Chemtrade Logistics Income Fund, Toronto, reported a first-quarter net loss of C$97.9 million compared to the year-ago loss of $29.3 million. The company said the increase was primarily due to a few non-cash items, including a $56 million impairment on water solutions products and higher net finance costs due to a $47.4 million loss from the change in the fair value of convertible debentures and an unrealized foreign exchange loss of $9.6 million.
Revenues were down at $366.9 million from $384.4 million, with the company citing lower volumes of sulfuric acid and lower prices for caustic soda and hydrochloric acid.
Adjusted EBITDA was up, at $80.9 million from $44 million.
“Our first-quarter results were not significantly affected by COVID-19,” said Mark Davis, President and CEO. “However, we are seeing reduced demand for some of our products in the second quarter and expect this to continue for the balance of 2020.
“For Chemtrade, the most significant effect is reduced gasoline demand stemming from a reduction in driving miles,’ he added. “The reduced gasoline demand has a material effect on our regen services. However, not all of our products are affected. For example, we expect that demand for our water products should remain stable.
“In addition to the operational steps, we also took a number of financial steps,” Davis continued. “Our proactive reduction of our monthly distribution increased our liquidity by about $55 million on an annual basis. In light of the current uncertain economic climate, we also negotiated an amended covenant package on our senior credit facility, which provides us with additional covenant room over the next two years.”
Davis told analysts that after 13 years of maintaining a distribution rate of $0.10 per month, the company reduced the monthly distribution by 50 percent. He expects the company will generate enough cash this year to meet all of its obligations and sustain its current distribution rate.
Davis said the company’s two largest concerns regarding COVID-19 are its effect on the oil and gas industry and the ability for Chemtrade and its customers to perform maintenance turnarounds safely during COVID. He expects refineries to run at historically low rates but continue to operate. This impacts the company’s regen sulfuric acid business, which is about 40 percent of the overall volumes in the Sulfur Products & Performance Chemicals segment.
“We believe refineries will operate in Q2 at rates approximately 35 percent lower than last year, which is essentially the lowest rate our refinery customers can operate without fully shutting down their facilities,” Davis said. He expects rates to improve during the year, but for 2020 to be about 15 percent below earlier guidance.
He added that merchant sulfuric acid demand is also down due to the general reduction in the industrial manufacturing activity. He also expects a gradual improvement during the year.
Davis expects demand for ultra-pure acid for the semiconductor industry to continue unaffected by COVID.