Acadian Timber Corp. benefits from N.B. markets
Acadian Timber Corp. reported yesterday its operations performed well for the second quarter and continue to benefit from strong New Brunswick markets more than offsetting weaker markets in Maine.
Driven primarily by strength in hardwood markets, weighted average log price was up 11% compared to the prior year. While operating conditions were impacted by an extended annual spring thaw, which caused much of the company's harvest and hauling infrastructure to be inoperable for a longer than normal period, Acadian anticipates a return to more typical harvest levels for the remainder of the year. Acadian's payout ratio for first six months of 2016 was 94% in line with its long-term target of 95%.
Adjusted EBITDA for the second quarter was $3.3 million down from $3.8 million in the comparable period in 2015 as higher selling prices for Acadian's products were more than offset by lower sales volumes as the prior year benefitted from better harvesting conditions due to extended winter weather and a shorter spring thaw period.
Management team changes
Acadian also announced yesterday that Brian Banfill will be leaving the position of Chief Operating Officer effective Aug. 3, 2016. Banfill has been a member of the senior management of Acadian since his initial appointment as Chief Financial Officer in 2010. He will continue to be involved in other timberlands businesses managed by Brookfield. As well, after three years as Acadian's Chief Financial Officer, Erika Reilly will be leaving Acadian to take on new responsibilities within Brookfield Asset Management.
"The entire management team would like to thank Mr. Banfill and Ms. Reilly for their hard work, dedication and significant contributions to Acadian and wish them the best in their new endeavors" commented Mr. Bishop. Effective Aug. 3, 2016, Wyatt Hartley will replace Reilly as Acadian's Senior Vice-President and Chief Financial Officer. Hartley has been a key member of Brookfield's infrastructure team for the past six years and has held a number of senior finance roles within the organization. Hartley is a chartered accountant and worked at one of the big four accounting firms prior to joining Brookfield.
Acadian's weighted average log selling price during the second quarter increased 11% year-over-year as stronger prices and higher hardwood log proportion in New Brunswick and the positive impact of the weaker Canadian dollar on U.S. dollar-denominated sales more than offset weaker prices for softwood in the Maine market. Softwood sawlog markets remained relatively stable, with a 1% increase in softwood sawlog prices relative to the second quarter of 2015. Hardwood sawlog markets were strong, with weighted average selling prices increasing 18%, primarily reflecting strong pricing from the New Brunswick operations. Selling prices for hardwood pulpwood increased 6% year-over-year while softwood pulpwood prices decreased 9% year-over-year. Continued strength in hardwood pulpwood markets was partially offset by weaker softwood pulpwood markets in Maine. Biomass markets remained strong, with margins increasing 56% year-over-year, primarily reflecting an increase in proportion of sales to export markets.
U.S. economic growth has been somewhat uneven over the first half of the year, but the economy continues to expand led principally by consumer spending. Wage growth is accelerating as the labor market continues to move toward full recovery with employment openings remaining close to record highs. Reflecting post-Brexit related volatility, elevated downside risks to the global economies and strengthening U.S. dollar, expectations for the current low interest rate environment have been extended. These fundamentals continue to support an on-going gradual recovery in U.S. housing starts and strong residential improvement activity. Consensus expectations continue to call for a 10% year-over-year improvement in total housing starts for 2016 and over 12% for 2017. Industry forecasters predict that U.S. lumber and sawtimber demand will need to continue to grow at over 5% per year over the next few years to support expanding domestic construction needs.
Benchmark softwood lumber prices improved over 10% for the second quarter and are expected to improve modestly on a full year-over-year basis. Uncertainty over the lumber pricing environment remains heightened with the Canada-U.S. softwood lumber dispute moving towards the end of the "cooling-off" period in October 2016 and paving the way for potential imposition of countervailing duties. While the timing, and ultimately the terms of any settlement of this latest dispute are unclear, there is no evidence to suggest treatment of Canada's maritime lumber producers during the current dispute will be materially different from past experience where the region experienced lower relative countervailing and anti-dumping duties than the rest of Canada during the litigation period, followed by export tax and quota exemption during the 2006 Softwood Lumber Agreement. This differential treatment is due primarily to the significantly greater proportion of their log supply sourced from private lands in the Atlantic region relative to the rest of Canada.
Almost all regional sawmills continue to operate on full shifts and appear to be carrying inventories at typical seasonal levels. While softwood sawlog markets for New Brunswick remain steady, Maine sawmills continue to face challenges with demand for softwood sawmill residuals. Hardwood sawlog markets remained strong and steady during the second quarter and are expected to remain near current levels. Strength in hardwood pulpwood pricing has persisted, although Acadian is experiencing longer average haul distances to maintain supply levels, resulting in modest margin impact. Biomass markets remain stable in New Brunswick, with Acadian able to benefit from ongoing growth in export markets. Maine biomass markets are still in transition following the idled pulp mill and biomass generator capacity over the past year. However, markets have seen some stabilization following recent state sponsored assistance which saw the re-start of a portion of the previously idled biomass generation capacity.