Laurie Tugman, President & CEO

Good afternoon ladies and gentlemen.

     
  Before I begin, I would draw your attention to the statement on the screen concerning forward-looking statements that may be made in this presentation.
     
 

Let me begin by listing the names of our management team, some of whom are not resident in Toronto and had prior commitments elsewhere, so couldn't be with us today. Others are identified by name badges and would be happy to talk with you after the meeting.

It's my honour to be here today to present to shareholders a review of 2005, and to look ahead to what promises to be a sustained period of continued growth for Marsulex.

 
     
 

In our presentation this afternoon, I will summarize the operational highlights and strategic initiatives of 2005; Ted will review the financial results for 2005 and the first quarter of 2006; and I will have some concluding remarks on our strategy for continuing the momentum we have established over the past year and on our outlook for this year.

     
  2005 was a year of growth for Marsulex. We achieved a 30% increase in adjusted EBITDA and set the stage for additional growth in 2006 and 2007. There were three factors that were primarily responsible for our performance in 2005.
     

•  Strong performances from each of our operating groups;

•  The commencement of revenue from the Fort McMurray facility; and

•  The acquisition of Stablex in August and its contribution for the balance of the year.
   
 

All of these factors were reflected in the results of our Industrial Services Group, formerly Refinery Services, which we renamed during the year to reflect the group's broader service offering. The acid regen business had a better year in 2005 than in 2004 in terms of volume, which was adversely affected by operational issues at two of our largest customers, and by the stronger Canadian dollar. The improved volumes in 2005, however, were offset by the continued strength of the dollar and by the impact of higher energy costs, although these are recovered in later periods by contractual pass-throughs.

     
 

In January 2005 the revenue stream from Fort McMurray commenced. The plant, which is part of the environmental compliance facilities at the Syncrude Upgrader Expansion project, was completed in 2003 and had been maintained in readiness for the start-up of the overall project. Syncrude announced last week that it had initiated bitumen feed into its new coker, enabling all expansion units to come online and begin production. As you know, in addition to the facility we own and operate,

Marsulex's ammonium sulphate scrubber technology is being used in the flue gas desulphurization system. We expect to receive slurry from the scrubber and to begin processing it into ammonium sulphate fertilizer shortly.

An official opening has been planned for May 24, so next week will be a huge celebration for Syncrude, the culmination of over four years of work on a massive expansion of its capacity. We are proud to be part of this historic event. I would like to congratulate everyone at Marsulex who has enabled us to be a part of the success of the Syncrude project.

     
 

At last year's annual meeting, I outlined how we intended to pursue our strategy for growth at Marsulex. By drawing on our core capabilities, we could expand the range of industrial services we provide, broaden our customer base, and generate high quality revenue and earnings more quickly than we had over recent years.

To do this, we knew that we would have to grow through acquisition, as well as organically.
     

The first execution of our broader strategy was the acquisition of Stablex, now part of the Industrial Services Group, which we completed in July. Stablex met our key criteria and draws on our core capabilities. It is a successful, established business, with a unique technology for treating and disposing of hazardous inorganic industrial waste streams. It has a broad customer base, an accomplished sales team, and is well positioned in its industry.

     
  But Stablex is not just a successful standalone business. It is an important part of our larger strategy. As well as providing diversification, which means we are less reliant on any one part of our business, it also expands the array of industrial services we can offer our customers. Our existing relationships put us in a favoured position to gain more business from our broadened customer base.
     
Stablex is contributing to our revenue and operating earnings, but it is still relatively early days in realizing the potential of the business. The fundamentals are sound, the sector is evolving, and Stablex will be a piece of the larger mosaic of industrial services we provide.
     
  Our next initiative in the execution of our growth strategy was the acquisition of the Petcoke Services business, which we completed on April 13, 2006. This business is also now part of Industrial Services, and we are in the process of integrating it into our operations. I'll have a little more to say about our newest business later.
   
Western Markets had a solid year in 2005 and a strong first quarter this year.
     
 

The group's two primary customers are the pulp and paper industry and municipalities. Pulp and paper manufacturers have faced a number of challenges recently, including high energy costs and the strong Canadian dollar. However, our business has remained remarkably stable. This reflects the strong relationships our team has built with its customer base, as well as their ability to develop new product offerings and expand its customer franchise.
     
 

The group also has a leading position in the water treatment services business, and Marsulex has a solid base business that provides steady demand and which generates additional increases in volumes when conditions are extreme, such as occurred with the unusually high rain fall in Alberta and Saskatchewan last year.

   
 

Finally, the Power Generation Group continued to build upon their success in China. This has been a gratifying outcome of the revised strategy we implemented in late 2004. With limited opportunities in North America at that time, we took the deliberate step to increase our presence in China where there were immediate prospects for business. This included the opening of a representative office in Beijing last July, putting us in closer touch with our licensees and customers.

     
The strategy is working, and in 2005 we estimate we won approximately 20% of the contracts awarded for wet flue gas desulphurization systems in China.
     
 

Meanwhile, the situation in North America began to change. With natural gas prices escalating, coal was being viewed more favourably as a viable energy source. The industry was beginning to invest in infrastructure in a way that hadn't been seen in many years. Recognizing this, we began working on a re-entry to the North American market.

     

Building on their success in supplying the scrubbing technology for the Syncrude UE-1 project, their success in China, and the fact that they have won a 14% market share of systems installed worldwide over the past 25 years, the group has increased its business development efforts in North America and is confident of winning new projects.

I'll have a few more comments about our strategy for growth after Ted's review of our financial performance.
   

Ted Irwin , CFO

Thank you, Laurie and good afternoon ladies and gentlemen.

     
 

2005 was, as Laurie said, a year of significant growth for Marsulex.
     
 

The increase in gross profit and EBITDA reflects the contribution for the full year from Fort McMurray and four and a half months contribution from Stablex, as well as higher operating results from Western Markets and Power Generation.

     
Industrial Services' improved results largely reflected the contribution from Fort McMurray and Stablex. Although our Toledo acid regen business generated higher volumes and revenue than 2004, this increase was more than offset by the impact of the continued rising energy costs throughout 2005 and the impact of foreign exchange because of the higher value of the Canadian dollar.
     
 

After a strong 2004 that benefited from the acquisition of the Prince George facility in the latter part of 2003, Western Markets had another good year in 2005, with buoyant sales of water treatment chemicals being the main driver of the higher results.

Continuing success in China was reflected in the Power Generation Group's increased contribution to gross profit in 2005.
     
 

Both gross profit and EBITDA margins have been strong over the past few years, with our focus on continuing to grow revenues while achieving our target EBITDA margin of 20%.

     
  The higher cash flow from operations reflects the increased operating earnings.
     
  Maintenance capital spending has been relatively steady over the past several years, and for 2005 included spending on the Stablex placement cells, which is part of deferred charges for reporting purposes. With the addition of Stablex and the petcoke services businesses, we expect annual maintenance capex to be between $11 -12 million.
     
  Expansion capex in 2005 was almost entirely related to the Montreal expansion project. The project is expected to be substantially completed by mid-year with the expanded capacity available to the two refiners. Revenue recognition, therefore, is expected to commence in the third quarter. By the end of March 2006 we had spent a total of $56.1 million on the project and estimate a further $10 - $15 million remaining to be spent over the next few quarters in order to complete the facility,
with some of the remaining capital spending, such as winterizing the plant, occurring in the last half of the year.
     
  Cash taxes, which were relatively stable over the past several years, are expected to increase with our anticipated higher earnings. In 2006, we estimate annual cash taxes will be approximately $3 million.
     

You will notice that the growth in EBITDA has not equated to growth in net earnings -- at least not in the short-term -- reflecting the effects of depreciation and amortization charges created as a result of the acquisitions.

     
 

For example, intangible assets included as part of the Stablex acquisition, are being amortized in accordance with GAAP over an economic life of 3-18 years. However, we expect the Stablex operation to have a life of more than 30 years, without requiring capital spending beyond normal maintenance capital.

I should also point out that the 2005 net earnings reflected income tax expense of $4 million compared to an income tax recovery in 2004 of $3.2 million.
   
 

Before looking at our balance sheet, I would like to briefly review the first quarter results.

     
 

We were pleased with the first quarter results. They reflected not only the contribution of Stablex, the first step-out acquisition under our broader vision for Marsulex, but also strong contributions from our other operations.

SG&A costs for the first quarter included Stablex SG&A, increased costs in Power Generation, and higher corporate support costs, namely higher legal and LTIP costs.
     
 

The Industrial Services Group performed well during the quarter with our Toledo acid regen business operating well and benefiting from the contractual pass-throughs of higher energy costs.

The Stablex contribution did not quite meet our expectations. However, it is impacted by seasonality with activity highest in the summer months and slowing into the winter months. The first quarter reflects this and we saw volumes improve toward the latter part of the quarter with the warmer spring weather.
     

Western Markets had a good quarter with stronger than expected demand for sulphur enhanced products from our pulp and paper customers. At the moment, many pulp and paper manufacturers out west are faring better than those in the east, which in part is a reflection of the booming economy in western Canada. As Laurie mentioned, Western Markets' performance also reflects the relationships our team has built with its customer base and their ability to develop new product offerings.

The Power Generation Group also showed improved results over last year with the contribution from projects in China. The Group also won three contracts in China in the first quarter this year.

Turning now to our balance sheet, total debt at March 31, 2006 stood at approximately $178 million, comparable to the year-end of 2005.

   
  Our cash position, excluding restricted cash, at the end of March 2006 was $13.3 million compared to $12.7 million at the end of 2005. This reflected strong operating cash flows that included the fees relating to the expansion of the Montreal facility, which began in January and are being recorded as deferred revenue. This was offset by the investment in the expansion project. With the imminent startup of the Fort McMurray facility, we expect the majority of the restricted cash to be available for general corporate purposes in the latter part of the year.
     

In addition to our cash position and the cash flow from operations, we also have an undrawn $20 million revolving credit facility that is available for working capital needs and small acquisitions.

Our net debt to EBITDA ratio at the end of March was 3.7 times. This will increase in the near term with the $32 million of additional financing for the petcoke acquisition which was completed in April of 2006, and the remaining investment in the Montreal expansion; however, it will reduce to a run rate of just over 3 times during the next year with the full year contribution from Stablex, the commencement of earnings from the Montreal expansion along with the contribution from the petcoke services business.
     
 

The Senior Subordinated Notes issued in 1998 have served us well and provided flexibility to support our recent acquisitions and related bank financings. They mature in two years and in July will be redeemable at par. We are now in a position to reassess our capital structure for the next stage of Marsulex's growth.

   
 

Finally, a brief comment on the strengthening of the Canadian dollar. As you know, the Company has U.S. based operations and is exposed to foreign exchange fluctuations in the following three areas:

 

(1)  Monetary assets and liabilities,

(2)  Revenues and expenses, and

(3)  The self-sustaining operations including the Senior Subordinated Notes.

Although the commencement last year of the revenue from Fort McMurray and the start-up this year of the Montreal expansion is providing a lot of growth in Canadian dollar operations, the addition of Stablex and the Petcoke Services means we continue to have exposure to foreign exchange fluctuations.

Marsulex's U.S. operations, including the newly acquired Petcoke Services business, generate revenue and expenses in U.S. dollars. With the addition of Stablex, whose U.S. denominated revenues represents less than half of its total revenues against a largely Canadian dollar cost base, the impact of exchange fluctuations on the Company's annual earnings and cash flows continues to be mitigated by the Company's U.S. dollar interest expense, the gain or loss on the translation of the U.S. $15 million portion of the Senior Secured Term Loan, and the U.S. dollar denominated depreciation and amortization expense.

The exchange rate movement to a $.90 dollar would impact full year EBIDTA by approximately $1.0million and net earnings by approximately $200,000.

Now let me hand the presentation back to Laurie
   

Laurie Tugman, President & CEO

Thank you, Ted.

I referred in my earlier remarks to our objective of building Marsulex into a more broadly based industrial services provider. One of our strategies for achieving that objective is to provide more on-site, as opposed to over-the-fence services to our key customers.
     
  Although we supplied some on-site services, the majority of our operations were over-the-fence. Our on-site services were significantly increased with the acquisition of a leading provider of petroleum coke, or petcoke cutting and handling services. The business provides in-refinery services to major oil refinery customers in the U.S. Gulf Coast, West Coast and Venezuela.
     
  This acquisition takes us into the heart of a refinery's operations. This is significant. It means we are accepted as reliable on-site operators by customers who work to some of the highest standards in the world. You can imagine the credibility that gives us, and the competitive advantage when it comes to new business opportunities.
     
The acquisition creates a platform for growth on a number of levels. We are now in a position to offer additional services to newly acquired refinery customers, and in turn, we can offer petcoke services to our existing customers. Also, there is no doubt the oil refining industry needs to add capacity, and that cokers will be part of most expansions. We believe there are organic growth opportunities with our existing petcoke customers, and that our expanded portfolio of services puts us in a favourable position to win new business from other refineries that are not yet customers of Marsulex.
     
 

You can see the success we have had over the past year in implementing our growth strategy. The changes have been well considered steps in our strategy to make Marsulex a more broadly based industrial services company providing an array of services that can be used by our customers.

We intend to continue to make selective acquisitions but we also believe that with the businesses we have already acquired, and our underlying operations performing well, we will record further growth in revenue and earnings for the next several years.
   
 

To summarize,

•  2005 was a good year for Marsulex, and we have started 2006 on a strong note.

•  Stablex, the Petcoke Services Business and the Montreal expansion will all contribute to the growth this year.

•  We have a very sound business base that is now more diversified both geographically, by services, and by customers

•  We are in a strong position financially and have the flexibility to continue to pursue our broadened growth strategy.
     

To conclude, I want to thank all of our employees who have made possible our transition to a more diversified and growth-oriented company. Their professionalism and enthusiasm have played a large role in our success and will be an important factor in keeping the momentum going. I know they are up to the challenge.

Finally, my thanks once again to our major shareholder and the board of directors for their counsel and support.
     
  Thank you for your attention.