance Capex (3) (34.6) (13.8) (7.1) (55.5) Distributable Cash (24.7) Units DCPU $86 Current Chemtrade Distributable Cash General Chemical EBITDA Synergies Incremental Incremental Interest and Maintenance (1) Cash Taxes Capex Pro-Forma Distributable Cash DCPU: $2.06 Payout Ratio: 58.2% DCPU: $2.41 Payout Ratio: 49.9% Note: LTM as of September 30, 2013; Distributable cash is defined as EBITDA less interest, taxes and maintenance capex; does not include impact of pension & OPEB contributions. General Chemical capex adjusted to account for incremental run-rate maintenance capex of $7.1 million for total maintenance capex of $20.9 million 1. Assumes taxable income reduced by interest expense resulting in approximately 50% of General Chemical EBIT being taxable. 2. LTM EBITDA calculated per reported EBITDA in each period (normalization adjustments not made). 3. Excludes General Chemical one-time capex pertaining to Water Treatment Chemicals growth. 25