Acadian Timber Corp. (“Acadian” or the “Company”) (TSX:ADN) today
reported financial and operating results1 for the three months
ended March 30, 2019 (the “first quarter”).
“Operating rates for Acadian’s primary sawmill
and pulp and paper customers remained strong through the first
quarter of the year,” said Mark Bishop, Chief Executive Officer of
Acadian. Mr. Bishop further noted that, “While our operations
during the quarter were negatively impacted by unseasonably cold
weather which interrupted harvesting and transportation activities,
log demand remains firm and we anticipate meeting our target
harvest and sales volumes for the full year.”
Acadian generated Adjusted EBITDA1 of $8.9
million for the first quarter, in-line with the prior year period.
Acadian continues to benefit from strong demand, reflecting the
favourable dynamics of the Northeast regional log markets.
Operations were, however, impacted by adverse weather conditions
throughout the first quarter. As a result, Acadian’s log sales
volumes decreased 7%, which was offset by the benefit of an
increase in the weighted average log selling price of 4% compared
to the prior year period.
For the three-month period ended March 30, 2019,
the Board of Directors has declared dividends of $0.29 per share or
$4.8 million, compared to $4.6 million during the same period of
2018, reflecting dividend increases announced in May 2018 and
February 2019 amounting to a combined 5% increase in our quarterly
dividend per share. This represents a Payout Ratio1 of 75%, which
is below our long-term annual target of 95% but in-line with
expectations given the seasonality of our
operations.
Review of Operations
Financial and Operating Highlights
|
|
|
Three Months Ended |
(CAD thousands, except per share information) |
|
March 30, 2019 |
March 31, 2018 |
Sales volume (000s m3) |
|
|
384.2 |
|
419.7 |
Sales |
|
$ |
30,938 |
$ |
32,948 |
Net income |
|
|
6,182 |
|
1,986 |
Adjusted EBITDA |
|
|
8,857 |
$ |
8,870 |
Adjusted EBITDA margin |
|
|
29% |
|
27% |
Free Cash Flow |
|
|
6,490 |
$ |
7,258 |
Dividends declared |
|
|
4,840 |
|
4,601 |
Payout Ratio |
|
|
75% |
|
63% |
Per share – basic and diluted |
|
|
|
Net income |
|
$ |
0.37 |
$ |
0.12 |
Free Cash Flow |
|
|
0.39 |
|
0.43 |
Dividends declared |
|
|
0.29 |
|
0.275 |
|
|
|
|
|
|
During the first quarter, Acadian generated
sales of $30.9 million, compared to $32.9 million in the prior year
period. Acadian benefited from strong seasonal demand, however
operations were impacted by adverse weather conditions during the
quarter resulting in a 7% decrease in log sales volumes and a 20%
decrease in ancillary revenues, primarily related to timber
services. These impacts were partially offset by a 4% increase in
the weighted average log selling price as our products benefited
from favourable market dynamics.
Costs were $22.1 million during the first
quarter, compared to $24.0 million during the prior year period
reflecting lower log sales volumes and administrative cost savings.
Variable log harvest costs were in-line with the prior year
period.
Adjusted EBITDA of $8.9 million during the first
quarter was in-line with the prior year period. The Adjusted EBITDA
margin for the quarter was 29%, higher than 27% in the prior year
period due to improved log selling prices and lower relative
operating costs, partially offset by the impact of lower log sales
volumes.
Net income of $6.2 million, or $0.37 per share,
was $4.2 million higher than the prior year period of $2.0 million,
or $0.12 per share. The variance from the prior year period is
primarily due to an unrealized foreign exchange revaluation gain on
U.S. dollar denominated long-term debt during the first quarter,
compared to an unrealized revaluation loss in the prior year
period.
Segment Performance
New Brunswick Timberlands
The table below summarizes operating and
financial results for New Brunswick Timberlands.
|
|
|
|
Three Months Ended March 30, 2019 |
Three Months Ended March 31, 2018 |
|
Harvest |
Sales |
Sales |
Results |
Harvest |
Sales |
Sales |
Results |
|
(000s m3) |
(000s m3) |
Mix |
($000s) |
(000s m3) |
(000s m3) |
Mix |
($000s) |
Softwood |
140.7 |
138.9 |
52% |
$ |
8,332 |
158.6 |
157.4 |
54% |
$ |
8,885 |
Hardwood |
103.7 |
85.3 |
32% |
|
6,590 |
93.0 |
83.0 |
28% |
|
6,566 |
Biomass |
43.4 |
43.4 |
16% |
|
1,499 |
52.9 |
52.9 |
18% |
|
1,451 |
|
287.8 |
267.6 |
100% |
|
16,421 |
304.5 |
293.3 |
100% |
|
16,902 |
Timber services and
other sales |
|
|
|
|
5,028 |
|
|
|
|
6,218 |
Sales |
|
|
|
$ |
21,449 |
|
|
|
$ |
23,120 |
Adjusted EBITDA |
|
|
|
$ |
5,762 |
|
|
|
$ |
5,857 |
Adjusted
EBITDA margin |
|
|
|
27% |
|
|
|
|
25% |
|
|
|
|
|
|
|
|
|
|
Sales for our New Brunswick Timberlands were
$21.4 million compared to $23.1 million during the prior year
period. While seasonal demand remained strong, operations were
impacted by adverse weather conditions which resulted in a 7%
decrease in log sales volumes. The weighted average log selling
price during the quarter increased 4% compared to the prior year
period reflecting strong pricing for softwood sawlogs which was was
partially offset by changes in the sales mix.
Adjusted EBITDA was $5.8 million during the
first quarter of 2019, compared to $5.9 million in the prior year
period, as the benefit of higher weighted average log selling
prices per m3 was more than offset by lower log sales volumes.
Adjusted EBITDA margin for the quarter increased to 27% from 25% in
the prior year period, benefiting from lower variable harvest costs
per m3.
There were no recordable safety incidents
amongst employees and two lost time incidents amongst contractors
during the first quarter of 2019. Both individuals have since
returned to work.
Maine Timberlands
The table below summarizes operating and
financial results for Maine Timberlands.
|
|
|
|
Three Months Ended March 30, 2019 |
Three Months Ended March 31, 2018 |
|
Harvest |
Sales |
Sales |
Results |
Harvest |
Sales |
Sales |
Results |
|
(000s m3) |
(000s m3) |
Mix |
($000s) |
(000s m3) |
(000s m3) |
Mix |
($000s) |
Softwood |
87.2 |
86.3 |
74% |
$ |
7,036 |
91.6 |
91.2 |
72% |
$ |
7,321 |
Hardwood |
30.0 |
26.9 |
23% |
|
2,281 |
33.9 |
30.7 |
24% |
|
2,254 |
Biomass |
3.4 |
3.4 |
3% |
|
5 |
4.5 |
4.5 |
4% |
|
7 |
|
120.6 |
116.6 |
100% |
|
9,322 |
130.0 |
126.4 |
100% |
|
9,582 |
Other sales |
|
|
|
|
167 |
|
|
|
|
246 |
Sales |
|
|
|
$ |
9,489 |
|
|
|
$ |
9,828 |
Adjusted EBITDA |
|
|
|
$ |
3,343 |
|
|
|
$ |
3,464 |
Adjusted
EBITDA margin |
|
|
|
35% |
|
|
|
|
35% |
|
|
|
|
|
|
|
|
|
|
Sales totaled $9.5 million for Maine Timberlands
compared to $9.8 million for the same period last year. While
market dynamics remained strong, adverse weather conditions
impacted operations resulting in a 7% decrease in log sales
volumes. The weighted average log selling price increased 5%
compared to the prior year period benefiting from strong product
pricing and foreign exchange which was partially offset by changes
in the sales mix.
Adjusted EBITDA for the quarter was $3.3 million
compared to $3.5 million during the prior year period due to lower
log sales volumes. The Adjusted EBITDA margin of 35% was in-line
with the prior year period.
There were no recordable safety incidents
amongst employees and one lost time incident amongst contractors
during the first quarter of 2019. The individual returned to work
during the quarter.
Market Outlook
The following contains forward-looking
information about Acadian Timber Corp.’s market outlook for the
remainder of fiscal 2019. Reference should be made to the the
section entitled “Cautionary Statement Regarding 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.
Acadian’s key markets include softwood
sawtimber, hardwood sawtimber and hardwood pulpwood. Northeast
North American softwood dimension sawmills represent over one third
of Acadian’s end-use market and are the primary market for our
softwood sawtimber. Our mixed softwood and hardwood resource,
combined with diversified end use markets, underpin Acadian’s ‘best
in class’ long-term performance. Well-balanced regional supply
demand fundamentals continue to support attractive stable log
pricing across all key markets.
The U.S. economy has continued to perform well
through early 2019 and forecasters expect continued steady
performance supported by job growth and wage increases. However,
first quarter new home construction activity was below expectations
due to several factors including increased mortgage rates, the U.S.
federal government shutdown, uncertainty regarding Chinese economic
outlook and possible fallout from U.S. Trade policy decisions and,
importantly, the impact of severe winter weather in much of North
America and heavy rainfall in the U.S. South.
While the U.S. home building sector has had some
recent headwinds, factors including favourable demographics for
growth in household formation, low home inventories, and moderating
rates suggest upward momentum in housing construction should resume
in the near term. Recent consensus forecasts anticipate average
year-over-year growth in U.S. housing starts for 2019 and 2020 of
about 2% and 3%, respectively. Forecasters continue to expect the
proportion of single family starts, the largest lumber consuming
segment of U.S. housing starts, to improve modestly through 2019
and 2020. Additionally, home repair and remodeling are also
projected to grow modestly over the next two years. North American
sawtimber consumption is therefore expected to post modest
year-over-year growth.
Average Q1 2019 quarterly benchmark Eastern
Spruce-Pine-Fir lumber prices increased 8% while Southern Yellow
Pine lumber prices declined 4%, compared to the prior quarter.
While we anticipate continued volatility in lumber prices in the
near term dictated by the pace of regional inventory drawdown and
spring building conditions, forecasters expect steady demand growth
combined with capacity and log supply constraints in Western Canada
to support a robust recovery in lumber pricing in mid-2019, albeit
below the levels achieved in 2018. By extension, we anticipate
continued stable softwood sawtimber pricing in Acadian’s regional
markets.
Acadian’s hardwood sawtimber and pulpwood
markets remain well balanced with a continued positive outlook for
the foreseeable future. Softwood pulpwood markets, Acadian’s
smallest product segment by volume and margin, have improved
modestly and the expected pulp mill restart during H2 2019 in Maine
is expected to be a catalyst for further recovery in demand and
pricing. While the biomass market in Maine remains weak, the New
Brunswick biomass market continues to be supported by steady export
demand at attractive prices.
Management Team Changes
Acadian announced today that Ms. Mabel Wong will
be leaving the position of Chief Financial Officer effective May 9,
2019 to take on new responsibilities within Brookfield Asset
Management. Ms. Wong has been a member of the senior management of
Acadian since her initial appointment as Chief Financial Officer in
2017. “The entire management team would like to thank Ms. Wong for
her hard work, dedication and significant contributions to Acadian
and wish her the best in her endeavors going forward” commented Mr.
Bishop. Effective May 9, 2019, Mr. Matthew Gross will replace Ms.
Wong as Acadian's Vice-President and Chief Financial Officer. Mr.
Gross has been a key member of Brookfield’s team for the past six
years and has held a number of senior finance roles within the
organization. Mr. Gross is a Certified Public Accountant and worked
at one of the big four accounting firms prior to joining
Brookfield.
Quarterly Dividend
Acadian is pleased to announce a dividend of
$0.29 per share, payable on July 15, 2019 to shareholders of record
on June 30, 2019.
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 one of the largest timberland
operators in New Brunswick and Maine.
Acadian owns and manages approximately 1.1
million acres of freehold timberlands in New Brunswick and Maine,
and provides timber services relating to approximately 1.3 million
acres of Crown licensed timberlands in 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.
For further information, please visit our
website at www.acadiantimber.com or contact:Kate
WhiteInvestor Relations and CommunicationsTel:
416-956-5183Email: kwhite@acadiantimber.com
Cautionary Statement Regarding
Forward-Looking Information and Statements
This News Release contains forward-looking
information and statements within the meaning of applicable
Canadian securities laws that involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of Acadian Timber Corp. and its
subsidiaries (collectively, “Acadian”), or industry results, to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. When used in this News Release, such forward-looking
statements may contain such words as “may,” “will,” “intend,”
“should,” “suggest,” “expect,” “believe,” “outlook,” “forecast,”
“predict,” “remain,” “anticipate,” “estimate,” “potential,”
“continue,” “plan,” “could,” “might,” “project,” “targeting” or the
negative of these terms or other similar terminology.
Forward-looking information in this News Release includes, without
limitation, statements made in the section entitled “Market
Outlook” and other statements regarding management’s beliefs,
intentions, results, performance, goals, achievements, future
events, plans and objectives, business strategy, growth strategy
and prospects, access to capital, liquidity and trading volumes,
dividends, taxes, capital expenditures, projected costs, market
trends and similar statements concerning anticipated future events,
results, achievements, circumstances, performance or expectations
that are not historical facts. These statements, which reflect
management’s current expectations regarding future events and
operating performance, are based on information currently available
to management and speak only as of the date of this News Release.
All forward-looking statements in this News Release are qualified
by these cautionary statements. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, should not be unduly
relied upon, and will not necessarily be accurate indications of
whether or not such results will be achieved. Factors that could
cause actual results to differ materially from the results
discussed in the forward-looking statements include, but are not
limited to: general economic and market conditions; changes in U.S.
housing starts; product demand; concentration of customers;
commodity pricing; interest rate and foreign currency fluctuations;
seasonality; weather and natural conditions; regulatory, trade or
environmental policy changes; changes in Canadian income tax law;
economic situation of key customers; Brookfield’s ability to source
and secure potential investment opportunities; the availability of
potential acquisitions that suit Acadian’s growth profile; and
other risks and factors discussed under the heading “Risk Factors”
in each of the Annual Information Form dated March 28, 2019 and the
Management Information Circular dated March 28, 2019, and other
filings of Acadian made with securities regulatory authorities,
which are available on SEDAR at www.sedar.com. Forward-looking
information is based on various material factors or assumptions,
which are based on information currently available to Acadian.
Material factors or assumptions that were applied in drawing a
conclusion or making an estimate set out in the forward-looking
information may include, but are not limited to: forecasts in the
housing market; anticipated financial performance; anticipated
market conditions; business prospects; the economic situation of
key customers; strategies; regulatory developments; exchange rates;
the sufficiency of budgeted capital expenditures in carrying out
planned activities; the availability and cost of labour and
services; and the ability to obtain financing on acceptable terms.
Readers are cautioned that the preceding list of material factors
or assumptions is not exhaustive. Although the forward-looking
statements contained in this News Release are based upon what
management believes are reasonable assumptions, Acadian cannot
assure readers that actual results will be consistent with these
forward-looking statements. The forward-looking statements in this
News Release are made as of the date of this News Release, and
should not be relied upon as representing Acadian’s views as of any
date subsequent to the date of this News Release. Acadian assumes
no obligation to update or revise these forward-looking statements
to reflect new information, events, circumstances or otherwise,
except as may be required by applicable law.
Acadian Timber
Corp.Interim Condensed Consolidated Statements of
Net Income(unaudited)
|
Three Months Ended |
(CAD thousands, except per share data) |
March 30, 2019 |
March 31, 2018 |
Sales |
$ |
30,938 |
$ |
32,948 |
Operating costs and expenses |
|
|
Cost of sales |
|
19,921 |
|
21,494 |
Selling, administration and other |
|
2,199 |
|
2,506 |
Reforestation |
|
— |
|
7 |
Depreciation and amortization |
|
72 |
|
84 |
|
|
22,192 |
|
24,091 |
Operating earnings |
|
8,746 |
|
8,857 |
Interest expense, net |
|
(1,009) |
|
(958) |
Other items |
|
|
Fair value adjustments and other |
|
(1,842) |
|
(2,125) |
Unrealized exchange gain / (loss) on long-term debt |
|
2,034 |
|
(2,288) |
Gain on sale of timberlands |
|
39 |
|
177 |
Loss
on disposal of roads and other fixed assets |
|
— |
|
(248) |
Earnings before income taxes |
|
7,968 |
|
3,415 |
Current income tax expense |
|
(1,700) |
|
(1,365) |
Deferred income tax expense |
|
(86) |
|
(64) |
Net income |
$ |
6,182 |
$ |
1,986 |
Net income per share – basic and diluted |
$ |
0.37 |
$ |
0.12 |
Acadian Timber
Corp.Interim Condensed Consolidated Statements of
Comprehensive Income(unaudited)
|
Three Months Ended |
(CAD thousands) |
March 30, 2019 |
March 31, 2018 |
|
|
|
Net income |
$ |
6,182 |
$ |
1,986 |
Other comprehensive income / (loss) |
|
|
Items that may be reclassified subsequently to net income: |
|
|
Unrealized foreign currency translation (loss) / gain |
|
(3,102) |
|
3,366 |
Deferred income tax recovery |
|
— |
|
(246) |
Comprehensive income |
$ |
3,080 |
$ |
5,106 |
Acadian Timber
Corp.Interim Condensed Consolidated Balance
Sheets(unaudited)
As at(CAD thousands) |
March 30, 2019 |
December 31, 2018 |
Assets |
|
|
Current
assets |
|
|
Cash
and cash equivalents |
$ |
22,644 |
$ |
22,320 |
Accounts receivable and other assets |
|
10,273 |
|
7,230 |
Inventory |
|
4,062 |
|
2,756 |
|
|
36,979 |
|
32,306 |
Timber |
|
362,530 |
|
367,901 |
Land, roads
and other fixed assets |
|
85,210 |
|
86,103 |
Intangible
asset |
|
6,140 |
|
6,140 |
|
$ |
490,859 |
$ |
492,450 |
Liabilities and shareholders’ equity |
|
|
Current
liabilities |
|
|
Accounts payable and accrued liabilities |
$ |
8,004 |
$ |
7,963 |
Current tax liabilities |
|
2,990 |
|
647 |
Dividends payable to shareholders |
|
4,840 |
|
4,714 |
|
|
15,834 |
|
13,324 |
Long-term
debt |
|
94,905 |
|
96,595 |
Deferred
income tax liability |
|
91,505 |
|
92,119 |
Shareholders’ equity |
|
288,615 |
|
290,412 |
|
$ |
490,859 |
$ |
492,450 |
Acadian Timber
Corp.Interim Condensed Consolidated Statements of
Cash Flows(unaudited)
|
Three Months Ended |
(CAD thousands) |
March 30, 2019 |
March 31, 2018 |
Cash and cash equivalents provided by / (used for): |
|
|
Operating activities |
|
|
Net income |
$ |
6,182 |
$ |
1,986 |
Adjustments to net income: |
|
|
Deferred income tax expense |
|
86 |
|
64 |
Depreciation and amortization |
|
72 |
|
84 |
Fair value adjustments and other |
|
1,842 |
|
2,125 |
Unrealized exchange (gain) / loss on long term debt |
|
(2,034) |
|
2,288 |
Gain on sale of timberlands |
|
(39) |
|
(177 ) |
Loss on disposal of roads and other fixed assets |
|
— |
|
248 |
Accretion of long-term debt |
|
316 |
|
247 |
Net change in non-cash working capital balances and other |
|
(1,390) |
|
(4,317 ) |
|
|
5,035 |
|
2,548 |
Financing activities |
|
|
Dividends paid to shareholders |
|
(4,714) |
|
(4,601) |
Common shares repurchased under NCIB |
|
(37) |
|
— |
|
|
(4,751) |
|
(4,601) |
Investing activities |
|
|
Additions to timber, land, roads and other fixed assets |
|
— |
|
(5) |
Proceeds from sale of timberlands |
|
40 |
|
192 |
Proceeds from sale of roads and other fixed assets |
|
— |
|
179 |
|
|
40 |
|
366 |
Increase / (decrease) in cash and cash equivalents during the
period |
|
324 |
|
(1,687 ) |
Cash and cash equivalents, beginning of period |
|
22,320 |
|
23,951 |
Cash and cash equivalents, end of period |
$ |
22,644 |
$ |
22,264 |
Reconciliations to Adjusted EBITDA and
Free Cash Flow
|
Three Months Ended |
(CAD thousands) |
March 30, 2019 |
March 31, 2018 |
|
|
|
Net
income |
$ |
6,182 |
$ |
1,986 |
Add /
(deduct): |
|
|
Interest expense, net |
|
1,009 |
|
958 |
Current income tax expense |
|
1,700 |
|
1,365 |
Deferred income tax expense |
|
86 |
|
64 |
Depreciation and amortization |
|
72 |
|
84 |
Fair value adjustments and other |
|
1,842 |
|
2,125 |
Unrealized exchange (gain) / loss on long-term debt |
|
(2,034) |
|
2,288 |
Adjusted EBITDA |
$ |
8,857 |
$ |
8,870 |
Add /
(deduct): |
|
|
Interest paid on debt, net |
|
(668) |
|
(684) |
Additions to timber, land, roads and other fixed assets |
|
— |
|
(5) |
Gain
on sale of timberlands |
|
(39) |
|
(177) |
Loss
on disposal of roads and other fixed assets |
|
— |
|
248 |
Proceeds on sale of timberlands |
|
40 |
|
192 |
Proceeds on sale of roads and other fixed assets |
|
— |
|
179 |
Current income tax expense |
|
(1,700) |
|
(1,365) |
Free Cash Flow |
$ |
6,490 |
$ |
7,258 |
Dividends declared |
$ |
4,840 |
$ |
4,601 |
Payout Ratio |
|
75% |
|
63% |
- This news release makes reference
to Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow and
Payout Ratio which are key performance measures in evaluating
Acadian’s operations and are important in enhancing investors’
understanding of Acadian’s operating performance. Adjusted
EBITDA and Adjusted EBITDA margin are used to evaluate operational
performance. Free Cash Flow is used to evaluate Acadian’s ability
to generate sustainable cash flows from our operations while Payout
Ratio is used to evaluate Acadian’s ability to fund its
distribution using Free Cash Flow. Acadian’s management defines
Adjusted EBITDA as earnings before interest, taxes, fair value
adjustments, recovery of or impairment of land and roads, realized
gain/loss on sale of roads and other fixed assets, unrealized
exchange gain/loss on debt, depreciation and amortization and
Adjusted EBITDA margin as Adjusted EBITDA as a percentage of its
total revenue. Free Cash Flow is defined as Adjusted EBITDA less
interest paid, current income tax expense, and capital expenditures
plus net proceeds from the sale of fixed assets (selling price less
gains or losses included in Adjusted EBITDA). Payout Ratio is
defined as dividends declared divided by Free Cash Flow. 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, Adjusted EBITDA margin and Free Cash Flow.
Acadian Timber (TSX:ADN)
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Acadian Timber (TSX:ADN)
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