Conifex reports Q1 net income of C$1.6M compared with C$6.2M a year earlier, on sales up 1.5% to C$67.2M; lumber segment EBITDA of C$7.1M is up C$1.6M over previous quarter but down US$3.4M year-over-year
VANCOUVER, British Columbia
May 12, 2014
– Conifex Timber Inc. ("Conifex" or the "Company") (TSX VENTURE:CFF) today reported net income of $1.6 million or $0.08 per diluted share for the first quarter of 2014 compared to net income of $1.1 million or $0.05 per diluted share for the previous quarter and net income of $6.2 million or $0.29 per diluted share for the first quarter of 2013.
Summarized operating results and statistics for each of the comparison periods are provided below.
(millions of dollars except share and per share amounts)
Net income per share - basic
Net income per share - diluted
Shares outstanding - weighted average (millions)
Lumber shipments - Conifex product (MMfbm)
Lumber shipments - Wholesale (MMfbm)
Lumber production (MMfbm)
Average exchange rate - US$/Cdn$ (1)
Average WSPF 2x4 #2&Btr lumber price (US$) (2)
Average WSPF 2x4 #2&Btr lumber price (Cdn$) (3)
Reconciliation of EBITDA to Net Income
Add: Interest expense and accretion
Non-cash items related to compensation
(1) Source: Bank of Canada website www.bankofcanada.ca
(2) Source: Random Lengths Publications Inc.
(3) Average WSPF 2x4 #2&Btr lumber price (US$) divided by average exchange rate
The variation in consolidated net income, operating income, and EBITDA was largely attributable to operating results in the lumber segment as fluctuations in corporate costs, other items and bioenergy segment expenses between the comparative quarters were modest and did not have a material effect on overall operating results. The lumber segment recorded operating income of $4.4 million during the first quarter of 2014 which represented an improvement of $1.1 million over the previous quarter and a decline of $4.0 million from the first quarter of 2013. First quarter 2014 EBITDA of $6.1 million was comprised of lumber segment EBITDA of $7.1 million offset by corporate costs and other items of $1.0 million. Lumber segment EBITDA improved by $1.6 million over the previous quarter and declined by $3.4 million from the first quarter of 2013.
According to data published by the U.S. Census Bureau, U.S. housing starts averaged a seasonally adjusted annualized rate of 923,000 over the first quarter of 2014, which represented a decline of 8% from the fourth quarter of 2013 and 4% from the first quarter 2013. Industry analysts largely attributed the subdued level of new home construction activity during the first quarter of 2014 to the unusually severe winter weather conditions experienced across many regions in North America. In Western Canada, seasonal railcar shortages were heightened by the adverse winter conditions and the shipping environment was further exacerbated in March 2014 by a truckers' strike at the main container port in Vancouver, British Columbia. As a result of the logistics related challenges, shipments of Conifex produced lumber totalled 96 million board feet during the first quarter of 2014 which represented a decline of approximately 20% from the previous quarter and the first quarter of 2013. Production volumes, also somewhat hampered by weather related operational challenges, totalled 128 million board feet and reflected an increase of 10% over the previous quarter and 3% over the first quarter of 2013.
The benchmark lumber price expressed in Canadian dollars averaged $405 during the first quarter of 2014, an increase of $17 per thousand board feet or 4% over the previous quarter and $12 per thousand board feet or 3% over the first quarter of 2013. The export tax rate on shipments to the U.S. was zero percent during the first quarters of 2014 and 2013 and averaged 2% during the fourth quarter of 2013.
Compared to the previous quarter, although gross lumber revenues from Conifex produced lumber declined by 12%, unit gross sales realizations and unit mill net realizations improved by 9% and compare favourably to Canadian equivalent benchmark prices which increased by 4% quarter over quarter. The better than trend improvement in unit mill net realizations is partly attributable to shipments of a higher value product mix, because shipments to the U.S. increased while shipments to China, which generally consumes lower grade lumber products, decreased. Compared to the first quarter of 2013, gross lumber revenues from Conifex produced lumber declined by 14% while unit gross sales realizations increased by 8% and unit mill net realizations increased by 4%.
Compared to the fourth quarter of 2013, the main factors contributing to the increase of $1.1 million in lumber segment operating income included a 9% improvement in unit mill net realizations and a modest increase in revenue from by-products which more than offset a 19% decline in shipment volume of Conifex produced lumber, a 5% increase in unit log costs and a 4% increase in unit cash conversion costs. Compared to the first quarter of 2013, the decline of $4.0 million in lumber segment operating income was primarily attributable to the adverse impact of a 13% increase in unit log costs, a 21% increase in unit cash conversion costs and a 20% decline in shipment volumes, partially offset by a 4% improvement in unit mill net realizations and a 33% increase in by-product revenue.
Management expects that anticipated solid demand in each of the Company's markets in North America, China and Japan for the balance of the year will result in average U.S. benchmark lumber prices approximating levels similar to those of 2013, and higher year over year unit mill nets to be realized if the Canadian currency remains at relatively weaker ranges. Management expects improvement in unit cash conversion costs, which were higher than usual in the current quarter due partly to seasonal and weather related factors and non-recurring events, to result from further productivity gains and a return to a more typical cost environment. These gains are expected to more than offset higher log and labour costs and contribute to further growth in lumber segment profitability.
On February 3, 2014, the Company completed the acquisition of Lignum Forest Products LLP, a private partnership which operates a lumber marketing and distribution business. The aggregate purchase price of approximately $4.8 million was funded from the Company's existing available cash.
In the first quarter of 2014, the Company generated cash of $7.5 million from operations before working capital changes and used cash of $18.8 million in net working capital increases. The Company ended the first quarter of 2014 with consolidated net debt of $87.1 million (December 31, 2013 - $44.0 million) and net debt to capitalization ratio of 42% (December 31, 2013 - 27%). Excluding borrowings under the project financing facility related to the construction of the power generation project, which is largely structured on a non-recourse basis to the lumber segment assets and to the parent company, Conifex Timber Inc., net debt was $48.2 million (December 31, 2013 - $21.2 million) and the net debt to capitalization ratio was 29% (December 31, 2013 - 15%). The Company expects this ratio to revert to a more conservative level over the next several months concurrent with the normalization of higher than usual working capital levels.
Outlook and Strategy
The Company is executing a strategy to grow and add value to its business. Management has been executing against this plan since the Company's management restructuring late in 2012. The momentum established in 2013 in terms of increasing production volumes and expanding profit margins is expected to continue through the balance of 2014.
Through the balance of the year, the Company expects to complete its power generation project on budget, and to commence deliveries of electricity late in the third quarter of 2014. The Company also expects to establish a long-term plan for its idled Mackenzie mill following the release of information regarding future sawlog harvest levels in the Mackenzie Timber Supply Area by the Ministry of Forests, Lands and Natural Resources Operations.
There will be a conference call held by the Company on Monday, May 12, 2014 at 8:00 AM Pacific time / 11:00 AM ET to discuss the first quarter financial and operating results. To participate in the call, please dial 416-340-8530 or toll free 800-766-6630. The call will also be available on instant replay access until May 26, 2014 by dialling 905-694-9451 or 800-408-3053 and entering participant pass code 6673270.
The interim financial statements and management's discussion and analysis for the quarter ended March 31, 2014 will be available on the Investors Relation page of our website at www.conifex.com.
About Conifex Timber Inc.
Conifex and its subsidiaries' primary business currently includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value added lumber finishing and distribution. Conifex's lumber products are sold in the United States, Chinese, Canadian and Japanese markets. Upon completion of its power generation facility at Mackenzie, British Columbia, Conifex's business sectors will be expanded to include bioenergy.
Certain statements in this news release may constitute "forward-looking statements". Forward-looking statements are statements that address or discuss activities, events or developments that the Company expects or anticipates may occur in the future. When used in this news release, words such as "estimates", "expects", "plans", "anticipates", "projects", "will", "believes", "intends" "should", "could", "may" and other similar terminology are intended to identify such forward-looking statements. Forward-looking statements reflect the current expectations and beliefs of the Company's management. Because forward-looking statements involve known and unknown risks, uncertainties and other factors, actual results, performance or achievements of the Company or industry may be materially different from those implied by such forward-looking statements. Examples of such forward-looking information that may be contained in this news release include statements regarding: growth and future prospects of our business; our perceptions of the industry and markets in which we operate and anticipated trends in such markets and in the countries in which we do business; benefits that may accrue to the Company as a result of certain capital expenditure programs; U.S. benchmark lumber prices; year over year unit mill nets; unit cash conversion costs; the Company's net debt to capitalization ratio; that the Mackenzie mills will incorporate the expected harvest levels for the Mackenzie Timber Supply Area; and the anticipated benefits, cost, timing and completion dates for projects, including the power generation project at the Company's Mackenzie facility. Assumptions underlying the Company's expectations regarding forward-looking information contained in this news release include, among others: that the Company will be able to effectively market its products; that the U.S. housing market will continue to improve; that there will be no further delays and disruptions affecting the completion of the power generation project at the Company's Mackenzie facility and that the Company will be able to commence timely delivery of power therefrom; that softwood lumber will experience improved and sustained demand in the marketplace at favourable prices; that the Company will be able to dynamically respond to shifts in demand among its major markets; the general stability of the economic, political and regulatory environments within the countries where the Company conducts operations; the ability of the Company to obtain financing (if necessary) on acceptable terms or at all; that interest and foreign exchange rates will not vary materially from current levels; and that our mills and equipment will operate at expected levels.
Forward-looking statements involve significant uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, without limitation: those relating to potential disruptions to production and delivery, including as a result of equipment failures, labour issues, the complex integration of processes and equipment and other factors; labour relations; failure to meet regulatory requirements; changes in the market; potential downturns in economic conditions; fluctuations in the price and supply of required materials, including log costs; fluctuations in the market price for products sold; foreign exchange fluctuations; trade restrictions or import duties imposed by foreign governments; availability of financing (as necessary); shipping or logging disruptions; and other risk factors described in the Company's 2013 annual information form, available on SEDAR at www.sedar.com. These risks, as well as others, could cause actual results and events to vary significantly. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by law.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Conifex Timber Inc.
Chief Financial Officer