Acadian Timber Corp. (“Acadian” or the “Company”) (TSX:ADN) today
reported financial and operating results1 for the three months
ended March 28, 2020 (the “first quarter”).
"Acadian’s operations benefited from favourable
winter operating conditions and good demand and pricing for most of
our products during the quarter" commented Erika Reilly, Interim
Chief Executive Officer. "While no company is immune to issues in
today's market environment, Acadian is relatively well positioned
with a strong balance sheet, well diversified customer base and
experienced team."
In response to COVID-19, Acadian’s top priority
has been the well-being of its people. Health and safety protocols
have been updated on a regular basis based on guidance from
regional health authorities. Employees have adapted well to
performing office work from home and there has been limited
disruption to field work as this work is conducted outdoors and in
a manner that, for the most part, naturally allows for ‘social
distancing’.
The initial market disruption caused by COVID-19
took place as Acadian entered its seasonally slow period. Harvest
operations for the winter season wrapped up at the end of March and
since then Acadian has been assessing market conditions while
planning and preparing for operations startup, which typically
occurs in late May through early June.
Acadian is staying close to its customers to
gauge product demand and will respond accordingly. The forest
products industry in the regions in which Acadian operates has been
deemed essential and commercial trucks continue to be permitted to
cross borders. The Company’s largest customers that produce pulp
for specialty paper or tissue products are showing resilience and
continue to operate, while a few small sawmill customers have taken
temporary COVID-19 related downtime. Acadian expects to have a
clear understanding as to the demand for its products as operations
resume and it will be prepared to make the necessary adjustments to
respond to market conditions.
__________________________________
1 This news release makes reference to
Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow and Payout
Ratio which are key performance measures in evaluating Acadian’s
operations and are important in enhancing investors’ understanding
of Acadian’s operating performance. Adjusted EBITDA and Adjusted
EBITDA margin are used to evaluate operational performance. Free
Cash Flow is used to evaluate Acadian’s ability to generate
sustainable cash flows from its operations while the Payout Ratio
is used to evaluate Acadian’s ability to fund its distribution
using Free Cash Flow. 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 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). Payout Ratio is defined as dividends
declared divided by Free Cash Flow. 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 and Free
Cash Flow.
During the quarter, Acadian declared dividends
to its shareholders of $0.29 per share, representing a Payout
Ratio1 of 74% which is in line with expectations given the
seasonality of our operations. Acadian’s liquidity position as of
March 28, 2020 was $22.4 million, including funds available under
Acadian’s revolving facility. Subsequent to the end of the period,
the Company put in place an additional $2.0 million revolving
facility in order to increase cash management flexibility.
Review of Operations
Operating and Financial
Highlights
|
Three Months Ended |
(CAD thousands, except per share information) |
March 28, 2020 |
March 30, 2019 |
Sales volume (000s m3) |
|
374.9 |
|
|
384.2 |
|
Sales |
$ |
31,408 |
|
$ |
30,938 |
|
Operating earnings |
|
8,263 |
|
|
8,746 |
|
Net income (loss) |
|
(3,711 |
) |
|
6,182 |
|
Adjusted EBITDA |
|
8,329 |
|
|
8,857 |
|
Adjusted EBITDA margin |
|
27% |
|
|
29% |
|
Free Cash Flow |
|
6,565 |
|
|
6,490 |
|
Dividends declared |
|
4,839 |
|
|
4,840 |
|
Payout Ratio |
|
74% |
|
|
75% |
|
Per share – basic and diluted |
|
|
Net income (loss) |
$ |
(0.22 |
) |
$ |
0.37 |
|
Free Cash Flow |
|
0.39 |
|
|
0.39 |
|
Dividends declared |
|
0.29 |
|
|
0.29 |
|
During the first quarter, Acadian generated
sales of $31.4 million compared with sales of $30.9 million during
the prior year period. The year-over-year change reflects a 2%
decrease in the sales volume of logs, excluding biomass, more than
offset by a 1% increase in the weighted average selling price,
excluding biomass, and increased timber services activity.
Operating costs and expenses were $23.1 million
during the first quarter, compared to $22.2 million during the
prior year period. Lower operating costs associated with lower
harvest volumes were offset by increased variable operating costs
per m3 in Maine, due in part to longer haul distances, and by
expenses related to increased timber services activity.
Adjusted EBITDA and Adjusted EBITDA margin for
the first quarter were $8.3 million and 27%, respectively, compared
to $8.9 million and 29%, respectively, during the prior year period
with the decrease primarily due to lower margins from the
operations in Maine.
The net loss for the first quarter totaled $3.7
million, or $0.22 per share, compared to net income of $6.2
million, or $0.37 per share in the same period of 2019. Operating
earnings decreased $0.5 million compared to the prior year period
for the reasons discussed above and the Canadian dollar weakened
compared to the U.S. dollar during the quarter resulting in a
non-cash unrealized foreign exchange loss on long term debt of $8.2
million compared to a gain of $2.0 million in the prior year
period.
Segment Performance
New Brunswick Timberlands
The table below summarizes operating and
financial results for New Brunswick Timberlands.
|
Three Months Ended March 28, 2020 |
Three Months Ended March 30, 2019 |
|
Harvest |
Sales |
Sales |
Results |
Harvest |
Sales |
Sales |
Results |
|
(000s m3) |
(000s m3) |
Mix |
($000s) |
(000s m3) |
(000s m3) |
Mix |
($000s) |
Softwood |
116.5 |
113.4 |
45% |
$ |
6,632 |
140.7 |
138.9 |
52% |
$ |
8,332 |
Hardwood |
103.8 |
96.0 |
38% |
|
7,765 |
103.7 |
85.3 |
32% |
|
6,590 |
Biomass |
44.8 |
44.8 |
17% |
|
1,493 |
43.4 |
43.4 |
16% |
|
1,499 |
|
265.1 |
254.2 |
100% |
|
15,890 |
287.8 |
267.6 |
100% |
|
16,421 |
Timber
services and other sales |
|
|
5,807 |
|
|
|
|
5,028 |
Sales |
|
|
|
$ |
21,697 |
|
|
|
$ |
21,449 |
Adjusted EBITDA |
|
|
|
$ |
5,878 |
|
|
|
$ |
5,762 |
Adjusted
EBITDA margin |
|
|
|
27% |
|
|
|
|
27% |
Sales for New Brunswick Timberlands during the
first quarter totaled $21.7 million compared to $21.4 million
during the prior year period. The weighted average selling price,
excluding biomass, during the first quarter was $68.75 per m3, or
3% higher than the prior year period price of $66.56 per m3
reflecting a sales mix more heavily weighted to hardwood which
attracts higher average prices than softwood. Softwood sales
volumes were down due to a greater focus on timber services
activity. Revenues from timber services and other sales increased
15% during the quarter.
Adjusted EBITDA was $5.9 million during the
first quarter of 2020, almost unchanged from $5.8 million in the
prior year period and the Adjusted EBITDA margin for the quarter of
27% was consistent with the prior year period.
During the first quarter of 2020, our New
Brunswick operations experienced one recordable safety incident
among employees and three recordable incidents among
contractors.
Maine Timberlands
The table below summarizes operating and
financial results for Maine Timberlands.
|
Three Months Ended March 28, 2020 |
Three Months Ended March 30, 2019 |
|
Harvest |
Sales |
Sales |
Results |
Harvest |
Sales |
Sales |
Results |
|
(000s m3) |
(000s m3) |
Mix |
($000s) |
(000s m3) |
(000s m3) |
Mix |
($000s) |
Softwood |
92.0 |
92.2 |
76% |
$ |
7,255 |
87.2 |
86.3 |
74% |
$ |
7,036 |
Hardwood |
30.4 |
28.4 |
24% |
|
2,335 |
30.0 |
26.9 |
23% |
|
2,281 |
Biomass |
0.1 |
0.1 |
0% |
|
2 |
3.4 |
3.4 |
3% |
|
5 |
|
122.5 |
120.7 |
100% |
|
9,592 |
120.6 |
116.6 |
100% |
|
9,322 |
Other sales |
|
|
|
|
119 |
|
|
|
|
167 |
Sales |
|
|
|
$ |
9,711 |
|
|
|
$ |
9,489 |
Adjusted EBITDA |
|
|
|
$ |
3,050 |
|
|
|
$ |
3,343 |
Adjusted
EBITDA margin |
|
|
|
31% |
|
|
|
|
35% |
Sales for the first quarter totaled $9.7 million
for Maine Timberlands compared to $9.5 million during the same
period last year. The sales volume, excluding biomass, increased 7%
year-over-year reflecting improved contractor capacity and good
operating conditions, however the weighted average selling price,
excluding biomass, fell 3% compared to the prior year period.
Adjusted EBITDA for the quarter was $3.0
million, compared to $3.3 million during the prior year period and
the adjusted EBITDA margin fell to 31% from 35% in the prior year
period, due to lower per m3 operating margins.
During the first quarter of 2020, there were no
recordable safety incidents at our Maine Timberlands among
employees and one recordable safety incident among the
contractors.
Market Outlook
The following contains forward-looking
information about Acadian Timber Corp.’s market outlook for the
remainder of fiscal 2020. Reference should be made to the section
entitled “Cautionary Statement Regarding Forward-Looking
Information and Statements” section of this news release. For a
description of material factors that could cause actual results to
differ materially from the forward-looking statements in the
following, please see the Risk Factors section of our management’s
discussion and analysis of Acadian’s most recent Annual Report and
Annual Information Form available on our website at
www.acadiantimber.com or filed with SEDAR at www.sedar.com.
The market outlook for the remainder of 2020 is
highly uncertain as it is dependent on several non-economic
factors, including COVID-19 related containment measures across
North America.
In the near-term, Acadian is assessing market
conditions and working closely with its customers to gauge demand
for its products while it plans and prepares for second quarter
operations startup which typically occurs in late May through early
June.
Acadian’s largest customers continue to operate
with several experiencing steady demand for their products, such as
specialty paper and tissue products, through this downturn. This
demand supports upstream activities such as chipping and the value
of sawmill residuals. Having said this, the outlook for North
American lumber consumption in 2020, the end use market for
softwood sawtimber, has been negatively impacted by the
pandemic.
Acadian is prepared to adjust operations as
market conditions evolve through the remainder of the year and will
seek to manage risk while preserving the ability to increase
activities as market conditions return to ‘normal’.
Quarterly Dividend
Acadian is pleased to announce a dividend of
$0.29 per share, payable on July 15, 2020 to shareholders of record
on June 30, 2020.
Acadian Timber Corp. is a
leading supplier of primary forest products in Eastern Canada and
the Northeastern U.S. With a total of approximately 2.4 million
acres of land under management, Acadian is one of the largest
timberland operators in New Brunswick and Maine.
Acadian owns and manages approximately 1.1
million acres of freehold timberlands in New Brunswick and Maine
and provides timber services relating to approximately 1.3 million
acres of Crown licensed timberlands in New Brunswick. Acadian's
products include softwood and hardwood sawlogs, pulpwood and
biomass by-products, sold to approximately 85 regional
customers.
Acadian’s business strategy is to maximize cash
flows from its existing timberland assets while growing its
business by acquiring assets on a value basis and utilizing its
operations-oriented approach to drive improved performance.
Acadian’s shares are listed for trading on the
Toronto Stock Exchange under the symbol ADN.
For further information, please visit our
website at www.acadiantimber.com or contact:
Adam SheparskiChief Financial OfficerTel:
506-737-2345 Email: ir@acadiantimber.com
Cautionary Statement Regarding
Forward-Looking Information and Statements
This News Release contains forward-looking
information and statements within the meaning of applicable
Canadian securities laws that involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of Acadian Timber Corp. and its
subsidiaries (collectively, “Acadian”), or industry results, to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. When used in this News Release, such forward-looking
statements may contain such words as “may,” “will,” “intend,”
“should,” “suggest,” “expect,” “believe,” “outlook,” “forecast,”
“predict,” “remain,” “anticipate,” “estimate,” “potential,”
“continue,” “plan,” “could,” “might,” “project,” “targeting” or the
negative of these terms or other similar terminology.
Forward-looking information in this News Release includes, without
limitation, statements made in the section entitled “Market
Outlook” and other statements regarding management’s beliefs,
intentions, results, performance, goals, achievements, future
events, plans and objectives, business strategy, growth strategy
and prospects, access to capital, liquidity and trading volumes,
dividends, taxes, capital expenditures, projected costs, market
trends and similar statements concerning anticipated future events,
results, achievements, circumstances, performance or expectations
that are not historical facts. These statements, which reflect
management’s current expectations regarding future events and
operating performance, are based on information currently available
to management and speak only as of the date of this News Release.
All forward-looking statements in this News Release are qualified
by these cautionary statements. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, should not be unduly
relied upon, and will not necessarily be accurate indications of
whether or not such results will be achieved. Factors that could
cause actual results to differ materially from the results
discussed in the forward-looking statements include, but are not
limited to: general economic and market conditions; changes in U.S.
housing starts; product demand; concentration of customers;
commodity pricing; interest rate and foreign currency fluctuations;
seasonality; weather and natural conditions; regulatory, trade or
environmental policy changes; changes in Canadian or U.S. income
tax law; economic situation of key customers; disease outbreak;
Acadian’s ability to source and secure potential investment
opportunities; the availability of potential acquisitions that suit
Acadian’s growth profile; and other risks and factors discussed
under the heading “Risk Factors” in each of the Annual Information
Form dated March 27, 2020 and the Management Information Circular
dated March 27, 2020, and other filings of Acadian made with
securities regulatory authorities, which are available on SEDAR at
www.sedar.com. Forward-looking information is based on various
material factors or assumptions, which are based on information
currently available to Acadian. Material factors or assumptions
that were applied in drawing a conclusion or making an estimate set
out in the forward-looking information may include, but are not
limited to: forecasts in the housing market; anticipated financial
performance; anticipated market conditions; business prospects; the
economic situation of key customers; strategies; regulatory
developments; exchange rates; the sufficiency of budgeted capital
expenditures in carrying out planned activities; the availability
and cost of labour and services; and the ability to obtain
financing on acceptable terms. Readers are cautioned that the
preceding list of material factors or assumptions is not
exhaustive. Although the forward-looking statements contained in
this News Release are based upon what management believes are
reasonable assumptions, Acadian cannot assure readers that actual
results will be consistent with these forward-looking statements.
The forward-looking statements in this News Release are made as of
the date of this News Release, and should not be relied upon as
representing Acadian’s views as of any date subsequent to the date
of this News Release. Acadian assumes no obligation to update or
revise these forward-looking statements to reflect new information,
events, circumstances or otherwise, except as may be required by
applicable law.
Acadian Timber
Corp.Interim Condensed Consolidated Statements of
Net Income (Loss)(unaudited)
|
Three Months Ended |
(CAD thousands, except per share data) |
March 28, 2020 |
March 30, 2019 |
Sales |
$ |
31,408 |
$ |
30,938 |
Operating costs and expenses |
|
|
Cost of sales |
|
20,861 |
|
19,921 |
Selling, administration and other |
|
2,217 |
|
2,199 |
Reforestation |
|
1 |
|
— |
Depreciation and amortization |
|
66 |
|
72 |
|
|
23,145 |
|
22,192 |
Operating earnings |
|
8,263 |
|
8,746 |
Interest expense, net |
|
(1,291) |
|
(1,009) |
Other items |
|
|
Fair value adjustments and other |
|
(1,019) |
|
(1,842) |
Unrealized exchange gain (loss) on long-term debt |
|
(8,210) |
|
2,034 |
Gain on sale of timberlands |
|
— |
|
39 |
Earnings (loss) before income tax recovery |
|
(2,257) |
|
7,968 |
Current income tax expense |
|
(902) |
|
(1,700) |
Deferred income tax expense |
|
(552) |
|
(86) |
Net income (loss) |
$ |
(3,711) |
$ |
6,182 |
Net income (loss) per share – basic and diluted |
$ |
(0.22 ) |
$ |
0.37 |
Acadian Timber Corp.Interim Condensed
Consolidated Statements of Comprehensive
Income(unaudited)
|
Three Months Ended |
(CAD thousands) |
March 28, 2020 |
March 30, 2019 |
Net income (loss) |
$ |
(3,711 ) |
$ |
6,182 |
Other comprehensive income (loss) |
|
|
Item that may be reclassified subsequently to net income: |
|
|
Unrealized foreign currency translation gain (loss) |
|
11,624 |
|
(3,102) |
Comprehensive income |
$ |
7,913 |
$ |
3,080 |
Acadian Timber Corp.Interim Condensed
Consolidated Balance
Sheets(unaudited)
As at(CAD thousands) |
March 28, 2020 |
December 31, 2019 |
Assets |
|
|
Current
assets |
|
|
Cash |
$ |
12,029 |
$ |
7,601 |
Accounts receivable and other assets |
|
12,041 |
|
11,602 |
Current taxes receivable |
|
1,343 |
|
2,245 |
Inventory |
|
2,693 |
|
1,545 |
|
|
28,106 |
|
22,993 |
Timber |
|
387,000 |
|
377,992 |
Land, roads
and other fixed assets |
|
94,895 |
|
91,584 |
Intangible
asset |
|
6,140 |
|
6,140 |
Total assets |
$ |
516,141 |
$ |
498,709 |
Liabilities and shareholders’ equity |
|
|
Current
liabilities |
|
|
Short-term debt |
$ |
1,195 |
$ |
7,793 |
Accounts payable and accrued liabilities |
|
8,996 |
|
9,190 |
Dividends payable to shareholders |
|
4,839 |
|
4,839 |
Current portion of long-term debt |
|
— |
|
93,084 |
|
|
15,030 |
|
114,906 |
Long-term
debt |
|
111,050 |
|
— |
Deferred
income tax liability |
|
100,286 |
|
97,102 |
Shareholders’ equity |
|
289,775 |
|
286,701 |
Total liabilities and shareholders’ equity |
$ |
516,141 |
$ |
498,709 |
Acadian Timber Corp.Interim Condensed
Consolidated Statements of Cash
Flows(unaudited)
|
Three Months Ended |
(CAD thousands) |
March 28, 2020 |
March 30, 2019 |
Cash provided by (used for): |
|
|
Operating activities |
|
|
Net income (loss) |
$ |
(3,711) |
$ |
6,182 |
Adjustments to net income
(loss): |
|
|
Deferred income tax expense |
|
552 |
|
86 |
Depreciation and amortization |
|
66 |
|
72 |
Fair value adjustments and other |
|
1,019 |
|
1,842 |
Unrealized exchange (gain) / loss on long term debt |
|
8,210 |
|
(2,034) |
Gain on sale of timberlands |
|
— |
|
(39) |
Accretion of long-term debt |
|
400 |
|
316 |
Net change in non-cash working capital balances and other |
|
196 |
|
(1,390) |
|
|
6,732 |
|
5,035 |
Financing activities |
|
|
Repayment of operating loans |
|
(7,013) |
|
— |
Issuance of long-term debt |
|
19,795 |
|
— |
Repayment of long-term debt |
|
(9,729) |
|
— |
Deferred financing costs |
|
(510) |
|
— |
Dividends paid to shareholders |
|
(4,839) |
|
(4,714) |
Purchase of common shares from NCIB |
|
— |
|
(37) |
|
|
(2,296) |
|
(4,751) |
Investing activities |
|
|
Additions to timber, land, roads and other fixed assets |
|
(8) |
|
— |
Proceeds from sale of timberlands |
|
— |
|
40 |
|
|
(8) |
|
40 |
Increase in cash during the period |
|
4,428 |
|
324 |
Cash beginning of period |
|
7,601 |
|
22,320 |
Cash end of period |
$ |
12,029 |
$ |
22,644 |
Reconciliations to Adjusted EBITDA and Free Cash
Flow
|
Three Months Ended |
(CAD thousands) |
March 28, 2020 |
March 30, 2019 |
|
|
|
Net income (loss) |
$ |
(3,711) |
$ |
6,182 |
Add
(deduct): |
|
|
Interest expense, net |
|
1,291 |
|
1,009 |
Current income tax expense |
|
902 |
|
1,700 |
Deferred income tax expense |
|
552 |
|
86 |
Depreciation and amortization |
|
66 |
|
72 |
FV adjustments and other |
|
1,019 |
|
1,842 |
Unrealized exchange loss (gain) on long-term debt |
|
8,210 |
|
(2,034) |
Adjusted EBITDA |
$ |
8,329 |
$ |
8,857 |
Add
(deduct): |
|
|
Interest paid on debt, net |
|
(854) |
|
(668) |
Additions to timber, land, roads and other fixed assets |
|
(8) |
|
— |
Gain on sale of timberlands |
|
— |
|
(39) |
Proceeds on sale of timberlands |
|
— |
|
40 |
Current income tax expense |
|
(902) |
|
(1,700) |
Free Cash
Flow |
$ |
6,565 |
$ |
6,490 |
Dividends declared |
$ |
4,839 |
$ |
4,840 |
Payout Ratio |
|
74% |
|
75% |
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