Good morning, ladies and gentlemen, and welcome to the Chemtrade Logistics Income Fund Q4 2025 question and answer session. This call is being recorded on Thursday, February 26, 2026. I'd now like to turn the conference over to Mr. Rohit Bhardwaj. Please go ahead.
Thank you, operator, thank you for joining the Q&A session for Chemtrade's fourth quarter and full year 2025 results. 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 for 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 non-cash items, such as 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 would now like to open the line up for your questions. Thank you. Operator?
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star four followed by one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Thank you. Your first question comes from the line of Nikolai Goropich from CIBC Capital Markets. Please go ahead.
Hi, good morning. Given the margin pressures and costs in the SWC segment, are you expecting some relief going forward as contracts renew? Do you think segment E, the margins can match 2025 levels of 23% this year?
Okay. I'll give you some context for margin. As you know, in 2025, we had cost escalations, particularly sulphur went up significantly. What happened in that situation is, you know, we try and pass through the incremental cost to our customers, but, you know, it's hard to mark those costs up. Basically, we're trying to protect our EBITDA and passing costs, especially when they're so significant. What the effect of that is, it actually reduces the margin percentage because your revenue goes up and, you know, costs are dragged along with it. That's generally in our business, in SWC in particular, when costs are lower, the margin percentage tends to be higher and vice versa.
In 2026, we'll have to see how sulphur other costs, you know, progress. That's kind of the general rule is when costs spike up, the margin percent tends to come down, but we're protecting our EBITDA.
Rohit, just to add to that, I'll remind the listeners that in our water business, as we sell product to city municipalities across North America, we sell our product at fixed annual costs, and that's the way, that's just the way this business operates and has operated, you know, for a long time. We sell our products at fixed annual prices that are determined by bids. As when raw materials go up, we'll take the hit in the short term on that, but it works vice versa as raw materials fall. We have contracts that roll in and out every month.
whenever sulphur has a significant increase, like what we've experienced over the last 6 months, it takes us a little time to work on that. Our water business has margin pressure for a few months as we work through those price increases, but we make it up over time. On the, you know, counter to that, our Merchant Acid business does a better job and can react with more rapid price increases whenever sulphur goes up.
Okay, that makes sense. Thank you. With you guys breaking out the water chemicals into a separate segment going forward, help with some of our modeling, are you able to provide some more detail on new segments revenue or EBITDA contributions or margins? Secondly, to confirm, 100% of the new segment is coming out of the SWC segment and nothing from EC, is that correct?
Yeah. Yes, it's all coming from SWC. At this stage, we are not ready to, you know, give you that breakout. Starting Q1, when we release Q1 in May, we will give you all the lines that you typically now see at our reporting segments.
Okay, I see. Thanks. I'll turn it over.
Thank you.
Thank you. Your next question comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.
Hi, good morning. I just wanted to play out the order of magnitude of what the year might look like. Is it like the last couple of years where sequentially Q1 EBITDA higher, sequentially Q2 EBITDA higher, sequentially Q3 EBITDA even higher than that, highest year, then a drop-down seasoning Q4? Is that order of magnitude the way to look at it?
Q2 and Q3 tend to be our highest quarters. One thing to keep in mind this year is it's the North Vancouver turnaround year, which is in Q2. Q2 will have the negative impact of those costs. In terms of sequentially, Q1 and Q4 tend to be the weakest ones. The other thing to keep in mind is a little bit depends on how caustic is evolving as well. The seasonality impact is really Q3, Q4 being strong. The rest are specific factors that come into play in any given quarter around commodity pricing.
Joel, to add to that, part of that is going to depend, you know, on what happens with sulphur. That could play into it. Then obviously, as we're looking at caustic soda. Caustic soda, as we're in the first quarter, caustic soda is weaker than what we put in our assumptions. We are planning on the second half of the year being stronger for caustic than in the first half.
Okay, that's helpful. On corporate costs, what should they look like in 2026 versus 2025?
Firstly, the way we look at corporate costs are we look at in two buckets. One is kind of our, what we call program expenses, and the other is long-term incentives that, you know, fluctuates based on how the units are doing. 2025, as you know, our unit appreciated considerably, that resulted in higher outage costs. Once we normalize for all that, we expect 2026 corporate costs on the program line to be similar to 2025. It's, we've given you kind of our outlook for outage, but that really does change.
You can, you know, we've given you that detailed assumption on outage, between CAD 22 million-CAD 28 million, and we came in at around, you know, a little bit higher, on the higher end of the range in 2025. Based on that, you can kind of model it out.
Thank you.
Welcome.
Thank you. Your next question comes from the line of Zachary Evershed. From National Bank Financial. Please go ahead.
Good morning, everyone.
Morning.
Good.
I was hoping you could give us some more detail on the timing and scope of the heavy maintenance plan for the SWC segment this year.
I can I'll do that. We have on the SWC side, our Regen acid plants are tied in to gasoline producers. We have we tend to take longer outages that are tied in with our customers. We have one of our customers that does a significant turnaround every five years. We have more heavy turnaround than what we've had the past couple of years. It's not anything unusual compared to what we've done over the past 10 years.
Our turnarounds can be a little bit lumpy, so our turnarounds in 2026 are going to be a little heavier than what we saw over the last 2 years, but that's pretty much tied to the schedule for our significant customers.
Gotcha. Thank you. On the Tulsa facility upgrades.
Yeah.
What drove the decision for those investments? Also, if we tie in Cairo, how much of the future volume is currently spoken for?
Okay. What came out of that is, as we work with our significant customers, the fabs, and as we have brought up our Cairo facility, our fabs, the fabs are also looking for redundancy in supply, and trying to get as close to the quality at our Cairo facility as possible. What drove it was requests from our major customers, the fabs, for redundancy of supply, you know, in between plants. We have been, we've been operating the Tulsa facility for many, many years. We took some of the learnings from Cairo and have made investments in Tulsa.
Those investments, we're very pleased with the quality of what we've been able to achieve in Tulsa. The Tulsa material is, well, it's sampled, it's going through the approval process at the fabs, but that's really what drove it, was requests from the fabs for redundant supply, and we took some of the key learnings. Tulsa, you know, will not. Still, Cairo will be our highest quality plant for sure, but we've made investments for Tulsa that we believe will meet advanced node quality. We're pretty happy with the quality improvements there, and we're again, we're working closely with fabs now on approvals.
Beauty. Thanks. Then just, circling back on that, how are those approval processes going for Cairo?
So far so good. We have a lot of samples out. So we have a lot of samples out. I'll say the feedback we're getting is quite positive. Probably, I won't share more other than the fact that we do see volume ramping up, sales volume ramping up in the second half of the year. That's kind of on plan. We're excited about that, and we'll have more details to come. Lots of samples out. Starting sales in the second half.
Great color. Thanks. I'll requeue.
All right.
Thank you once again. Should you have a question, please press star followed by the one on your telephone keypad. Your next question comes from the line of Gary Ho from the Desjardins Capital Markets. Please go ahead.
Go ahead.
Thanks. Good morning. Sorry, I jumped on the call late, and I'm not sure if this was asked, but just on the caustic soda pricing environment, feels like the spot pricing is a bit lower than the $450 you assumed in your guidance. I know there's some commentary in the prepared remarks. Can you maybe elaborate on your confidence level, there'll be a recovery in pricing in the back half of the year?
Hey, Gary, this is Scott. Rohit may will add some color there, too. Yeah, look, we're caustic soda is lower. It's lower than than than our assumptions, what we put it in the assumptions. The reason for that is tied to basically to some oversupply, particularly in China. It's tied to right now, a weaker production of aluminum in Asia, and also tied in with the overall weakness in pulp and paper. I... But I think the what we're, I hate to say what we're hoping for. I think the part the reduced prices that we're seeing right now were based on some shipments right before Chinese New Year.
I'm hopeful that after Chinese New Year, they'll come back, and prices will rebound a bit. I think it may take through second quarter to see a rebound, we're planning on prices to return closer to our planned level in the second half of the year.
Yeah, we speak, and we speak with, you know, the industry analysts, obviously very frequently. The fundamentals, you know, that drive chlorine demand, which is mainly construction activity, and caustic, which is, battery and, alumina. The fundamentals have not changed, and so it's very difficult always in Q1 to get direction with the Chinese New Year holiday, which is pretty prolonged. You know, when we've talked to them, the belief, they have a pretty strong belief that the trend that's there will resume and continue with caustic rising up over the next few years.
Okay, great. Second question, I listened in on the rezoning call from the North Van facility process earlier this week. I know it's early days, but assuming that gets approved, how does the growth CapEx look like there? At first glance, looking at some of the slides, seems like it's a decent undertaking. Correct me if I'm wrong. There's additional Chlorine rail car loading building. There's re-removal of all existing liquid chlorine equipment, amongst others. How should we think about the magnitude of that? Just want to make sure the CAD 35 million-CAD 55 million of growth CapEx does not include any spend related to the North Van rezone, rezoning efforts.
Gary, you are correct. That the CAD 30, CAD 35 to CAD 50 of our growth CapEx does not assume any money associated with North Vancouver. Our plant is a, we spend, you know, out of our typical CAD 120 to CAD 130 of sustenance capital, you know, a fair amount of that goes to the North Vancouver plant. Over a five, six, seven-year period, I don't think there will be a noticeable difference in our sustenance capital budget tied to the safety upgrades. We will be, as you call out, assuming that we, that the rezoning is successful, we will be building up a new chlorine loading facility. We'll be getting rid of liquid chlorine.
I think those projects will come close to being included in our standard sustenance CapEx budget for that site over a, you know, a period of several years. Yeah, again, I don't think it's gonna be. We're not expecting or planning on a noticeable increase in our sustenance CapEx budget tied to that.
Okay, great. Now, thanks for those comments. Maybe if I can sneak one more in. Rohit, just, you know, these releases were based on unaudited financials. I don't think that was the case last few years. Just wondering if you can provide a few comments on the, on the reporting side of things?
Sure, sure. You know, when you have an audit versus a quarterly review, there's less leeway for auditors in completing their testing and their files. There's a lot more rigor to it, and every year it's always a rush to, you know, to get it all completed. I think this year, the one additional factor which delayed it a little bit, is the timing of the closing of Poly-tech. There's a lot more work that needs to be done when you do an acquisition in terms of... Yeah, it's all, it's nothing earth-shattering, but there's just a lot of things you got to do, including valuing their assets.
We only closed this deal, you know, towards the end of November, which didn't give any, much time and put a lot of pressure on the audit that's already typically a lot of pressure to it. You know, it's fairly innocuous. There's no. The numbers, we feel good about the numbers, which is why we released them, and we're hoping that the audit will be concluded, you know, in short order. In this case, we'll file the whole, all the full disclosure documents. There's really no issues here. It's pretty innocuous.
Okay, perfect. Okay, those are my questions. Thank you.
Thank you.
Thank you. Your next question comes from the line of Zachary Evershed from National Bank Financial. Please go ahead.
Hey, thanks for taking my second round. When you guys refer to Merchant and Regen acid pricing returning to historical ranges this year, is there a specific year or period that we should use as the baseline for comparison there?
I think what, so Merchant, what happened was, as you mentioned, there were some disruptions with some of our competitors, and so we had some spot business that we picked up and got to higher pricing. Regen, you know, was not as, didn't have as much effect on it, but I think Regen will be not much different than 2025. Merchant will be a bit lower, and, you know, again, it's hard to really point to a specific year because sulphur is such a big variable in pricing for Merchant Acid. What you can assume is that the Merchant Acid will be off in 2026 a little bit compared to 2025. Again, we're talking at the margins here.
We're not talking about, you know, anything too significant.
What I'll say is that, I think it's important to continue to emphasize that our Regen business performance has been steadily improving, that, you know, not by leaps and bounds, but steadily improving year-over-year for several years. We expect that to continue. Very pleased with the performance there, tied in with our reliability, our production, tied in with the outlook for chlor-alkali production in North America. Strong business, slight growth, but our business performance has been steadily improving step by step over the past many years. Merchant does tend to bounce around. It's kind of hard to look at any.
Certainly, last year was a very strong year for Merchant, as Rohit just said, that's tied to some of our competitors having outages, and with our reliability, we stepped in and supplied. I think you'd probably go back and look at 2023 and 2024, at I think those were more normal years for Merchant.
It's good to remind you that, you know, about half of our volume in Merchant Acid is byproduct acid that we get from smelters. The way we've structured those contracts is that the smelter or our supplier gets the lion's share of price less freight movements. That business tends to be, you know, relatively stable. It was just the spot opportunities that came up that were unusual. Generally, the actual pricing is, we're not as affected by pricing. We do get volume risk, but price tends to, you know, generally be passed through to our supplier.
Gotcha. Thanks. Just one last one on the water chemical contracts. In terms of sequencing through the year as you reprice with expiries, any particular quarters that will see a larger volume or bigger clumps of renewals?
Well, not so much, not so much renewals, but there is seasonality there, so you do tend to, you know, get heavier in the summer months. That's just normal seasonality, but not so much on the timing of contracts.
Gotcha. Thanks. I'll turn it over.
Thank you. Once again, should you have a question, please press star followed by the one on your telephone keypad. There are no further questions at this time. I will now hand the call back to Mr. Scott Rook for any closing remarks.
Well, thank you. Thank you, operator. I'd like to thank everyone for joining the call today. 2025 was a record year for Chemtrade. As I said in the remarks, I'd like to thank all of our employees for their hard work and great results in 2025. Thanks for attending the call today, and have a great day. Thank you.
This concludes today's call. Thank you for participating. You may all disconnect.