Q4 2019 Earnings Call
This time, all participants are any listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session that you want me to press Star one on your telephone. Please be advised the today's conference is being recorded through require any further assistance. Please press star zero I would now like Dan.
The conference over to your Speaker today, Mark Davis, President and CEO. Thank you. Please go ahead, Sir Thank you operator, and good morning, ladies and gentlemen, thank you for joining us for our conference call on webcast today.
As usual joining me is where it bard lives, our chief financial Officer.
Before I commensurate view I would remind you that our presentation contains certain forward looking statements that are based on current expectations and are subject to a number of uncertainties and risks and actual results may differ materially.
Further information identifying risks uncertainties assumptions and additional information on certain non IRS measures referred to in this call.
Can be found in the disclosure documents filed by camp trade with the securities regulatory authorities available at <unk> Dot com.
One of the non IRS measured law referred to in this call is adjusted EBITDA, which is EBITDA modified to exclude only noncash items, such as unrealized foreign exchange gains and losses.
Its simplicity will refer to it as EBITDA as opposed to adjusted EBITDA. Both these terms are fully defined in our mdna.
[music] now in general terms, we're pleased with the way, we executed our business activities and operations in 2019.
The initiatives, we undertook in 2018 and 19 to adjust to changes in market conditions, and a pre day to day execution for substantial benefits and 2019th.
Well, there's always room for improvement our plants operated wells and the supply chain and logistics movements were executed well.
Despite this improvement in execution.
Our aggregate financial results were lower than we had expected at the beginning of the or.
This was due almost entirely to the prices received four chlor alkali products and in particular, the prolonged weakness in caustic soda prices.
Our more to say about our latest out what pretty for pricing and my closing remarks.
Despite the C N rail strike in the fourth quarter.
Which had a negative EBITDA impact of approximately $3 million our results for the year are in line with the guidance we provided.
Ignoring the impact of IRS 16, which were hit will outline shortly.
In aggregate, our operating business generated EBITDA in 2019 that was similar to 2018.
We achieved this result, despite significantly lower results in the electronic chemicals or E C segment.
And that business, the low caustic soda prices throughout the year and lower netbacks realized from hydrochloric acid.
Resulted in EBITDA that was $50.5 million lower than in 2018.
This significant decrease.
Merrily due to the market price of caustic was more than offset by strong operating results in our software products, some performance chemicals or SPP see segment.
S TPC reported significantly higher results in each quarter in 2019, then in 2018.
For the full year EBITDA was $52.1 million higher than in 2018.
A number of factors contributed to the increase including higher realized selling prices.
Reduced logistics costs had fewer maintenance turnarounds in 2019 relative to 2018.
Well all segments benefited from improved execution. This year. The results were most obvious and SPP C.
Our water solutions and specialty chemicals, or WSS see segment posted steady year over year EBITDA.
Contract renewals for water treatment products during the year.
Or generally made at higher prices more than offsetting a raw material cost increases.
And weaknesses in some of the specialty chemicals.
So in general our business has executed well in 2019.
But in aggregate successful execution was counteracted by the decrease in the market price for caustic soda.
We're pleased with how the reconfigure SPC business has adjusted to structural changes in merchant in the merchant asset market and how our water or chemicals business gained strength throughout the year as new contracts came into force.
Caustic prices started weakening about a year ago and the weakness has continued longer than we or the industry experts had expected.
However, the long term forecast continues to call for higher prices for a number of years.
We remain confident than or that the results for easy will improve over time and that our focus on execution will continue to deliver benefits.
Robert when I'll provide you with some details on the fourth quarter results before I provide some further information on our outlook alright. Thanks, Mark Good morning, as Mark indicated our plants and supply chain continue to operate well in the fourth quarter.
2019, and results also reflect higher realized selling prices look and feel like acid.
Before I review the financial results for the fourth quarter end the year there a couple of items to note.
The application of I FRS 16 on leases at January 1st 2019 means that can create now recognizing a depreciation and interest expense.
Operating lease expense for neither is that for <unk> previously classified as operating leases.
This is often increasing EBITDA, but it does not affect distributable cash also comparative information for 2018 has not been restated.
In 2018, and 2019 litigation reserves up $100 million and $40 million, respectively negatively affected both EBITDA and distributable cash.
Loan repayment cost so $7.4 million in 2018 affected.
Okay.
I will exclude given my comments this morning about full year results to better compared the actual operating performance of our businesses. These items did not affect what are the result in boats 2019 and 2018.
Looking first at the aggregate results for the fourth quarter of 2019 revenue was $355.2 million a decrease of $35.6 million from 2018.
The decrease was primarily due to lower prices for caustic soda and hydrochloric acid NDC segment.
These decreases decreases more than offset higher selling prices listen for the gas it.
Aggregate EBITDA for the fourth quarter, 2019 was $70.3 million compared to $65 million into fourth quarter of 2018.
Excluding the 14.4 million dollar benefit the fire for 16 EBITDA for the fourth quarter Funny 19 was lower been 2018 by $9.1 billion.
Strong results from the SBC and WSSC segments will more than offset by the easy segment.
EBITDA was $19.2 million lower than 2018.
Distributable cash off the maintenance Capex for the fourth quarter was $1.4 million or two cents per unit.
This reflected the lower level of EBITDA generated during the quarter and the heavy maintenance capex incurred in the fourth quarter.
For the full year 2019, distributable cash something from continuing operations after maintenance Capex was $122.1 million or $1.32 per unit, compared with <unk> $49 million or $1.61, but you're not in 2018.
Consolidated revenue for 2019 was $1.5 billion, it's $62.9 million lower than 2018.
The decrease was due primarily to lower selling prices for caustic soda and its yellow box, the offset by higher selling prices and higher sales volumes for water products, and WSSC and higher selling prices listen to the gas it.
Aggregate EBITDA for 2019 will see $35.6 million compared to $96.2 million in the previous year.
2018, EBITDA included lead expenses, a $56.2 million ignoring the effective I first 16, 2019, EBITDA was $16.9 billion Northern 2018.
Yes, BPC dendritic stronger both in 2019 dilutive for 2018 with EBITDA improving by $52.1 million.
This was how they're almost entirely offset by D.C. segment between 19, EBITDA was $50.5 million lower in 2018.
Now turning to segmented results for the quarter SBC generated revenue of $117.3 million compared with $129.1 billion in 2018.
EBITDA for the quarter was $34.2 million, which was $17 million higher than 2018.
Well I have for 16 contributed $5.8 million with the improvement the majority of the increased EBITDA came from improvements in the business itself.
Sales volumes being lower than last year due to reduced byproduct supply higher selling prices will suffer gas. It combines a better operations that's been significantly higher margins.
There was also a lower than normal level of maintenance turnaround activity in pretty 19 looking for 2018.
[noise] WSSC segment reported fourth quarter revenue on a $1.8 million compared with one or $2.4 million in 2018.
EBITDA improved to $14.6 million, including the positive for 16 in fact of $1 million compared with $11.9 million generated in 2018.
Selling prices for water products increased raw material cost stabilized, resulting an expanded margins.
This was partially offset by lower results for specialty chemicals.
Our easy segment reported revenue of $136.1 million from fourth quarter for 19, which was $23.2 million lower than the same period of 2018.
The lower revenue was due to lower selling prices for caustic soda and fleets yet.
For the fourth quarter funny, 19, caustic soda prices were 15% lower than the fourth quarter 2018.
Hcl selling prices and netbacks were lower by 21% and 27% respectively.
From an EBITDA perspective, excluding the 7.2 billion dollar benefit from my for 16 EBITDA for the fourth quarter pretty 19 was $19.2 million lower and the same period of 2018.
It's primarily due to lower selling prices for both caustic soda and it's yeah.
The week long end real strike in November also had a negative impact on EBITDA roughly $3 million.
Maintenance Capex in the fourth quarter were $36.9 billion, bringing total maintenance capex in pretty $19 billion to $82.7 billion <unk>.
We expect maintenance Capex in 2020 to range between $80 million and $90 million.
Excluding unrealized foreign exchange gains corporate costs during the fourth quarter plenty 19 were $12.7 million, including a positive I F 16 impact all $400000 compared with $10.4 million in the fourth quarter 2018.
This increase is due primarily to higher compensation accruals.
We maintain ample liquidity that you asked $265.4 million Undrawn on our U.S. 850 million dollar credit facility and I in compliance with all our bank covenants.
Prober, we amended filled in terms of a senior credit facility I got an extended the term.
Let me now matures in October 2024.
On October 1st we completed the issuance up $100 million principal amount of 6.5% convertible unsecured subordinated debentures.
Net proceeds of the offering were used to bid on senior debt.
During the fourth quarter, we announced the redemption of the outstanding Chemistry, Electrochem formally Conexus series six 6.5% debentures.
Adventures of redeemed at par on January 2020 for a total of 74.8 dollars.
I'll now hand, the call back tomorrow.
Thanks for it.
Overall, we're pleased with our execution across all businesses and operations in 2019.
For most part all of our plants operated well.
We also were successful in reducing logistics costs, including Rightsizing of our rail fleet.
We remain focused on improving execution every year and expect further improvements in 2020.
We continue to manage all the things that are within our control and ensure that the business is prepared to realize on opportunities, especially increased caustic soda prices and H.C.L. demand and pricing when they occur.
I do want to touch on a couple of recent developments are affecting our business.
First as a disruption to rail service caused by the recent blockades in various parts of Canada.
We like most chemical companies are heavily dependent upon the rail as is often the only viable mode of transportation for raw materials and finished goods.
The rail network is very complex and interconnected therefore disruptions and one area can affect other parts of the networks.
The situation is fluid and it's difficult for us to estimate the financial impact of reduced rail service.
What we can say is that to date the costs have not been material, but many of our plants and our customers facilities only have a small margin of operating safety.
Second issue is the effect of that cobot 19 virus on economic activity, particularly in the Asian, Chlor alkali Chlor alkali industry.
Recent reports show that the industry operating rates have dropped as there is reduced demand for both chlorine and caustic soda.
As a reminder, the most important factor for US is the imbalance between demand for chlorine and caustic soda.
As a general statement if demand for chlorine exceeds demand for caustic in Asia, the price of caustic soda drops and that hurts us.
And vice versa.
Very recent indications are that the northeast Asia spot price for caustic soda, maybe rising by more than U.S. $50 per ton.
Currently the Cobot 19 virus has reduced Asian, chlor alkali operating rates from about 80% to 65% or lower and has other serious effects on Asian and worldwide economic activity.
We can't predict how the virus will ultimately affect economic activity and caustic pricing for the balance of the year.
But our second quarter pricing will be strongly influenced by the index value that we see over the next several weeks.
I will provide some comments on our recently issued 2020 guidance in a minute.
First like last year I want to provide us some high level comments on the market dynamics for certain key products.
Generally other than caustic soda and Hcl market conditions for our main products remain positive.
Starting with SPP CN sulfuric acid.
Supply demand and pricing for each of ultra pure region and merchants are positive.
Ultrapure continues to be sold out and we've been able to achieve higher pricing over the last few years.
We expect a north American demand for ultra pure asset will continue to grow and we are contemplating how we can best meet this growth.
Region demand based on refinery production of alkyl it also shows growth.
Region contracts are multi year, but as they come do they are being renewed at higher based pricing.
Finally.
Merchant asset price has improved and continues to improve.
Pricing continues to move up although we do not capture all of this increase as we share improvements with our byproduct suppliers under our risk sharing arrangements.
Turning to water as we've previously noted Alan price is also increasing as the market a stabilized and raw material costs are no longer increasing.
We expect improved margins and twentytwenty, although more modest improvement than we saw in 2019.
Finally, I want to provide some color on sodium chlorate.
The North American sodium chlorate industry is expected to operate at utilization rates of close to 95%.
We have a significant portion of our chlorine pricing contracted for 2020 and were able to achieve price increases in excess of cost increases.
Now, we don't talk a lot about our E C electrochemical business in Brazil, but there have been some developments that are worth mentioning.
Our key customer there is the world's largest pulp producer suzano.
During 2019 in response to reduced demand from China.
It was on or reduce the output at the pulp mills that we supply.
As this mill is not the low cost mill and Suzano network.
Suzano recently announced substantial investments in this mill to reduce its cost structure.
We believe that until these investments are concluded over the next couple of years. They will continue running at reduced rates.
Once those investments are completed.
We expect the mill to run at high rates.
As a reminder, we have a long term fixed U.S. dollar margin contract with Susanna.
But while our margin per ton as fixed we do bear volume risks.
Given the nature of the Brazilian electrochemical industry, we have a limited ability to sell products into the open markets.
So while we expect to earnings drag from Brazil, and 2021 at 22, the long term prospects for this business are bright.
Switching gears to 2020, we expected our businesses will continue to execute well on aspects within our control.
However, there are several aspects that will affect EBITDA this year.
We listed these issues in our 2020 guidance released at the end of January but here's a quick summary.
First in 2019 of our fewer plant turnarounds for our plants and those of key customers that affected us than there were in 2018.
That won't be quite as favorable and twentytwenty.
The key additional turnarounds are the biennial turnaround at our North Vancouver, Chlor alkali facility.
And a major turnaround of about 60 days at a key refinery customer to takes place once every five years.
While that a refinery is shut down our associated region plant is also shutdown.
As you've been hearing all year, lower caustic pricing Hcl Netbacks I've had a negative impact on the EBITDA we generate.
We are still bullish on these markets, but did not anticipate any immediate improvement.
Our guidance for 2020 lists a number of assumptions.
A key assumptions that are 2020 average caustic soda price will be lower than the 2019 average.
Our assumption is that 2020 average.
Hi, Hs northeast Asia, caustic price index will be $15 per ton lower than the 2019 average caustic price index.
This index valuable and not directly linked is a key variable on establishing concentrate selling price for caustic soda.
Oh, yes, we've assumed lower average caustic price and Twentytwenty this would still be higher than the prices at the end of 2019.
The market continues a forecast that there should be a modest improvement in caustic pricing during the second half of 2020.
As I said, we remain bullish on the medium to long term dynamics for caustic pricing.
And the most recent update for I Hs for Taiwan, Taiwan contract caustic pricing predicts increasing pricing every year from 2021 through 2024, which as far as is as far as they predict.
Our perspective, the forecast pricing for 2024 is roughly you asked $240 per ton higher than the forecast this year.
Obviously these comments our caveated by the comments I made earlier about the effect of the virus, which is that having so far a unquantifiable effects on what people's predictions or assumptions are.
Finally in this business, we're assuming there will be there will not be a recovering hcl demand from higher net back from the higher Netbacks fracking industry.
The amount of realize netback revenue is typically higher from the fracking industry then from the industrial markets.
However, the industrial market is less cyclical.
Two increased demand stability come straight added more industrial customers partway through 2019.
Thus the 2020 guidance includes a full year of lower realized net back revenues as compared to 2019.
Yes, fracking industry demand does increase we can realize on as upside, but we're not assuming that will happen this year.
We want to end our call with a comment on our distributions as we've received a number of questions on our distribution policy, particularly in light of our 2020 guidance and current yield.
As you know at our current unit price our yield as into double digits.
We have a history of not decreasing distributions based solely on a high yield.
On the other hand, if we believe that the underlying business cannot sustain our distributions, we make the appropriate capital decision and reduce distributions to a sustainable rate.
The last took that step in 2007.
Following the release, our Twentytwenty guidance, our unit price doing decreased and accordingly, our yield increased.
[noise] Simplistically, if you take the midpoint of our EBITDA and other cost guidance, you will see that our distributable cash roughly equals our annual distributions of $1.20 per unit.
We believe the 2020 represents a trough for our business.
We are currently and during a low point for caustic soda pricing and Hcl demand from the fracking industry.
And a higher than average level of turnaround activity.
Despite that as outlined we believe there is considerable upside in our earnings potential in the future.
In other words, we believed that the business will generate sufficient funds to sustain our distribution as it has for the last 13 years.
Additionally, we maintain ample liquidity have no covenants or other restrictions that hamper our ability to maintain our distributions.
We'd like to thank you for your attention and operator, we'll hit and I would now be please answer any questions.
Certainly at this time, if you like to ask your question. Please press Star then the number one on your telephone keypad, well pause for just a moment chicken Paul Vicuna roster.
Your first question comes from the line of Joel Jackson from BMO Capital markets. Your line is open hi, good morning, everyone them I have a few questions are often time.
I just want to reconcile some your commentary between PVC and WSSC. So you see sulphuric acid prices rising across the complex.
If I heard that right.
Then in water you think your raw material costs are rising, though I thought I just wanted to meaning.
And can you just reconcile that.
Yeah.
The short long story right is as you know is acid is a regional market.
And there's markets that are a by product supply in markets that are sulfur burners supplied sulfur prices actually decreased and the asset that we source in our in our water business as a combination of byproduct and sulfur burned so the asset thats actually linked to sulfur prices likely cheaper than than.
Ben and other regions.
If you take it all in aggregate is.
The big aggregate view raw material costs of stabilizing the water business.
Okay. That's helpful. Then my second question would be you you've called out generally you know risk on the CN strike and krona virus here in the first quarter on can you help size a bit I mean, I understand sizing kind of iris.
Pack is impossible.
Can you give some order of magnitude of what that could mean Q1 in Q2. Your best guess is right now in the two issues.
I won't give you a number two I can't right I'll tell you I'll tell you two things Okay first on the rail blockades 'cause that's one of the things we called out.
As as I've said is to date, okay. The extra costs and there have been extra costs.
Are not yet material.
But if the blockades truly actually stop our ability to move product.
I will be as material as the other CN things that we talked about and again it depends on duration overall effect on the supply chain and frankly, where.
Right.
Is.
Ill, probably a worst case scenario is if somehow we couldn't ship in and out of our Vancouver facility since actually that facility in another itself makes a lot of money.
But that's probably the lowest.
Probability effect of the rail so.
Our non answer for you as I can't quantify I don't know how to right.
The let me just missed a chronic virus and go to circle back right is the Corona virus.
Again is there's people that have actually abandon guidance based on the corona virus not be able to quantify the cronto virus effects I think from our perspective.
Why we can't quantify it and we said that in our marks we think the biggest effect on us.
Is actually was what happens to caustic soda pricing that and moves on that index, that's actually instructive on our pricing on Western Canada.
And the question that I can't answer is is will the virus and the effect of the a virus effect, which.
Side of the Chlor alkali business more in Asia as we said during the terms. So I don't know of chlorine demand goes up or down these are the caustic demand.
That's why we can call it out as a risk, but we just can't quantify.
Okay and then thanks helpful I guess.
My final question, Yes, I'd be happy for you to quantify <unk>.
I I qualify that no one can.
Just my last question is again on the on the dividend and the payout ratio. So.
If we if you over the next few years, you know little to little model or modest commodity price improvement across the complex.
Well kind of be the average parish because I was you have turnaround to ebb and flow be at north and customers. So are we talking about.
Low growth low commodity price growth scenario on an average payout ratio of 90% 85%.
90%, how would you quantify it.
So if you're assuming if you're assuming no commodity price increase or material, including.
Including our Chlor alkali business.
We havent done the numbers off but I'm going to say, it's 90% right.
And if that was the case, it's 90% that tend not to sustain the dividend in your mind.
Well 90 is less than 100.
Thank you.
Your next question comes from the line of Jacobs from she she your line is open good morning.
Thanks.
Just wanted to go back to the impact is real strike what does this mean for.
Good because we've been hearing about a point shortages.
So the so so that's a is one of the wrong guys actually comment on that Eleni bid that as you know there are.
Eastern and Central Canada, chlorine producers that that the blockades of had an effect on you got in Simplistically speaking most of our chlorine wheels out of our gave in Vancouver and had solid.
So it hasn't really so we really havent been affected.
But if you want to Canadian National per nationalistic perspective is the effect on these rail blockades on the availability for people to get chlorine to purified or drinking water I got I believe it's awfully hand to mouth.
But I don't know.
Okay.
And then on the.
You see northeast Asia spot prices for caustic.
Well well, let me, let me clarify that a minute or is that is that this is what we've heard the indexes do not yet represented we've heard it for good reasons because partially every so often we do import caustic. So we have a pretty good handle on it.
Price of import a caustic.
So we.
The actual index publications haven't shown it yet, but we believe that's what's happening.
So if this is implemented.
In contract pricing and how should we think about.
The impact on EBITDA.
So you have to I would suggest you need this.
If it's up 50 box.
In the first two weeks of March which actually is informative for us for our Q2 pricing.
Then we should be up some from what Q, where Q1 was yes, but my but I think that don't get us close to the midpoint of our guidance because it did drop off early in 2020, and so this would just would bring it to where we expect the Q2 pricing to be.
Okay.
Even though.
Originally talking about a second.
Versus second quarter.
Yes, so second half so what happened and so this $50 good talking about his phone backlog in lets say January.
And that was lower than where it was in.
In November so it it dipped down and this will bring it up to where we expected to be the uptick you're looking at is really getting it beyond that beyond rate was even at the end of the better.
Or maybe maybe maybe this helps is.
What happens if what we're seeing now is what happens is the assumptions in our guidance remain valid and rate and remain pretty much bang on.
If it's higher than that is that's good if it's lower than that depends how much lower may or may not be material right.
Okay.
I'm going to the WSS see division.
You talked about.
Priests increasing.
Can you just help us.
Is it like a GDP type.
Pricing.
Well I think it's the pricing to be better than GDP, but we took most of the price improvement in 2019. So we do expect as we have opportunities in 2020 to reprice contracts did we expect some but I think going up but that's all material stabilize it is hard to get a lot of price increase in fact, frankly mean you'd be comfortable.
Well, you know maintaining pricing because we actually expect growmobile dropping they stabilize and now the indications of im actually going down.
So this is some margin expansion above GDP, but not the way it wasn't nothing of the magnitude of 2019 and then.
Well Im just GDB I mean, there the volume is not not that not that significant okay and then in the specialty products.
Vision.
You know, we see some weakness.
So what we had said was there to a couple of chemicals, we had called out one was Speedwell site will file system to FFO find Mitch has already shown recovery in Q4.
In a number in Q4, but the other ones. We had mentioned other big one goes potassium chloride, okay, CEO and we had said that because of these particular situation there, but that customer who had a overbought. It's really more like a 21 2021 improvement 2020, we don't really expect any any uptick there.
So what we saw in fourth quarter kind of.
2020.
As far that fraud, I, probably don't break it out on that level of detail, but not a bad they do a slight improvement is there and they wouldn't be much more improvement in the national spec.
All right I'll leave it there. Thank you thanks.
Your next question comes from a long of Paul Blinky from TD Securities. Your line is open.
Thank you and good morning hardening.
I just like to start out on the large turnarounds that you have upcoming in Q2, and Q4 are you able to sort of put any numbers around the potential impact of those financially I think last time in 2015, you had that large reach and turnaround. Thank you quantified at about five and a half Smith.
And is that sort of the right sort of range. Yeah. That's that's that's right now.
Okay, and the North fan is would it be something similar.
Yes, so yeah, because I think last and what he said was spend we had the outdated for the growth of $12 million, but that was at a very high caustic pricing. So now we expect you know about half of that.
Okay, and I guess, just sort of hypothetically and following on all of these real blockade questions. If there is a blockades that impacts the north fan facility are you able to move forward the timing of that maintenance turnaround at all.
No no no. Okay. This is set.
Yeah, it's very hard to get contracting and everything lined up do you have to move because it's not just not just our guys turning crank share we bring in people and you have to preorder equipment or replacing and it's it's a big it's a it's a big production that yeah fair enough and I guess, you you've done a lot of work on operational improved.
It's in the last couple of years, what are your areas of focus on that front in 2020 right.
It is.
We focus on all of it but I mean, it but to give you. The two two big things were looking at is actually going to look at additional production efficiencies and whether or not that's actually utilization of raw materials or increased reliability.
Anything that actually helps us reduce cost per tonne produced.
And secondly, we're going to you're looking for.
Additional logistics chain efficiencies and cost savings.
And how far along are you through this shedding of the railcars at this point.
We have two we've we're we've shed the majority of them now actually we are fine tuning and effect and and expect to be able to actually realize.
Additional cost savings in 2020 weathered asked by shutting additional cars are using those cars more efficiently is it's going to depend on how we lined out our supply chain, but the big step change was made during the year, but we're going to find other hotter cost saving opportunities going forward as well.
Okay. That's great. Thank you very much I'll get back in queue. Thanks.
Our next question comes from the line of David Neumann from dessert and your line is open.
Good morning, gentlemen.
I used on something in your formal comments on on a couple of issues on first of all you mentioned the drag in Brazil, I would assume that the drag is pretty much what we're seeing right now and that would be what we could expect in 2020 is that we're not yet.
That's right now I think we obviously believe that you know once as onno completes its investments as announced in that facility that reduced the cost and it will start to go back up but definitely picked a company goes to circling right direction is probably the same in 2020 and 20 and 2021 is our gas right yeah yeah.
And how quickly they put the capital and.
And she's annual God offside on their inventory and now I'm sure flushed it through the system.
Could there be any knock on benefit for your sodium chlorate business.
Ah, yes, but it's all dependent.
On that particular mill site.
Okay.
So they just if they decide to run that one harder.
Clear benefit now keep in mind, you know we've talked a bit about the covert 19 wireless and you know, Brazil, Brazil biggest market for Paul is China. So we have to see you know what the effect is going to be of Chinese.
Great demand consumption because that could be that's that's it that's a new factor right. Yes, yes, no for sure I know Ultrapure you made some my comment about maybe perhaps perhaps considering plans. There is that is that involves investment for what are you thinking.
Yeah. It is look is where the.
Largest marketshare supplier of Ultrapure acid in North America, we want to continue to grow with our customers.
We expanded our Tulsa facility, maybe five years ago, we've got an extra capacity out of some of our other facilities.
As we continue to look for the most cost effective way to provide additional volume of the quality required by the market. So it will require investment, but that's a business that we like we are in a market leader, we intend to we intend to remain there.
Any any any any thoughts on how much that could involve mark.
It could either be a little or can be a lot. [laughter] is is the investments that are our existing plants are probably not large numbers right.
If you if you assume that $10 million is not a large number because most of our plants have been tweaked in product. If you build a new ultrapure plant. That's you know hundred million dollars plus.
Okay.
And then on your cost I corporate costs.
They were a little bit lower than than the recent run rate at 13 million.
Any puts and takes there and what do you think the sustainable corporate costs should be after 2020 on a quarterly basis sure. So I mean, there you know.
The maybe maybe look at corporate cost at two elements to it one is kind of would we look access program expenses and the other our incentive compensation expenses. So when you look at our Q4 and if you don't break it out few quite like that but if you look at Q4 program expenses are very much in line, our incentive compensation as you'd expect Oh.
No even when my remark is a bit confusing because I said that they were higher than 29 2018, but then 28 dnbi had divorce those in our out there before the deck you made the expense negative so you're competing off a very unusually low number so anyway I got that you had then tell you that you know what do you should expect at the annualized run rate is up.
About $65 million to $70 million all in.
Okay very good and then just on the on the blockade.
Have you guys anticipate I assume this is not anticipating your guidance for the midpoint and it sounds like the 15 blow gets you to on caustic gets you to the midpoint such that the if you get the $50 backing into the midpoint. So if it remains at current levels and.
And how do you anticipate the C. In rail blockade into your numbers I know it had not had a material impact would that could we presumed to be in the bottom end of the range. So.
Yeah, what's your number for the CN rail blockade, that's that's a hard hard part right. As you. If you if you ignore the C. N rail blockade is we're still in the range right now or the good luck in the Hot thing is we ship vast majority of our products by rail I'm not all figures, Canada, but do you also get draw.
On the too so the block it is just so difficult to predict because they Dave for example to do they're the ones from go up and also I mean affecting Manitoba and then that was.
It was pulled down and so it's just very difficult to quantify the impact could you just don't know.
How long were and what classes when in fact, but.
Most cases, you don't have that alternatives that are liable.
Yeah, I know you need to $50, increasing caustic to get you to the midpoint of your guidance correct just to clarify.
No it could be bill careful as well as what we have for the for the year of Twentytwenty, whereas where we're actually seeing things 15 below 29 team right.
And we're expecting price increases in the second half so forget about what's different about a $50 thing that we set for a minute. Okay is we're expecting price increases in the second half not in the first half right right right. So the $50 that we talked about which you guys have all jumped on okay is really and it would just fine.
It's really an indication that at least as of today. It looks like the effect of the virus is resulting in an increase in spot caustic pricing I don't know Thats. The case Tomorrow I don't know if it's the case two weeks from now right. So we thought we try and give some.
Color that at least as of today is that's what's going on.
But our guidance is based on getting price increases in the second half of the year right.
Okay last one from me guys is that just on with disappeared classes.
Terminated sales process I know.
Lastly, different chemicals, and whatnot, but is that indicative to you that maybe the potential sale of your specialty chemicals that you have on the block.
Might be more difficult to move.
No.
But a lot longer answer is is I won't described or it goes business, but the business that actually we have on the block is a true specialty and has significant.
Growth potential.
That as we said at the time, we think someone who is more in that business might be more capable of realizing on that growth potential that than than than we are.
I don't think you would actually use that description to describe the optical business, but.
That's a description of our business are you seeing any interest mark and many kicking the tires.
Dave If you read my press release, it says I'm not going to comment on the process until on comment.
Okay, I don't have a nice try.
Thanks like I appreciate it.
Your next question comes from a line of know something from RBC capital markets. Your line is open.
Great. Thanks first question is this a bit of a clarification. So in terms of the turnarounds expected. This year will mostly be in Q2 in Q4 is yes, yes, yes, yes, because going down through the year, but the two one good calling out would be Q2 in Q4.
Okay got it.
And then in that in 2019, I think the non maintenance Capex was about 14 or 15 million or so.
What's the expectation for 2020 in terms of the non mean, it's going to be a real or maybe three $4 million as long as lots, it's not anything of that magnitude those lumpier doing actually related to the businesses. We are selling to the last part and which is why do you know mugs answered about that those are both businesses. These well the capital into.
Those businesses so that they will go.
So, yes, 20.8 them back to minor.
Okay. So just like three to 4 million. So does that imply that there's going to be pretty limited like organic growth capex that three to 4 million is going to be considered organic growth capex is that the right way of looking at that.
Yeah that's.
I'll give you the I'll give you the two or three different ways is yes, we call our $80 million plus sustenance and you needed to keep on the lights right, but every time, we spend a dollar we expect actually that dollar to do more as an actually just do what has done before we should get incremental minor incremental improvements how does.
Well, we don't try it we don't try and quantify it's right.
Because that's just part of a day to day running the business or we haven't tried to quantify it outsized.
There are two other two other things actually that are that are different as one is as I mentioned is.
If we could find the right opportunity to invest money to.
Generate more ultrapure acid.
We will do that.
So that would be that would be a difference but other than that is.
Those are really are our organic capex right now okay, because I know in the past you made some more investments on the water side I'm, just wondering whether those opportunities are still available or or or no.
Yeah, they might be but we first want to actually.
We've built thought we've built those plants now we want to actually sell them out and San make sure. They are absorbed by the market.
And and then and then.
Then we can make that decision again, if you go back I'm sorry for those that I've heard up before right is the workout workhorse coagulation has been and we think we'll continue to be allomap, but we think there specific circumstances, where packer hgh something else is actually does better we now have those facilities, where we want them.
And we'll have to wait and see how the market develops to determine whether or not and anymore as needed for right. Now I think we have what we need.
Okay, Great and then just one last thing in terms of rail.
So in the last quarter I guess it was mostly in Europe.
You are most likely impacted on your I guess western Canada portion in terms of like West of Ontario. So if we see any rail disruptions on the west side of Canada, We should expect a larger impact compared to the east is that fair way of looking into it.
It's awfully hard to say that just because the rail line is so interrelated.
If you have a specific issue for example in the Vancouver area.
Yeah, if that's west then for sure.
That affects us, but just because yeah, just because something happened doesn't happen out west doesn't mean, it doesn't have an effect out west.
And you know as and I guess one question is now for example is is branded Manitoba out west or is that central Canada.
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But the main point actually is.
The whole rail system as a bunch of interrelated lines and if you have troubles.
Anywhere.
Yeah as you have to wait you have to wait and see how far enough of an effect that has so you can't just like a western issues.
Okay. Thanks, Mark I'll leave it there thanks.
Your next question comes from a line of Steve Hansen from Raymond James Your line is open.
Speaking of my guys.
Yeah, and staring your north and facility right now.
Just a quick one first on the distribution if I may you know in a scenario where things were more difficult for longer or how long would you need to see your distributable cash sit below your distribution commitments before you'd contemplate some sort of move it's maybe hard question to ask but if you would look back to your 2007.
Timeframe is sort of.
Is that that's where we should think about it or how do you think about it today relative to then.
Not a hard question to ask just hard question to answer.
It is my recollection back in 2007, as we when I think like nine months.
So there is no timeframe. It is is conceptually is is we don't like burning liquidity for no. Good purpose.
But if we have a belief that actually the business is going to generate sufficient cash to sustain our distribution that our inclination is actually to continue paying our distribution.
Having said that is.
Our distribution is a is a board obviously a board level talk topic its allocation of capital and our board considers that every month when they distributed.
And if we're if are running higher than a 100% shuttle cast for a period of time. The board takes that into consideration and takes a look forward and what we think the business can generate and then we make that decision, but there is no hard time for us.
Okay, not fair and maybe just another hypothetical on the same point is in a scenario, where you didn't contemplate a move would there be opportunities for you to outside of just paying down debt, but would there be opportunities to recycle some of that capital into other growth opportunities that are obvious or would it just be a debt paydown focus in the short term I'm trying to get.
To fend for your your your perception of the growth opportunities that might be out there that you can act on today given less capital available.
I'll answer it onto our two ways right is is one is.
And as I said on let me start by saying, we're not contemplating. This was your hypothetical okay. Understood entirely is if you if you cut the distribution and half you say $50 million a year Directionally right.
So it would take a while for that to cause a de leveraging effect sufficient I think before your back in the acquisition game.
On the other hand, if you actually did that it would be fine cash to attributed to growth in a ultra pure facility, which you, which something within our control and exercise.
So.
It is.
Again getting to your hypothetical is I think actually that takes that starts to take you down the path that the business model can be replicated, which is actually buy businesses and integrate them and optimize them, but you need to cap structure to do that so.
Okay, Great note that the that's but the helpful rundown and just one more if I may is just on the the sulphuric acid market here domestically and given some good commentary for the different verticals, but.
It does strike me that the international markets for acid have been a little bit weaker to start 2020 for a number different reasons why are you still feeling pretty confident about the domestic market opportunity on the merchant side and what that brings for 2020.
Yes.
It is or is there something driving that specifically that can help us understand that.
Yeah, We just didn't go back and it's actually it's things are talked about before as is asset market is is regional depends on the asset individuals supply demand characteristics in each region is bell dune is actually now than shut down which takes some supply out of it and as you know the international asset it really kind of.
When it hits it really only hits the shores and has to go into a tank than in the rail cars and trucks to get it anywhere so the number of regions.
A weakness in offshore assets would affect is not where we placed most of our assets.
Understood. Okay very helpful. Thanks, I appreciate it thanks.
Again, if you would like to ask your question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Andre Leno from National Bank. Your line is open.
Hi, Good morning, most all my questions have actually been answered just just a very quick one in terms of the legal reserve and has there been any developments in terms of I think you'd commented before there were some derivative actions outstanding.
Has there been any movement and you try to any timeline for those to be resolved.
We still continue to work through those on them and hope to resolve them. This calendar year, but there's been nothing material change since last call.
Thanks.
Thank you.
There are no further questions at this time going to turn the call back to the presenters.
As usual thank you all for your attention and we'll talk to next quarter.
That concludes today's conference call you may now disconnect.
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