Acadian Timber Corp. Reports Second Quarter Results

All figures in Canadian dollars unless otherwise noted

VANCOUVER, British Columbia, Aug. 01, 2018 (GLOBE NEWSWIRE) — Acadian Timber Corp. (“Acadian” or the “Company”) (TSX:ADN) today reported financial and operating results¹ for the three months ended June 30, 2018 (the “second quarter”).

“Acadian’s second quarter benefited from favourable operating conditions and strong seasonal demand”, said Mark Bishop, Chief Executive Officer of Acadian.  “As the outlook for softwood sawtimber demand and pricing continues to be supported by steady growth in U.S. housing starts and residential home improvement, Acadian is well positioned to continue its favourable momentum for the remainder of the year.”

Acadian continued to perform well during the three-month period ended June 30, 2018, posting Adjusted EBITDA¹ of $2.6 million, in-line with the prior year period. Acadian benefited from a 4% increase in log sales volumes during the period, resulting from favourable operating conditions and strong seasonal demand, the benefits of which were offset by a decline in higher and better use (“HBU”) land sales in Maine. Log selling prices for most of our products benefited from improved demand while our weighted average log selling price per cubic metre remained in-line with the prior year period due to a change in the sales mix. During the quarter we generated $2.0 million of Free Cash Flow¹ consistent with the same period of 2017. 

During the first half of 2018, we have declared dividends of $0.5575 per share to our shareholders or $9.3 million compared to $9.2 million during the same period of 2017, reflecting a 3% increase in our quarterly dividend as approved by our Board of Directors in April 2018. This represents a payout ratio of 101%, which is slightly above our long-term annual target of 95% but in-line with expectations given the seasonality of our operations. We anticipate that over the long-term we will maintain the 95% target payout ratio.

¹   This news release makes reference to Adjusted EBITDA margin and Free Cash Flow which are key performance measures in evaluating Acadian’s operations and are important in enhancing investors’ understanding of Acadian’s operating performance.  Adjusted EBITDA is used to evaluate operational performance while Free Cash Flow is used to evaluate Acadian’s ability to generate sustainable cash flows from our operations. 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).  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.

Review of Operations

Financial and Operating Highlights

1. Certain prior year amounts have been reclassified to conform to the current year presentation as a result of adoption of IFRS 15, Revenue From Contracts with Customers, on January 1, 2018

During the second quarter, Acadian’s net sales rose to $16.1 million from $14.3 million in the comparable period of 2017, driven by favourable operating conditions and strong seasonal demand which resulted in a 4% increase in total log sales volumes. Acadian’s weighted average log selling price remained in-line with the prior year period as the benefit from increases in softwood sawlog and hardwood pulpwood prices of 6% and 3%, respectively, was offset by changes in the sales mix.

The impact of the increase in log sales volumes was offset by lower sales of higher and better use (“HBU”) land in Maine, resulting in Adjusted EBITDA of $2.6 million, consistent with the prior year period. The Adjusted EBITDA margin for the quarter was 16%, down from 18% in the prior year period.  

Acadian typically experiences low levels of operating, marketing and selling activity during the second quarter of each year owing to the spring thaw period that causes much of the infrastructure to be temporarily inoperable. As a result, year to year variations in sales volumes and operating costs are less meaningful.

Net income was $1.9 million, or $0.11 per share, for the second quarter, compared to $4.0 million, or $0.24 per share, for the same period in 2017 due to the impact of foreign exchange revaluation of U.S. dollar denominated long-term debt.

During the first half of 2018 Acadian’s net sales improved to $49.0 million from $42.3 million during the prior year period, primarily attributable to a 12% increase in log sales volumes driven by favourable harvest conditions, particularly for spruce and fir stands. The weighted average log selling price remained in-line with the prior year period as improvements in the selling prices for most products were offset by changes in the sales mix. As a result, Adjusted EBITDA improved to $11.5 million from $10.7 million during the first half of 2017, despite HBU sales decreasing $1.0 million from the prior year period. The Adjusted EBITDA margin of 23% is down from 25% in the prior year period as the  increase in log sales volumes was more than offset by lower HBU land sales in Maine. For the six months ended June 30, 2018, net income was $3.9 million, or $0.23 per share, which represents a decrease of $4.9 million over the same period of 2017 primarily due to the impact of foreign exchange revaluation of U.S. dollar denominated long-term debt.

Segment Performance

New Brunswick Timberlands

The table below summarizes operating and financial results for New Brunswick Timberlands.

1. Certain prior year amounts have been reclassified to conform to the current year presentation as a result of adoption of IFRS 15, Revenue From Contracts with Customers, on January 1, 2018

Net sales for our New Brunswick Timberlands increased to $12.9 million from $11.5 million during the prior year period. Log sales volumes, excluding biomass, increased 3% to 135 thousand m³ from 132 thousand m³ in the second quarter of 2017 reflecting favourable operating conditions and strong seasonal demand for softwood sawlogs and improved demand for softwood pulpwood. In addition, timber services and other sales increased 37% compared to the prior year period primarily due to the timing of harvest activities.

The weighted average log selling price during the quarter was $69.47 per m³, down from $70.13 per m³ in the prior year period. Demand for softwood sawlogs and hardwood pulpwood in New Brunswick remained strong with prices increasing 4%, however, the benefit of this was more than offset by lower volumes of higher-valued hardwood sawlogs and higher volumes of lower-valued softwood pulpwood, relative to the prior year period. Prices for these products were favourable compared to the prior year period. 

Biomass product sales volumes increased by 30% year-over-year as shipments to export markets resumed in early 2018. The return of the export markets also resulted in a meaningful 135% increase in gross margin earned compared to the second quarter of 2017.

Operating costs for the quarter were $10.8 million, compared to $9.5 million in the second quarter of 2017 primarily due to higher harvest volumes and timing of operating activities. Variable log harvest costs per m³ decreased 5% primarily due to a change in the harvest mix.

Adjusted EBITDA was $2.2 million during the second quarter of 2018, compared to $2.0 million in the prior year period, due to the impact of the increase in log sales volumes and higher margins for biomass products. The Adjusted EBITDA margin of 17% for the quarter was slightly lower than the prior year period reflecting timing of operating activities.

During the six-month period ended June 30, 2018, net sales totaled $36.0 million which represents a $3.3 million increase compared to the same period last year.  New Brunswick benefited from a 6% increase in log sales volumes and a 23% increase in biomass sales volumes, which were partially offset by the impact of lower weighted average log selling prices due to changes in the sales mix. Costs were $28.0 million, or $3.5 million higher than the prior year due to the increase in sales volumes and higher transportation costs. As a result, Adjusted EBITDA was $8.0 million, a decrease of $0.2 million compared to the same period last year, while Adjusted EBITDA margin decreased to 22% from 25%.

There were no recordable safety incidents among employees and two minor lost time incidents among contractors during the second quarter of 2018.

Maine Timberlands

The table below summarizes operating and financial results for Maine Timberlands.

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