Acadian Timber reports Q1 net income of C$0.7M compared to C$1.3M year earlier; net sales advance 16% to C$21.2M driven by strong market demand, strengthening US dollar, discontinuation of vendor managed inventory program in New Brunswick operation
VANCOUVER, British Columbia
,
May 12, 2014
(press release)
–
Acadian Timber Corp. (“Acadian” or the “Company”) (TSX:ADN) today reported financial and operating results
1 for the three months ended March 29, 2014 (the “first quarter”).
“Acadian’s operations ran well this quarter with favorable winter operating conditions extending through the end of the quarter”, said Reid Carter, Chief Executive Officer of Acadian. “Recent announcements of capital investments and additional operating shifts in the region are expected to result in continued strong demand for softwood sawlogs going forward.”
For the first quarter, Acadian generated net sales of $21.2 million on sales volume of 350 thousand m3 which represents a $3.0 million, or 16%, increase in net sales compared to the same period in 2013. Strong market demand, the strengthening of the U.S. dollar and the discontinuation of the vendor managed inventory (“VMI”) program in our New Brunswick operation drove this improved performance.
Adjusted EBITDA of $6.7 million for the first quarter was $2.0 million higher than in the first quarter of 2013, while Adjusted EBITDA margin increased to 32% from 26% in the same period of last year.
Acadian continues to actively pursue business development opportunities in support of Acadian’s global growth strategy. After a prolonged period of limited investment opportunities, management is currently seeing an increasing number of owners willing to test the market and is optimistic that Acadian will be in a position to participate in attractive opportunities during 2014.
1 This news release makes reference to Adjusted EBITDA and Free Cash Flow which are key performance measures in evaluating Acadian's operations and are important in enhancing investors' understanding of Acadian's operating performance. Acadian's management defines Adjusted EBITDA as earnings before interest, taxes, fair value adjustments, recovery of or impairment of land and roads, unrealized exchange gain/loss on debt, depreciation and amortization and Free Cash Flow as Adjusted EBITDA less interest paid, current income tax expense, additions to, and gains from the sale of, fixed assets plus losses on, and proceeds from, the sale of fixed assets. As these performance measures do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"), they may not be comparable to similar measures presented by other companies. As a result, we have provided in this news release reconciliations of net income, as determined in accordance with IFRS, to Adjusted EBITDA and Free Cash Flow.
Financial and Operating Highlights
Operating earnings for the period, at $6.5 million, increased $2.0 million year-over-year reflecting improved log selling prices and sales volumes. Net income totaled $0.7 million, or $0.04 per share, for the first quarter, a decrease of $0.6 million or $0.04 per share from the same period in 2013. The decrease in net income primarily reflects a higher non-cash fair value adjustment to timber and an increased unrealized exchange loss on long-term debt.
Acadian’s operations ran well during the first quarter with favorable winter operating conditions extending through the end of the quarter. Harvest volume for the first quarter, excluding biomass, was 349 thousand m3, in line with the same period in the prior year. Sales volume of 350 thousand m3 was up 3% from the first quarter of 2013, with the increase coming from Acadian’s operations in New Brunswick.
Acadian’s weighted average log price for the first quarter of 2014 increased 9% year-over-year reflecting increased prices across most products and changes in product mix. Stronger softwood sawlog markets and the strengthening of the U.S. dollar resulted in a 7% increase in the weighted average softwood sawlog price relative to the first quarter of 2013. Most of this benefit came from the Maine operations. Hardwood sawlog markets improved for both the New Brunswick and Maine operations with weighted average selling prices increasing by 16%. Prices for softwood and hardwood pulpwood decreased 7% and increased 10%, respectively, year-over-year. While market conditions for hardwood pulpwood continued to be strong, softwood pulpwood markets were challenged during the quarter due to a limited customer base. Biomass markets remained stable, however, realized gross margins on this product decreased 23% year-over-year due to fewer export customers.
New Brunswick Timberlands
The table below summarizes operating and financial results for New Brunswick Timberlands.
Softwood, hardwood and biomass shipments were 100 thousand m³, 116 thousand m³ and 29 thousand m³, respectively, during the first quarter. This represents a year-over-year increase in sales volume of 7%. Approximately 38% of sales volume was sold as sawlogs, 50% as pulpwood and 12% as biomass in the first quarter. This compares to 27% sold as sawlogs, 53% as pulpwood and 20% as biomass in the first quarter of 2013.
Net sales for the first quarter totaled $14.4 million compared to $12.2 million for the same period last year, reflecting the positive impact of not operating under the VMI program that resulted in the deferral of softwood sawlog sales into the second quarter in 2013. Net sales also benefited from increases in selling prices across most products and a more favourable product mix. The weighted average log selling price was $60.88 per m3 in the first quarter, a 5% increase from $57.77 per m3 in the same period of 2013.
Costs for the first quarter were $10.0 million, compared to $9.2 million in the same period in 2013, due to 1% higher variable costs per m3 resulting primarily from higher hardwood harvest volumes.
Adjusted EBITDA for the first quarter was $4.5 million, compared to $3.0 million in the first quarter of 2013 reflecting improved market demand for most products and the impact of the VMI program in 2013. Adjusted EBITDA margin increased to 31% from 25% in the prior year.
During the first quarter of 2014, NB Timberlands experienced no recordable incidents among employees and one reportable incident among contractors.
Maine TImberlands
The table below summarizes operating and financial results for Maine Timberlands.
Softwood, hardwood and biomass shipments were 71 thousand m³, 27 thousand m³, and 7 thousand m³, respectively, during the first quarter. This represents a year-over-year decrease in sales volume of 5%. Approximately 55% of sales volume was sold as sawlogs, 39% as pulpwood and 6% as biomass during the first quarter. This compares to 56% sold as sawlogs, 37% as pulpwood and 7% as biomass in the first quarter of 2013.
Net sales for the first quarter totaled $6.8 million compared to $6.1 million for the same period last year. The improvement was the result of improved pricing across most products and the positive impact of foreign exchange movements. The weighted average log selling price was $67.75 per m3 in the first quarter, a 17% increase from $57.95 per m3 in the same period of 2013 in Canadian dollar terms. Weighted average log selling prices in U.S. dollar terms increased 7% year-over-year.
Costs for the first quarter were $4.3 million, compared to $4.1 million during the same period in 2013. This increase primarily reflects adverse foreign exchange movements during the year as variable costs per m3 increased 11% in Canadian dollar terms compared to 2% in U.S. dollar terms.
Adjusted EBITDA for the first quarter was $2.5 million, compared to $2.0 million for the same period in 2013, while Adjusted EBITDA margin increased from 33% to 36%.
There were no recordable safety incidents among employees and contractors during the first quarter of 2014.
Market Outlook
The following Market Outlook contains forward-looking statements about Acadian Timber Corp.’s market outlook for the remainder of fiscal 2014. Reference should be made to the “Forward-looking Statements” section of this news release. For a description of material factors that could cause actual results to differ materially from the forward-looking statements in the following, please see the Risk Factors section of our management’s discussion and analysis of Acadian’s most recent Annual Report and Annual Information Form available on our website at www.acadiantimber.com or filed with SEDAR at www.sedar.com.
The U.S. housing market has struggled in 2014 despite significant increases in pent up demand. While severe winter weather is almost certainly behind much of the slowdown, underlying demand remains weak as traditional buyers continue to defer home purchases while they wait for employment conditions to strengthen further. Although the current housing outlook is uncertain, almost all industry watchers are forecasting year-over-year increases in total housing starts of approximately 15% in 2014 with increases of the same magnitude forecast for 2015.
Meanwhile, Acadian’s key solid wood customers continue to operate at high levels and, following the New Brunswick government’s announcement of its Forestry Plan in mid-March, there have been announcements of significant capital investments and additional operating shifts at Irving’s St. Leonard and Kedgwick sawmills and Twin Rivers’ Plaster Rock sawmill. This is in addition to last summer’s announcement of Irving’s new sawmill in Portage, Maine. As a result, we expect to see continued strong demand for softwood sawlogs in the region.
In addition to our positive outlook for softwood sawlogs, markets for hardwood sawlogs have been positive and are expected to remain stable while demand and pricing for hardwood pulpwood continues to be strong. While Acadian has been successful in selling its softwood pulpwood production, this market continues to be challenging owing to the closure of regional groundwood mills. Fortunately, this product represents only a small portion of Acadian’s sales and an even lower proportion of our operating earnings. Biomass markets are mixed owing to a slowdown in export markets, with demand and pricing expected to remain reasonable offering modest margins.
Quarterly Dividend
Acadian is pleased to announce a dividend of $0.20625 per share, payable on July 15, 2014 to shareholders of record on June 30, 2014.
Acadian Timber Corp. is a leading supplier of primary forest products in Eastern Canada and the Northeastern U.S. With a total of 2.4 million acres of land under management, Acadian is the second largest timberland operator in New Brunswick and Maine.
Acadian owns and manages approximately 1.1 million acres of freehold timberlands in New Brunswick and Maine, and provides management services relating to approximately 1.3 million acres of Crown licensed timberlands in New Brunswick. Acadian also owns and operates a forest nursery in Second Falls, New Brunswick. Acadian's products include softwood and hardwood sawlogs, pulpwood and biomass by-products, sold to approximately 90 regional customers.
Acadian’s business strategy is to maximize cash flows from its existing timberland assets while growing our business by acquiring assets on a value basis and utilizing our operations-oriented approach to drive improved performance.
Acadian’s shares are listed for trading on the Toronto Stock Exchange under the symbol ADN.
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