Chemtrade Logistics Income Fund (CHEUN) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to Chemtrade Logistics Income Fund Second Quarter 2026 Q&A portion of the Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 13, 2026. I would now like to turn the conference over to Rohit Bhardwaj, Chief Financial Officer. Please go ahead.

Thank you, Vincent. Good morning, everyone. Thank you for joining the Q&A session of Chemtrade's second quarter 2026 results. Our news release, financial statements, presentation and prepared remarks have been posted on our Investor Relations website at chemtradelogistics.com. Before we proceed, I would like to remind everyone that today's call will contain certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results may differ materially from those expressed or implied. Additional information regarding these risks, uncertainties and assumptions as well as information on certain non-IFRS and other financial measures referred to today can be found in our disclosure documents filed with the securities regulators and available on sedarplus.com. One of the non-IFRS measures we refer to today is adjusted EBITDA, which is EBITDA modified to exclude noncash items that are unrealized foreign exchange gains and losses. While our slide deck and disclosure documents refer to adjusted EBITDA, we may refer to it as EBITDA during the call. With that, we'd now like to open up the line for your questions. Vincent, you may open up the line for Q&A.

[Operator Instructions] Your first question comes from Steve Hansen from Raymond James.

It's Robert on here for Steve. So just wanted to start off on the Water Solutions side. So you noted that sulphur has risen further in Q3, although you're seeing some softening through the balance of the year. So just given the lag in repricing the Water Solutions book, when do you now expect the maximum margin pressure from sulphur to kind of occur? And then as contracts roll over, when should we expect the margin profile to be showing a meaningful sequential recovery?

Robert, so I appreciate that. This is Scott. So sulphur, as we know, has risen. It's jumped up considerably close to all-time highs. And so the outlook for sulphur is that -- the outlook is that it's at its peak and then at some point here before long, it's going to come down. We obviously don't know that. We'll see. Our expectations are that sulphur is not going to go higher. So that's our expectation and that it will fall. We are -- as you know and others know, as we sell to city municipalities across North America, we sell on annual fixed prices, and we sell to over 1,000 customers. Those -- our contracts are being renewed all the time every month. And so the contracts that are being renewed right now have -- are built and based off of our outlook for sulphur, which is at close to an all-time high. And so those contracts are rolling on, and they'll be good for a year. And so our team -- as you know, our team, we work very aggressively to raise price as we can based on raw materials. And then in our water business, especially, we tend to hold on to those price increases over time as raw materials fall. So yes, so we're not expecting future increases, but every contract that's coming on is based off of the latest high raw material profile.

Okay. Got it. That's great color there. And then just shifting to North Van quickly. So of that $75 million to $105 million capital requirement that you guys disclosed, can you help us just frame the expected phasing of that spend over the next several years? And then how much should we think of that balance is truly incremental capital versus maintenance or growth spending that would otherwise have kind of been incurred there in North Van over those years?

Yes. So I understand. Our plan had been to deploy that capital over roughly a 4-year period, and that would be done primarily in conjunction with our turnarounds, which would be every other year. So our plan had been to deploy that capital in -- primarily in '28 and in '30. And so as we deploy that capital, we would also be spending a little bit less on our maintenance capital there. And so there is some overlap between the capital that we have here for the safety upgrades as well as, let's say, our normal turnaround costs. So that's what we had planned. With the injunction that's been filed, that's -- what we're expecting is that there's going to be a hearing based on that injunction, we believe, next year in '27 and then a decision would come 4 to 6 months after that. So if the decision is favorable for that, that would still work out for us with the plan that we had to deploy capital in '28 and '30. If there were -- if that timing did not work out, then that could have an impact on the '28 spend.

I think the one thing I'll add to that is part of our capital that we have put in place is to put in liquefication capabilities on our own land. So that will be brand-new equipment, and we will be -- we'll stop using the older equipment on the port side. So that just tells you in the future, that will require less maintenance for the first several years because of the brand new equipment.

Your next question comes from Joel Jackson from BMO Capital.

So if we do that CapEx plan at North Van '28, 2030 kind of lumpy, would we expect CapEx for the next 4 years to look like something like $185 million next year, $235 million in '28, $185 million in '29. What did I say, $235 million in 2030, something like that?

So Joel, one of the things is there will be -- there could be one disconnect between us recording CapEx and cash flow because we may be ordering some long lead time items, et cetera. So it's hard to tell you exactly how the cash flows will line up. But as we get further into the engineering in the next few months, we can definitely provide a little bit more granular timing for you so you can model it out.

Yes, that's right. We can -- I think we can be clear with that. But I do want to emphasize that the spend, particularly in '28 will be impacted based on the outcome of the injunction or the hearing that would be next year.

Okay. So your guidance is that EBITDA would be about flat with last year. You're trailing down, I think, $15 million to $20 million EBITDA year-over-year for the first half of the year. So you have to make that up in the second half of the year. Can you talk about which of the businesses of segments, sorry, are you going to see that EBITDA growth the most? And maybe you can talk about Q3 versus Q4 cadence further growth?

So maybe -- so I think one thing to keep in mind is in the EC segment, prices were for chlor-alkali was trending down all through last year, so all-through 2025, which means that the first half comparisons in '26 were up against tougher comparables in '25. But as those prices were declining during the back half of '25 and now they're kind of stable, we'll be picking up some of that gap just because those lower prices was reflected in the second half of 2025. So most of what we are talking about, that normalization will happen within the EC segment. And we expect right now that the acid segment will continue to outperform last year. So there will be some of that coming from there, but a big chunk of that will come from EC.

And just to add on to that, we had a relatively heavy turnaround schedule in the first half of this year. And so that will be lighter, and that's an unusual as well as we look at the second half of this year.

Just sneak one more in. If we think about 2027, just building blocks for a bridge, we don't know what cost of price will be, things like that. But do you think of things that are clear for bridge items like, of course, the $7 million for the North Van -- biennial turnaround won't be there next year, maybe get from ultrapure. Can you just give some building blocks for what '27 like puts and takes, commodity price move?

That's right. So I'll start with Water. And I think that based on the movement of raw materials and the fact that where our contracts are and what's happening with contracts that are rolling on right now, I think it's fair to say that the outlook for Water will be strong. So I think as you build your model, I would start with that. I would also build in and say that as we've highlighted, Ultrapure is -- we are ramping up supply to 2 fabs, 2 chip producers in the second half of this year. So I think that goes in there. I think that acid will continue to be strong. The Regen should continue to be strong. That's good. We're obviously not going to have a turnaround in North Vancouver. So that's that. And then I think it's fair to say no one -- we don't know and no one knows what's going to happen with chlor-alkali in particular, caustic pricing. But what we can share is what the industry experts look at -- the market experts for chlor-alkali show and what we know is that caustic pricing over time thin or it has a very high correlation with oil, naphtha and natural gas prices coming out of the Middle East. And I think if you go and look at it, there's very high correlation there. And so that would lead to some general, let's say, the outlook is that there will be some modest pickup with caustic, and I think that's a reasonable assumption.

Our next question comes from Hamir Patel with CIBC Capital Markets.

Scott, the potential hydrochloric acid demand growth that you pointed to as a substitute for sulphuric acid in certain industries, how meaningful could that be?

The substitute for hydrochloric, not sure. Hydrochloric -- No, I'm trying to think what comment I might have made. So...

I can follow up with Rohit after on that. But the other question I wanted to ask about was, I know Canfor is closing their Northwood mill later this year. I'm guessing your freight advantage to have been a supplier there. So what percent of your EC volumes would likely need to be repositioned? And I'm guessing perhaps less favorable margins on wherever else you have to position it.

Well, so look, we won't comment on any specific with customers. But what we will say is that as we've shared in our guidance, our volume outlook for chlorate for this year is generally flat with the outlook for this year, maybe slightly ahead, and that's unchanged for the rest of this year. And as we look out into next year, I won't give specific comments other than to say that it's possible that -- so it is in the news that Canfor is closing the Northwood mill. Possible that some of that volume might be moved to one of Canfor's other mills. So Canfor won't give that or any specifics on that, but it's possible some volume would move there. But we and the industry have seen mills continue to close to a couple a year for the past many years. And so that has continued to be built into our model. And over the past several years, the industry with -- the industry has been rational, and I would expect that to continue to happen.