Ainsworth Lumber Co. Ltd.
TSX : ANS

Ainsworth Lumber Co. Ltd.

February 26, 2015 22:30 ET

Ainsworth Announces 2014 Fourth Quarter and Year End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 26, 2015) - Ainsworth Lumber Co. Ltd. (TSX:ANS) today announced its financial results for the fourth quarter and year ended December 31, 2014.

Highlights:

  • Adjusted EBITDA of $27.5 million for the year
  • Shipment and production volumes 9% and 8% higher than prior year, respectively
  • 25% year over year growth in shipments to key export markets in Asia
  • Obtained overwhelming shareholder approval of the pending merger with Norbord

Ainsworth President and Chief Executive Officer, Jim Lake said, "North American OSB market conditions continued to drift throughout the year as the pace of demand growth did not materialize as expected. However, we remain optimistic that U.S. housing starts will return to more historical levels within the next several years, with various indicators pointing towards strong growth in 2015 versus 2014.

"We maintained the strong performance we saw in 2013 in our key export market in Japan and also made progress in China as we began commercial shipments of our industrial core stock products. Additionally, we progressed in the ongoing ramp up of our High Level mill, including the completion of a number of strategic capital projects that will further position the mill to efficiently manufacture an enhanced range of products for North American and Asian customers."

Pending Merger with Norbord

On December 8, 2014, the Company and Norbord Inc. ("Norbord") announced that they had entered into an arrangement agreement under which the Company and Norbord will merge to create a leading global wood products company focused on OSB across North America, Europe and Asia. Under the terms of the transaction, Norbord will acquire all of the outstanding common shares of the Company in an all-share transaction. Ainsworth shareholders will receive 0.1321 of a share of Norbord for each Ainsworth share.

On January 27, 2015, the transaction was overwhelmingly approved by over 99% of votes cast by the shareholders of each of Norbord and the Company. On January 30, 2015, the Supreme Court of British Columbia granted a final order approving the combination of Norbord and the Company by way of a plan of arrangement under the Business Corporations Act (British Columbia). In addition, the Company and Norbord continue to work proactively with the U.S. Department of Justice to ensure an expedited review process. Subject to the satisfaction or waiver of all closing conditions, the transaction is expected to close by the end of the first quarter of 2015.

Further information about the transaction is set out in the joint management information circular and other filings which are available under Ainsworth's profile on www.sedar.com.

Financial Results

Sales of $102.5 million in the fourth quarter of 2014 were $1.9 million lower than sales of $104.4 million for the same period in 2013. The decrease in sales was mainly due to a 4% decrease in realized pricing. Sales volumes increased by 2% due to the ongoing ramp up of High Level notwithstanding downtime taken during the fourth quarter. The impact of the U.S. benchmark declines on our realized pricing was moderated by factors including the effect of a weaker Canadian dollar relative to the fourth quarter of 2013 combined with stable export pricing in Japan.

Sales were $444.0 million in 2014 compared to $488.0 million in 2013. The $44.0 million decrease was primarily related to a 17% decrease in realized pricing, partially offset by a 9% increase in sales volumes. The impact of the U.S. benchmark declines on our realized pricing was again moderated by factors including the effect of a weaker Canadian dollar relative to 2013 combined with stable export pricing in Japan. The increase in volume from High Level was partially offset by the downtime taken at our various mills to complete maintenance and other projects during the year.

Adjusted EBITDA was a loss of $0.5 million in the fourth quarter of 2014 compared to adjusted EBITDA of $11.3 million in the same period of 2013, due to lower North American OSB prices and higher overall unit costs. The increase in unit costs was attributable to a number of factors including raw material price increases, costs associated with the ongoing ramp up of High Level, and additional costs incurred due to the downtime taken at the mills. Net loss of $33.5 million from continuing operations in the fourth quarter of 2014 was $22.9 million higher than net loss of $10.6 million in the prior year. Excluding the foreign exchange fluctuations on long-term debt, the loss on derivative financial instrument and the related income tax effects, adjusted loss for the fourth quarter of 2014 was $18.5 million. This represents a decrease of $15.5 million compared to the prior year.

Adjusted EBITDA for 2014 was $27.5 million compared to $148.9 million in 2013, due to a significant decrease in North American OSB prices and higher overall unit costs due to the same factors noted above. Net loss from continuing operations in 2014 was $71.1 million, compared to net income of $39.4 million for 2013, representing a decrease in net income of $110.5 million. Excluding the key non-cash accounting gains and losses noted above, adjusted loss for 2014 was $29.9 million. This represents a decrease of $86.2 million compared to adjusted earnings of $56.3 million for 2013.

Margins

Adjusted EBITDA margin on sales for the fourth quarter of 2014 was negative 0.5% compared to positive 10.8% in the same period of 2013 (6.2% in 2014 compared to 30.5% in 2013). The decreases were largely related to significantly lower realized pricing in North America and higher unit costs.

Benchmark OSB pricing decreased during the fourth quarter of 2014. The North Central and Western Canadian pricing for 7/16" OSB averaged U.S.$216 and U.S.$172 per msf, respectively, representing a decrease of 12% and 21% versus the fourth quarter of 2013. Sequentially, the North Central benchmark price stayed flat while the Western Canadian benchmark price decreased 8% versus the prior quarter. For the year, the North Central and Western Canadian benchmark prices averaged U.S. $218 and U.S. $196 per msf, respectively, representing a decrease of 31% and 34% versus 2013.

Liquidity

At December 31, 2014, Ainsworth's available liquidity, consisting of cash and cash equivalents, was $75.6 million, a reduction of $61.8 million since December 31, 2013 resulting primarily from funding our capital expenditures and interest payments as well as debt repayments and additional working capital requirements. Ainsworth is also permitted under the terms of our senior secured notes to borrow at least an additional U.S.$170 million of senior secured and unsecured debt subject to the limitations set forth in the indenture.

Outlook

While the pace of improvement in U.S. housing starts in 2014 was more gradual than anticipated, we expect that the U.S. housing recovery will gain further traction in 2015. We remain optimistic that U.S. housing starts will return to more historical levels within the next several years. The restart of the High Level mill will allow us to meet the growing requirements of our existing customer base in North America and Asia as well as service new market segments. We expect the merger with Norbord will allow the combined company to capitalize on the ongoing recovery in the U.S. housing market and growth opportunities in our traditional and emerging markets in Asia.

Selected financial information is presented in the tables below. The full financial report is available to be viewed at the following link: http://media3.marketwire.com/docs/ANS2014.pdf.

Selected Financial Information
Q4-14 Q4-13 2014 2013
(in millions of Canadian dollars, except earnings per share ("EPS"))
Sales $ 102.5 $ 104.4 $ 444.0 $ 488.0
Cost of products sold 99.3 89.4 401.7 323.5
Net (loss) income from continuing operations (33.5 ) (10.6 ) (71.1 ) 39.4
Basic EPS (1) (0.14 ) (0.04 ) (0.30 ) 0.16
Adjusted EBITDA (2) (0.5 ) 11.3 27.5 148.9
Adjusted EBITDA margin (3) -0.5 % 10.8 % 6.2 % 30.5 %
Adjusted (loss) earnings (4) (18.5 ) (3.0 ) (29.9 ) 56.3
Adjusted EPS (5) (0.08 ) (0.01 ) (0.12 ) 0.23
(1) 240,956,309 common shares were outstanding on December 31, 2014.
(2) Adjusted EBITDA, a non-IFRS financial measure, is defined as net income (loss) from continuing operations before amortization, (gain) loss on disposal of property, plant and equipment, cost of curtailed operations, share-based compensation expense, finance expense, foreign exchange (gain) loss on long-term debt, other foreign exchange (gain) loss, (gain) loss on derivative financial instrument, interest income earned on investments, income tax expense (recovery), and non-recurring items.
(3) Adjusted EBITDA margin, a non-IFRS financial measure, is defined as adjusted EBITDA divided by sales.
(4) Adjusted (loss) earnings, a non-IFRS financial measure, is defined as net income (loss) from continuing operations before (gain) loss on derivative financial instrument, foreign exchange (gain) loss on long-term debt, and the related income tax effects.
(5) Adjusted earnings per share, a non-IFRS financial measure, is defined as adjusted (loss) earnings divided by the weighted average common shares outstanding.

Reconciliation of Net Income to Adjusted EBITDA
Q4-14 Q4-13 2014 2013
(in millions of Canadian dollars)
Net (loss) income from continuing operations $ (33.5 ) $ (10.6 ) $ (71.1 ) $ 39.4
Add (deduct):
Foreign exchange loss on long-term debt 12.6 10.9 30.7 24.0
Amortization of property, plant and equipment 6.8 6.7 28.5 25.5
Finance expense 6.8 6.5 26.9 27.5
Costs related to mergers and acquisitions 4.6 1.9 7.7 3.6
Loss (gain) on derivative financial instrument 2.7 (3.8 ) 11.9 (8.1 )
Loss on disposal of property, plant and equipment 0.7 0.1 0.9 0.5
Stock-based compensation expense 0.6 0.3 0.4 1.8
Income tax (recovery) expense (1.3 ) 0.2 (5.6 ) 21.0
Other (0.5 ) (0.9 ) (2.8 ) (3.9 )
Loss on repayment of long-term debt - - - 3.1
Cost of curtailed operations - - - 10.7
Write-down of property, plant and equipment - - - 3.8
Adjusted EBITDA $ (0.5 ) $ 11.3 $ 27.5 $ 148.9

Conference Call Information

Ainsworth will hold a conference call on Friday, February 27, 2015 at 10:00 a.m. PT (1:00 p.m. ET). The dial-in phone number is 1-800-319-4610 from inside the USA or Canada, and +1-604-638-5340 from outside of the USA and Canada. To access the replay line, dial 1-800-319-6413, or +1-604-638-9010, Reservation 4176#. This recording will be available until the end of the day on March 6, 2015.

The financial results are based on International Financial Reporting Standards. Investors, analysts and other interested parties can access Ainsworth's 2014 Fourth Quarter and Annual Results as well as the Shareholders' Letter and Supplemental Information on Ainsworth's website under the Investors / Financial Reports section at www.ainsworthengineered.com.

Forward Looking Statements

Forward-looking information provided in this news release relating to the Company's expectations regarding OSB demand and pricing and the Company's future prospects and financial position are forward-looking information pursuant to National Instrument 51-102 promulgated by the Canadian Securities Administrators. The Company believes that expectations reflected in such information are reasonable, but no assurance is given that such expectations will be correct. Forward-looking information is based on the Company's beliefs and assumptions based on information available at the time the assumption was made and on management's experience and perception of historical trends, current conditions and expected further developments as well as other factors deemed appropriate in the circumstances. Investors are cautioned that there are risks and uncertainties related to such forward-looking information and actual results may vary. Important factors that could cause actual results to differ materially from those expressed or implied by such forward looking information include, without limitation, factors detailed from time to time in the Company's periodic reports filed with the Canadian Securities Administrators and other regulatory authorities. The forward-looking information is made as of the date of this news release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as explicitly required by securities laws.

About Ainsworth

Ainsworth Lumber Co. Ltd. is a leading manufacturer and marketer of oriented strand board ("OSB") with a focus on value-added specialty products for markets in North America and Asia. Ainsworth's four OSB manufacturing mills, located in Alberta, British Columbia and Ontario, have a combined annual capacity of 2.5 billion square feet (3/8-inch basis). Ainsworth is a publicly traded company listed on the Toronto Stock Exchange under the symbol ANS.

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