Canexus Announces 2016 Third Quarter Results

CALGARY, AB--(Marketwired - November 10, 2016) - In the news release, "Canexus Announces 2016 Third Quarter Results," issued Wednesday, November 09 by Canexus Corporation (TSX: CUS), we are advised by the company that there was a typographical error in the second paragraph under the heading "Canexus Board rejects Chemtrade offer." Complete corrected text follows.

Canexus Announces 2016 Third Quarter Results

CALGARY, AB -- November 09 -- Canexus Corporation (TSX: CUS) (the "Corporation" or "Canexus") today announced its financial results for the third quarter ended September 30, 2016.

Highlights

• Cash Operating Profit ("COP") (excluding non-recurring expenses -- see Financial Results) was $28.9 million for the third quarter of 2016, up 13.8% from $25.4 million in the third quarter of 2015.
• Cash Operating Profit (excluding non-recurring expenses) for the last twelve months was $113.6 million. Canexus is on track to achieve high end of 2016 guidance of $100 million to $110 million COP (excluding non-recurring expenses). Guidance accounts for the bi-annual maintenance of the North America Chlor-alkali plant in the fourth quarter of 2016.
• Corporate general and administrative ("G&A") expense for the first nine months of 2016 was $17.2 million (excluding non-recurring expenses), an 18% decrease from same period in 2015, driven by Canexus' Business Improvement Program ("BIP").
• As previously disclosed, Canexus strengthened its balance sheet during the quarter by extending the maturity of its long-term debt portfolio through the issuance of a private placement of $110 million aggregate principal amount of 7.875% senior unsecured notes due 2023. Proceeds of the private placement were used to repay its obligation under the non-revolving term facility and a portion of the senior secured borrowings, thereby reducing the outstanding drawings under the revolving credit facility by approximately $33 million.
• Canexus' Board recommended that shareholders reject the unsolicited offer from Chemtrade Logistics Income Fund to acquire Canexus for $1.50 per share as the offer significantly undervalues the Corporation.
• Canexus continues to execute its go-forward strategy to improve financial flexibility and reduce debt by $100 million (from Q2 2016) by the end of 2018.

"Third quarter results demonstrate that Canexus' strategy is increasing value to shareholders," said Doug Wonnacott, President and CEO. "Through our Business Improvement Program, we set out a plan to drive improvements and reduce costs, which has positioned us to grow cash operating profit and reduce leverage to improve financial flexibility. With continued steady results from North America Sodium Chlorate and Brazil, we are confident of reaching the high end of our 2016 cash operating profit target."

Mr. Wonnacott continued, "Chemtrade's offer of $1.50 per share does not reflect full and fair value for our assets and our growth potential. Over the last month, all of the substantial feedback we've received from shareholders has indicated that they will not tender their shares to Chemtrade's insufficient offer."

Financial Results

Cash Operating Profit (excluding non-recurring expenses) for the third quarter of 2016 was $28.9 million, up 13.8% from $25.4 million a year earlier. Non-recurring expenses include severance, certain litigation and other fees associated with BIP and transaction costs related to the terminated Superior transaction, and totaled $1 million for the quarter (Q2/16 - $3.2M; Q3/15 - $1.4M).

Third quarter 2016 results benefited from improvements in North America Chlor-alkali, driven by increased sales volumes and sales price of hydrochloric acid ("HCl"), higher prices for caustic soda and increased sales volumes of chlorine, when compared to the same period last year. North America Sodium Chlorate continued to generate strong, stable sales revenues supported by solid demand and ongoing weakness of the Canadian dollar relative to the US dollar. Brazil continues to generate strong COP based on the realized margin from our fixed US dollar margin contract with our primary customer.

For the first nine months of 2016, Cash Operating Profit (excluding non-recurring expenses) was $85.8 million, up $0.3 million from $85.5 million a year earlier, primarily due to lower HCl and caustic soda sales volumes and prices reflecting the decline in the HCI market throughout the first half of 2016. Non-recurring expenses totaled $8.8 million for the first nine months (nine months 2015 - $4.5M).

For the last twelve months ("LTM"), Cash Operating Profit (excluding non-recurring expenses) was $113.6 million, up 3% when compared to the previous twelve months. Non-recurring expenses totaled $12.9 million for the period (LTM 2015 - $5.3 million). Cash Operating Profit improvements primarily reflect the strong, stable results from the North America Sodium Chlorate and Brazil business units as well as corporate G&A cost reductions over this period .

Operational Results

North America Sodium Chlorate

Cash Operating Profit for this segment in the third quarter of 2016 was $19.3 million, an 8% increase from the previous quarter and flat compared with the third quarter 2015. For the nine months ended September 30, 2016 Cash Operating Profit for this segment was up 8% from a year earlier. Results continue to be assisted by the weakness of the CAD relative to the USD, with approximately two-thirds of our sales volume exported to the United States. We experienced higher realized prices from both Canadian and US volumes in the third quarter of 2016 compared with the same quarter in 2015. This was partially offset by a decline in operating segment sales volumes of approximately two percent due primarily to anticipated customer mill outages. North American sodium chlorate industry operating rates are expected to remain in the low 90 percent range for the balance of the year.

North America Chlor-alkali

Cash Operating Profit for this segment in the third quarter of 2016 was up by $3.2 million from the prior quarter and up by $3.6 million from the third quarter of 2015. For the nine months ended September 30, 2016 Cash Operating Profit for this segment was down 41% from a year earlier, due to lower HCl demand and reduced production capability as a result of a compressor failure. North America Chlor-alkali ("NACA") contributed 11% to total Cash Operating Profit in the third quarter of 2016 compared with negative contributions in the prior quarter and the year-earlier quarter.

Improved results in the third quarter were driven primarily by higher sales volumes and higher sales prices of HCl used in oil and gas hydraulic fracturing, as a result of the modest recovery in oil and gas activity. Prices for caustic soda for the third quarter of 2016 were higher than in the same period last year and chlorine sales volume increased by 29% over the same quarter in 2015, driven by stronger North American demand.

The NACA facility returned to full operational capacity in the third quarter of 2016, following a compressor outage caused by mechanical failure in the third quarter of 2015. The overall impact of the compressor outage to the business was less significant given the weakness in the HCl market. The Corporation continues to proceed with a claim under its insurance policies and received an interim payment of $2.5 million in June and has received confirmation of an additional $3 million interim payment in November, 2016. With increased capacity and the successful completion of last year's caustic modernization and anode replacement projects, Canexus is well positioned to profit from a recovery in the HCl market.

South America

Canexus' Brazil operations generated Cash Operating Profit of $7.5 million in the quarter, in-line with results in the previous quarter and the third quarter 2015. For the nine months ended September 30, 2016 Cash Operating Profit for this segment was up 2% from a year earlier. Brazil's operations continue to be stable with our major customer running at high production rates, resulting in strong demand for our products which are sold under a long-term, cost plus, fixed USD margin contract. This business has experienced a positive uplift from the ongoing weakness of the CAD and the Brazilian Real compared to the USD.

Outlook

In the fourth quarter of 2016, Canexus will continue to focus on improving operational efficiency and lowering costs through BIP. Canexus expects to see steady Q4 results in North America Sodium Chlorate and Brazil, and increasing demand for HCl. While fourth quarter results will be impacted by the bi-annual maintenance of the North Vancouver facility, Canexus is confident that fourth quarter COP will be sufficient for Canexus to achieve the high end of 2016 COP guidance of $100 million to $110 million (excluding non-recurring expenses).

Through BIP, Canexus lowered corporate G&A expense to $17 million (excluding non-recurring expenses) for the first nine months of the year, an 18% decrease from the same period in 2015. Canexus is confident that its 2016 BIP initiatives will contribute $3 million - $5 million to COP with annualized improvements of $6 million to $8 million.

Year to date maintenance capital expenditure was $14 million. Canexus continues to expect maintenance capital to average $25 million per year over three years (2015 - YE2017), reflecting sufficient investment to ensure the safe, reliable and efficient performance of Canexus' plants.

In Q3 2016, Canexus' reduced debt by $7 million. With continued COP improvements and carefully managed maintenance capital expenditures, Canexus is on track to reduce debt by $100 million by year end 2018 from $605 million as at June 30, 2016 and reduce total senior secured debt to earnings ratio to less than 2.5x times over the same time period.

Balance sheet strength

During the quarter, Canexus successfully amended and extended its Extendible Revolving Credit Facility, reducing the total committed facility from $400 million to $350 million and extending the maturity date to August 31, 2018. The Extendible Revolving Credit Facility is available for draw down during the revolving period, subject to meeting ongoing covenants (financial and non-financial) and conditions and the Corporation may draw down the facility in either Canadian or US dollars.

On September 20, 2016, the Corporation completed a private placement of $110 million senior unsecured notes ("Senior Notes"). The Senior Notes were issued at par value, bear interest at a rate of 7.875% per annum and mature on September 20, 2023. Proceeds from the Senior Notes were used to permanently discharge the Company's $75 million obligation under the Non-Revolving Term Facility, with the balance used to reduce the Extendible Revolving Credit Facility by approximately $33 million.

Following completion of the Note Offering and the repayment of the non-revolving facility, Canexus' liquidity has been enhanced to approximately $100 million, providing ample liquidity to run the business and meet any near-term convertible debenture repayments if needed. Canexus' liquidity will continue to increase as Canexus grows COP and pays down debt.

Canexus Board rejects Chemtrade offer

On October 19, Canexus' Board recommended that shareholders reject Chemtrade's offer to acquire all of the Common Shares of Canexus for $1.50 per share. The Canexus Board unanimously concluded that the Chemtrade Offer significantly undervalues the Corporation and is not in the best interests of Canexus or its shareholders. The basis of the Board's recommendation can be found on Canexus website at www.canexus.ca.

Over the last month, Canexus has met with shareholders representing significant holdings who have indicated that they will not tender their shares to the Chemtrade offer. These shareholders have expressed that a $1.50 per Canexus share does not represent full and fair value for Canexus.

As demonstrated by Canexus' prior agreement to be acquired by Superior Plus Corp., Canexus is not opposed to a sale of the company if a sale reflects full and fair value of the Corporation's assets and growth potential.

Financial Results

Highlights

Notes:

1. Cash Operating Profit is a non-GAAP measure. See "Non-GAAP Measure".
2. Excludes the results of discontinued operations.

Segmented Information for the Three Months Ended September 30, 2016 and 2015

Canexus has a total of six electrochemical manufacturing plants -- four in Canada and two at one site in Brazil -- organized into three business units. Below is our third quarter performance by segment.

Notes:

1. The North America Sodium Chlorate operating segment provides transloading services at market rates to the NACA operating segment for caustic soda transloaded from barges into trucks for delivery to NACA customers that are eliminated for financial reporting purposes.
2. NATO charged transloading fees (approximating market rates charged by third party terminals) to the NACA operating segment for hydrochloric acid and caustic soda transloaded from railcars into trucks for delivery to NACA customers that are eliminated for financial reporting purposes.

Operating Results for the Three and Nine Months Ended September 30, 2016 and 2015

Notes:

1. Depreciation and Amortization included for the three and nine months ended September 30, 2016 - $11.2 million and $34 million, respectively (three and nine months ended September 30, 2015 - $11.5 million and $34.2 million, respectively)
2. Depreciation and Amortization included for the three and nine months ended September 30, 2016 - $0.3 million and $0.7 million, respectively (three and nine months ended September 30, 2015 - $0.2 million and $0.6 million, respectively)

Conference Call

Canexus will hold a conference call on November 10, 2016 at 7:30 am MT (9:30 am ET) to discuss Canexus' third quarter 2016 financial results. A news release will be issued the evening before the call. Financial Statements and Management's Discussion and Analysis will be posted on the Canexus website at www.canexus.ca and filed on SEDAR.

The call will be hosted by Doug Wonnacott, President and Chief Executive Officer; Dean Beacon, Senior Vice President, Finance and Chief Financial Officer; Brian Bourgeois, Senior Vice President Sales and Marketing; and Ross Wonnick, Vice President, General Counsel and Corporate Secretary. Following the call there will be a question and answer session for analysts and institutional investors.

To access the call, please dial 1-416-340-2220 or 1-866-225-6564 outside Canada and USA. A replay of the conference call will be available until end of day ET on November 17, 2016. To access the replay call 1-905-694-9451 or 1-800-408-3053 outside Canada and USA, followed by passcode 1265754#.

About Canexus

Canexus produces sodium chlorate and chlor-alkali products largely for the pulp and paper and water treatment industries. Our four plants in Canada and two at one site in Brazil are reliable, low-cost, strategically located facilities that capitalize on competitive electricity costs and transportation infrastructure to minimize production and delivery costs. Canexus targets opportunities to maximize shareholder returns and delivers high-quality products to its customers and is committed to Responsible Care^® through safe operating practices. Canexus' common shares (CUS) and debentures Series IV - CUS.DB.B; Series V - CUS.DB.C; Series VI - CUS.DB.D) trade on the Toronto Stock Exchange. More information about Canexus is available at www.canexus.ca.

Non-GAAP Measure

Cash Operating Profit (Loss) is a financial measure not determined in accordance with generally accepted accounting principles for publicly accountable enterprises in Canada ("GAAP"), but which management believes is useful in measuring the Corporation's performance. Readers are cautioned that this measure should not be construed as alternative to net income or loss or other comparable measures determined in accordance with GAAP as an indicator of the Corporation's performance or as a measure of the Corporation's liquidity and cash flow. The Corporation's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Corporation's non-GAAP measures are unlikely to be comparable to similarly titled measures used by other issuers. Readers should consult the Corporation's MD&A for the three and nine months ended September 30, 2016 filed on SEDAR for a complete explanation of how the Corporation calculates each such non-GAAP measure.

Forward-Looking Statements

This news release contains forward-looking statements and information relating to expected future events and financial and operating results of the Corporation and its subsidiaries, including with respect to: expectations for improved operating performance and financial flexibility generally, expectations respecting the Corporation's prospects for growth, profitability, debt reduction and shareholder value creation, statements respecting the execution of the Corporation's strategic plan, the consequences of the Chemtrade offer, the reliability of the Corporation's earnings expectations for chlor-alkali recovery, the strength and stability of the business fundamentals and the performance of the Corporation's North American sodium chlorate and Brazil business units, the ability to improve efficiency and maximize margins, expectations for the size and timing of cash operating improvements, the Corporation's ability to reduce its bank indebtedness and the timing and quantum thereof, expectations regarding the Corporation's amended and extended credit facility and its impact on Canexus' liquidity, expectations for the Corporation's rebuilt compressor at North Vancouver and its impact on plant production capabilities, the Corporation's ability to lower its senior debt to earnings ratio, the Corporation's expectations for free cash flow, the quantum of maintenance capital expenditures, and the Corporation's ability to manage such expenditures over the next three years, energy market conditions and expectations regarding the sufficiency of net cash from operating activities to meet ordinary course obligations and commitments. The use of the words "expects", "anticipates", "continue", "estimates", "projects", "should", "believe", "plans", "intends", "may", "will" or similar expressions are intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including market and general economic conditions, future costs, treatment under governmental regulatory, tax and environmental regimes and the other risks and uncertainties detailed under "Risk Factors" in the Corporation's Annual Information Form filed on the Corporation's SEDAR profile at www.sedar.com. Management believes the expectations reflected in these forward-looking statements are currently reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Due to the potential impact of these factors, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Any financial outlook information contained in this news release about prospective results of operations, financial position or cash flows is based on assumptions about future events including economic conditions and proposed courses of action, based on Management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for those for which it is disclosed herein.