Conifex Timber Inc.
TSX : CFF

Conifex Timber Inc.

November 04, 2014 16:34 ET

Conifex Announces Third Quarter 2014 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 4, 2014) - Conifex Timber Inc. ("Conifex" or the "Company") (TSX:CFF) today reported net income of $1.1 million or $0.05 per diluted share for the third quarter of 2014 compared to net income of $2.0 million or $0.10 per diluted share for the previous quarter and net loss of $0.1 million or $0.01 per share for the third quarter of 2013. Net income for the first nine months of 2014 was $4.7 million or $0.22 per diluted share compared to net income of $8.5 million or $0.41 per diluted share over the same period last year.

Summarized operating results and statistics for each of the comparison periods are provided below.

(millions of dollars except share and per share amounts, unaudited) Q3
2014
Q2
2014
YTD
2014
Q3
2013
YTD
2013
Sales 90.9 99.6 257.6 65.2 195.9
EBITDA (1) 5.0 5.9 16.4 2.5 16.3
Operating income 1.5 4.4 8.7 0.7 10.6
Net income 1.1 2.0 4.7 (0.1) 8.5
Net income per share - basic and diluted 0.05 0.10 0.22 (0.01) 0.41
Shares outstanding - weighted average (millions) 20.9 20.9 20.9 20.8 20.8
Statistics
Lumber shipments - Conifex produced (MMfbm) 130.4 146.4 372.7 129.3 368.3
Lumber shipments - Wholesale (MMfbm) 41.9 43.3 84.8 17.6 47.1
Lumber production (MMfbm) 125.6 134.9 388.9 123.0 383.0
Average exchange rate - US$/Cdn$ (2) 0.918 0.917 0.914 0.963 0.977
Average WSPF 2x4 #2&Btr lumber price (US$) (3) $ 356 $ 335 $ 353 $ 328 $ 351
Average WSPF 2x4 #2&Btr lumber price (Cdn$) (4) $ 388 $ 365 $ 386 $ 341 $ 359
Reconciliation of EBITDA to Net Income
Net income 1.1 2.0 4.7 (0.1) 8.5
Add: Interest expense 1.1 1.2 3.6 0.3 1.4
Amortization 2.8 2.7 8.1 2.3 6.4
EBITDA 5.0 5.9 16.4 2.5 16.3
(1) The EBITDA calculation represents earnings before interest, taxes, depreciation and amortization, and has been reported without reference to deductions for non-cash charges related to employee compensation and changes in the balance sheet carrying value of convertible debentures, as presented in previous quarters. EBITDA for all quarters presented has also been restated to exclude such items. The Company discloses EBITDA as it is a measure used by analysts and by Conifex's management to evaluate the Company's performance. As EBITDA is a non-GAAP measure, it may not be comparable to EBITDA calculated by others and is not a substitute for net earnings.
(2) Source: Bank of Canada website www.bankofcanada.ca
(3) Source: Random Lengths Publications Inc.
(4) Average WSPF 2x4 #2&Btr lumber price (US$) divided by average exchange rate.

The Company recorded operating income of $1.5 million for the third quarter of 2014 compared to $4.4 million in the previous quarter, and $0.7 million in the third quarter of 2013. The lumber segment recorded operating income of $2.9 million for the third quarter of 2014 compared to $5.4 million in the second quarter of 2014 and $1.8 million in the third quarter of 2013.

Third quarter 2014 EBITDA of $5.0 million was comprised of lumber segment EBITDA of $5.8 million offset by corporate costs and other items of $0.8 million. Lumber segment EBITDA improved by $1.8 million over the third quarter of 2013 and declined by $2.2 million from the second quarter of 2014. An increase in interest expense of $2.2 million and amortization costs of $1.7 million is reflected in the year over year decline of net income of $3.8 million while consolidated EBITDA, which excludes these non-cash or non-operational items, remained consistent at approximately $16 million for both year to date periods.

WSPF #2 & Btr ("WSPF") prices averaged US$356 during the third quarter of 2014, an increase of US $21 per thousand board feet or 6% from the previous quarter. Conifex believes that the quarter over quarter improvement in prices was generally attributable to favorable weather conditions in North America that supported seasonally stronger housing construction activity and a return to more normalized supply side shipments and inventory levels as shipments of heightened volumes during the previous quarter due to earlier transportation disruptions largely abated. Benchmark prices improved by US $28 per thousand board feet or 9% over the third quarter of 2013.

Shipments of Conifex produced lumber, which returned to more typical levels and were similar to volumes recorded in the third quarter of 2013, represented a decline of 11% compared to record shipment volumes in the previous quarter during which a backlog created by industry wide transportation disruptions was largely caught up. Shipment patterns to the Company's key geographical market remained consistent during the second and third quarters of 2014 while the third quarter of 2013 displayed a higher than usual volume of shipments to China as a result of relatively weak demand and pricing in the U.S. market. The export tax rate on shipments to the U.S. was zero percent during the first nine months of 2014 and averaged 5% during the third quarter of 2013.

On February 3, 2014, the Company completed the acquisition of Lignum Forest Products LLP ("Lignum"), a private partnership which operates a lumber marketing and distribution business. Lignum serves customers and distributes products that the Company believes are complementary to those of Conifex. Compared to the third quarter of 2013, the addition of Lignum contributed towards an approximate quarter over quarter tripling of wholesale lumber revenues and more than doubling of wholesale lumber shipments.

Compared to the previous quarter, gross revenues from shipments of Conifex produced lumber declined by 9% largely as a result of 11% lower shipment volumes offset by a 2% increase in unit gross sales realizations. Average unit mill net realizations increased by 2% compared to a 6% increase in Canadian equivalent benchmark prices. Unit mill net realizations were negatively impacted by softer demand from export markets and shipment of a lower priced order file early in the quarter due to a typical one month shipment lag. Compared to the third quarter of 2013, gross revenues from shipments of Conifex produced lumber increased by 18% and reflected a modest 1% growth in shipment volumes and a 17% increase in unit gross sales realization. An increase in unit mill net realizations of 16%, which compares favourably to the 14% improvement in Canadian equivalent benchmark prices, was largely attributable to stronger prices and a lower export tax on shipments to the U.S. On a year-to-date basis, gross revenues from shipments of Conifex produced lumber increased by 11% over the same period last year with the improvement primarily attributable to higher average lumber prices.

Lumber production volumes of approximately 126 million board feet reflected a decline of 7% from the previous quarter and an increase of 2% over the third quarter of 2013.

The decline in lumber segment operating income of $2.5 million over the previous quarter was primarily attributable to a 2% improvement in average unit mill net realizations that was more than offset by an 11% decrease in shipments of Conifex produced lumber, 15% lower revenue from residuals, 9% increase in unit log costs, and 3% increase in unit cash conversion costs. Compared to the third quarter of 2013, lumber segment operating income improved by $1.1 million as the benefits of a weaker Canadian dollar, stronger benchmark prices and lower export tax rate which contributed to a 16% increase in average unit mill net realizations, and 36% growth in revenue from residuals, more than offset a 13% increase in unit log costs and 9% increase in unit cash conversion costs.

Due to the near term softening in lumber markets in China and Japan, management expects the price discounts on sales to China to remain relatively wide and the price premium on sales to Japan to remain relatively narrow. Management expects Canadian equivalent benchmark lumber prices to remain comparably flat through the end of 2014 and, given these conditions, average unit mill net realizations to be similar to or slightly below those in the third quarter of 2014. In the fourth quarter of 2014, management expects moderate gains in lumber segment productivity, production and shipments and little change in quarter over quarter overall manufacturing costs.

At September 30, 2014, the Company had cash on hand of $15.0 million compared to $18.6 million at December 31, 2013. The Company ended the third quarter of 2014 with consolidated net debt of $101.9 million (December 31, 2013 - $44.0 million) and net debt to capitalization ratio of 45% (December 31, 2013 - 27%). A significant portion of the year to date increase in consolidated net debt was attributable to borrowings under the project financing facility related to the Mackenzie power generation project, which is largely structured on a non-recourse basis to the lumber segment assets and to the parent company, Conifex Timber Inc. At September 30, 2014, excluding borrowings under the project finance facility, net debt was $29.4 million (December 31, 2013 - $21.2 million) and the net debt to capitalization ratio was 19% (December 31, 2013 - 15%).

Outlook and Strategy

Through the balance of the year, the Company intends to remain focused on implementing plans related to its power generation project and working towards expediting commencement of commercial operations. The Company also expects to establish a long-term plan for its idled and operating Mackenzie mills following the release of information regarding future sawlog harvest levels in the Mackenzie Timber Supply Area by the Ministry of Forests, Lands and Natural Resources Operations.

Conference Call

Conifex will hold a conference call on Wednesday, November 5, 2014 at 7:30 AM Pacific time / 10:30 AM Eastern time to discuss the third quarter financial and operating results. To participate in the call, please dial 416-340-2216 or toll free 866-225-0198. The call will also be available on instant replay access until November 19, 2014 by dialling 905-694-9451 or 800-408-3053 and entering pass code 4728524#.

About Conifex Timber Inc.

Conifex and its subsidiaries' primary business currently includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and value added lumber finishing and distribution. Conifex's lumber products are sold in the United States, Chinese, Canadian and Japanese markets. Upon completion of its power generation facility at Mackenzie, British Columbia, Conifex's business sectors will be expanded to include bioenergy.

Forward-Looking Statements

Certain statements in this news release may constitute "forward-looking statements". Forward-looking statements are statements that address or discuss activities, events or developments that the Company expects or anticipates may occur in the future. When used in this news release, words such as "estimates", "expects", "plans", "anticipates", "projects", "will", "believes", "intends" "should", "could", "may" and other similar terminology are intended to identify such forward-looking statements. Forward-looking statements reflect the current expectations and beliefs of the Company's management. Because forward-looking statements involve known and unknown risks, uncertainties and other factors, actual results, performance or achievements of the Company or industry may be materially different from those implied by such forward-looking statements. Examples of such forward-looking information that may be contained in this news release include statements regarding: growth and future prospects of our business, including production volumes and profit margins; our perceptions of the industry and markets in which we operate and anticipated trends in such markets and in the countries in which we do business; benefits that may accrue to the Company as a result of certain capital expenditure programs; U.S. benchmark lumber prices; year over year unit mill nets; unit cash conversion costs; the Company's net debt to capitalization ratio; that the Company will establish a long-term plan for the operating and idled Mackenzie mills; and the anticipated benefits, cost, timing and completion dates for projects, including the power generation project at the Company's Mackenzie facility. Assumptions underlying the Company's expectations regarding forward-looking information contained in this news release include, among others: that the Company will be able to effectively market its products; that the U.S. housing market will continue to improve; that there will be no further delays and disruptions affecting the completion of the power generation project at the Company's Mackenzie facility and that the Company will be able to commence delivery of power therefrom; that softwood lumber will experience improved and sustained demand in the marketplace at favourable prices; that the Company will be able to dynamically respond to shifts in demand among its major markets; the general stability of the economic, political and regulatory environments within the countries where the Company conducts operations; the ability of the Company to obtain financing (if necessary) on acceptable terms or at all; that interest and foreign exchange rates will not vary materially from current levels; that management will effectively execute the Company's strategy to grow and add value to its business; that information regarding future sawlog harvest levels will be released in the fourth quarter and the Company will establish long-term plan for the idled and operating Mackenzie mills that will incorporate the expected harvest levels for the Mackenzie Timber Supply Area; and that our mills and equipment will operate at expected levels. Forward-looking statements involve significant uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, without limitation: those relating to potential disruptions to production and delivery, including as a result of equipment failures, labour issues, the complex integration of processes and equipment and other factors; labour relations; failure to meet regulatory requirements; changes in the market; potential downturns in economic conditions; fluctuations in the price and supply of required materials, including log costs; fluctuations in the market price for products sold; foreign exchange fluctuations; trade restrictions or import duties imposed by foreign governments; availability of financing (as necessary); shipping or logging disruptions; and other risk factors described in the Company's 2013 annual information form, available on SEDAR at www.sedar.com. These risks, as well as others, could cause actual results and events to vary significantly. Accordingly, readers should exercise caution in relying upon forward -looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by law.

Contact Information

  • Yuri Lewis
    Chief Financial Officer
    (778) 331-8687