Canexus Income Fund
TSX : CUS.UN

Canexus Income Fund

October 12, 2005 23:59 ET

Canexus Income Fund Announces Third Quarter Results

CALGARY--(CCNMatthews - Oct. 12) - Canexus Income Fund (TSX: CUS.UN) (the "Fund") today announced its results for the third quarter ended September 30, 2005.

Highlights for the quarter:

- Successful IPO and TSX listing for Canexus Income Fund completed on August 18

- Fund acquired a 38.6 per cent interest in Canexus Limited Partnership (Canexus LP) which purchased the Chemicals Business of Nexen Inc.

- Foreign exchange options acquired protect cash flows of US$11 million per month if the Canadian dollar exceeds US$0.813

- Revenue of $99.5 million for the three-month period was up 1.6 per cent from last year despite a strengthening Canadian dollar

- EBITDA increased 44 per cent from third quarter of 2004 to $35 million, including unrealized currency translation gains of $8.7 million and a $4.2 million increase in the fair value of foreign exchange options

- The Fund's initial distribution to unitholders paid $0.1065 per unit for the period August 18 to September 30, 2005, totalling $3.4 million from distributable cash of $3.9 million, for a payout ratio of 86 per cent

The Fund commenced operation upon completion of its initial public offering on August 18, 2005. The Fund provided financial information for its 44-day period as a public entity and for the combined three-month period ended September 30, 2005 for Canexus LP. Information for the three-month period ended September 30, 2005 combines information from Canexus LP and its predecessor, the Chemicals Business of Nexen Inc., not all of the operations of which were acquired from Nexen Inc. Unless otherwise noted, the Fund is reporting the 100 per cent results of Canexus LP, of which the Fund indirectly owns 38.6 per cent.

For the 44-day period as a public entity, revenue was $45.1 million and EBITDA was $25.4 million, including unrealized currency translation gains of $7.3 million and a $4.2 million increase in the fair value of foreign exchange options. A distribution of $0.1065 per unit, totalling $3.4 million, was declared on September 21 payable to unitholders of record on September 30, 2005. Distributable cash during this period was $3.9 million, for a payout ratio of 86 per cent.

"All our key measures are on track to meet our projected targets for the year," said Gary Kubera, President and CEO of Canexus. "The recent quarter and year-to-date performance is fully consistent with our expectations. The closure of Nexen's Amherstburg plant in July and the planned maintenance turnaround in September at Canexus' North Vancouver plant which were reflected in the third quarter results, were anticipated and are limited to this quarter."

"We continue to have strong markets for our products and have advised our North American customers of price increases on all products for the fourth quarter. While the industry is facing pressure from rising natural gas costs, Canexus will continue to benefit from its low-cost hydroelectric advantage," added Mr. Kubera.

Sales revenue of $99.5 million in the combined third quarter was up $1.6 million from the same period in 2004, despite a strengthening Canadian dollar.

Cost of goods sold for the three months ended September 30, 2005, was $71.8 million and essentially flat compared to the previous year. General and administrative expenses for the combined third quarter were $6.8 million, an increase of $1.2 million from the $5.6 million in the third quarter of 2004. The increase is attributable to increased spending on business development and staff level increases that are in line with projections.

Interest expense in the period from August 18 to September 30, 2005 was $1.1 million.

EDITDA was $35.0 million for the three months ended September 30, 2005, up from $24.4 million for the previous year. EBITDA for the three-month period includes $8.7 million of unrealized currency translation gains arising substantially from the translation of U.S. dollar long-term debt and $4.2 million from the change in fair value of our U.S. dollar foreign exchange options. Canexus has not designated either its U.S. dollar long-term debt or the foreign exchange options contract as hedges for accounting purposes and as a result gains and losses are included in earnings. The Fund will continue to benefit from the U.S. dollar foreign exchange options purchased to protect its U.S. dollar net cash stream with the Canadian dollar above US$0.813 until August 2006, while fully benefiting if the Canadian dollar falls below US$0.813.

The results for the three-month period ended September 30, 2005 were affected by operations at Nexen's Amherstburg facility prior to its closure at the end of July that adversely impacted the combined financial information for the quarter even though this plant was not acquired by Canexus LP. The operating losses of the Amherstburg facility affected earnings for the three and nine month periods ending September 30, 2005, by $811,000 and $2.1 million respectively. In addition, the scheduled maintenance turnaround of the North Vancouver chlor-alkai plant in September reduced earnings by $1.1 million for maintenance costs and a further $1.3 million for cash margins on lost production during the shut down. Maintenance capital expenditures of $4.9 million were also higher in the third quarter due to the North Vancouver plant turnaround, but are on track to meet the annual target of $14 million. These items had the effect of reducing the calculation of cash available for distribution in the combined financial information for the quarter ended September 30, 2005.

Canexus LP has a strong balance sheet. The acquisition of the Chemicals Business from Nexen Inc. was structured to provide Canexus LP with working capital on August 18, 2005, of $75 million plus a $14 million restricted fund to be used for future site remediation and asset retirement obligations. At September 30, 2005, lower working capital requirements allowed for temporary reduction of long-term debt.

Operations highlights

Canexus has a total of six manufacturing plants - five in Canada and one in Brazil - organized into three business units. Third quarter highlights from each unit are as follows:

- North America sodium chlorate: Increased sales volumes during the quarter were offset by a decline in realized prices due to the strengthening Canadian dollar and the foreign exchange options contract not being in place until late August. Production at the Brandon, Manitoba, plant increased by 37 per cent from last year as a result of new capacity brought online at the end of 2004, largely taking the place of production from the now-closed Amherstburg plant.

- North America chlor-alkali: Combined sales revenues for chlorine, caustic soda and hydrochloric acid for the quarter increased from last year despite the nine-day closure of the North Vancouver plant for scheduled maintenance in mid-September. This was the first planned shutdown for the plant in two years and future maintenance shutdown is not scheduled again until 2007. Prices continued to improve as a result of tight supply and demand balance in North America. Canexus chlor-alkali capacity remains sold out for the remainder of 2005.

- South America: Sales in Brazil increased year over year, with increased chlor-alkali volumes and slightly lower shipments of sodium chlorate during the quarter compared to 2004 as a result of routine scheduled maintenance at our major customer, Aracruz. Revenues were also affected by the strengthening Canadian dollar as noted above.



Combined Operating Results for the Three Months ended September 30, 2005
and September 30, 2004

Combined Nexen Inc. -
operating Chemicals
Nexen Inc. - results Business
Chemicals Canexus LP Three months Three months
Business August 18 - ended ended
July 1-August September September September
17, 2005 30, 2005 30, 2005 30, 2004
-------------------------------------------------------
(in thousands of dollars)
(unaudited)
Revenues
Sales $54,378 $45,146 $99,524 $97,956
Interest on Loans
to Affiliates - - - 2,660
-------------------------------------------------------
54,378 45,146 99,524 100,616
-------------------------------------------------------
Expenses
Cost of Goods
Sold 41,072 30,707 71,779 71,470
Depreciation and
Amortization 4,912 4,353 9,265 9,233
General and
Administrative 3,707 3,114 6,821 5,589
Interest - 1,075 1,075 -
-------------------------------------------------------
49,691 39,249 88,940 86,292
-------------------------------------------------------

Income before Other
Income (Expenses)
and Income Taxes 4,687 5,897 10,584 14,324

Other Income
(Expenses) 61 14,094 14,155 857
-------------------------------------------------------

Income before
Income Taxes 4,748 19,991 24,739 15,181
-------------------------------------------------------

Provision for
Income Taxes
Current 467 126 593 205
Future (159) 503 344 280
-------------------------------------------------------
308 629 937 485
-------------------------------------------------------

Net Income $4,440 $19,362 $23,802 $14,696
-------------------------------------------------------
-------------------------------------------------------


Income before Other Income (Expenses) and Income Taxes for the three- month period ended September 30, 2005, as compared to the same period in 2004, was adversely impacted by the strengthening of the Canadian dollar from US$0.75 for the 2004 three-month period to US$0.82 for the comparable 2005 period, and higher operating losses at Nexen's Amherstburg facility in 2005 of $1.8 million over the same period in 2004. Also, the September 30, 2004, three-month results include interest income on loans to Nexen affiliates of $2.7 million, which loans were terminated prior to the acquisition of the Chemicals Business from Nexen.



Fund's Interim Statement of Distributable Cash
-------------------------------------------------------------------------
(Expressed in thousands of Canadian Dollars, except per unit amounts)
(Unaudited)
For the Period
August 18 - September 30,
2005
-------------------------------------------------------------------------

Canexus Limited Partnership
Net Income $19,362
Provision for Income Taxes 629
Depreciation and Amortization 4,353
Interest Expense 1,075
--------
EBITDA 25,419
Unrealized (Gains) Losses on Currency Translation (7,345)
Change in Fair Value of Foreign Exchange Options (4,174)
Interest Expense (1,075)
Maintenance Capital Expenditures (2,029)
Expenses Funded from Restricted Investments -
--------
Distributable Cash from Canexus LP 10,796
--------
Canexus Income Fund
Weighted average share of distributable cash from Canexus LP 4,018
Trust Administration (85)
--------
Distributable Cash from Canexus Income Fund $3,933
--------
--------

Distributable Cash Per Unit $0.1285

Payout Ratio 0.86


Financial Statements, Conference Call and Webcast

Financial Statements and Management's Discussion and Analysis will be posted on the Canexus web site at www.canexus.ca as soon as available. Management will host a conference call at 10 a.m. ET on October 12, 2005, to discuss the results. Please call 416-640-4127 or 1-800-814-3911 to access the call. The call will be webcast live and archived on the Canexus web site. A replay will be available by telephone until midnight on October 19, 2005.

Non-GAAP measures

EBITDA and distributable cash are non-GAAP financial measures, but management believes they are useful in measuring the Fund's performance. Readers are cautioned that these measures should not be construed as alternatives to net income or loss or other comparable measures determined in accordance with GAAP as an indicator of the Fund's performance or as a measure of the Fund's liquidity and cash flow. The Fund's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Fund's non-GAAP measures may not be comparable to similarly titled measures used by other issuers.

About Canexus

Canexus produces sodium chlorate and chlor-alkali products in several plants throughout Canada and Brazil, largely for the pulp and paper and water treatment industries. Canexus operates reliable, strategically-located, low-cost production facilities that capitalize on competitive electricity costs and transportation infrastructure to minimize production and delivery costs. Canexus will target opportunities to maximize unitholder returns and continue the delivery of high quality products to its customers. Canexus is listed on the Toronto Stock Exchange under the symbol CUS.UN. More information about Canexus is available at www.canexus.ca.

Forward Looking Statements

This news release may contain forward-looking statements relating to expected future events and financial and operating results of the Fund and its subsidiaries that involve risks and uncertainties. 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. These 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 Fund's prospectus dated August 10, 2005 filed with the Canadian securities regulatory authorities. The Fund believes the expectations reflected in those 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 Fund 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.

Contact Information

  • Gary Kubera
    President and CEO
    Canexus Limited
    (403) 699-6700
    or
    Richard McLellan
    CFO
    Canexus Limited
    (403) 699-6700
    Website: www.canexus.ca