Acadian Timber Corp. reports year-end results
By Acadian Timber Corp.
Feb. 22, 2017 - Acadian Timber Corp. has reported financial and operating results for the year ended Dec. 31, 2016.
Acadian maintained its momentum and posted another year of strong results, generating Free Cash Flow of $19.4 million resulting in a payout ratio of 86 per cent, comfortably below our target level of 95 per cent.
"Acadian posted another year of strong performance and we believe we are well positioned to maintain this momentum in 2017. Our operations continue to perform very well in the current market environment and we maintain a strong balance sheet," commented Mark Bishop, chief executive officer of Acadian. "We have a positive outlook for the coming year, and we are pleased to announce that our Board of Directors has approved a 10 per cent increase in Acadian's annual dividend."
Adjusted EBITDA for the year was $22.5 million. Although Adjusted EBITDA was down year-over-year, our operations continued to benefit from steady demand and strong pricing in New Brunswick. The decline was primarily due to relatively weak softwood pulpwood markets in Maine and a reduction in New Brunswick hardwood harvest levels consistent with our long term forest management plan.
For 2016, we paid a dividend to shareholders of $1.00 per share or 8 per cent of Free Cash Flow, which is below our long-term target of 95 per cent. Based on our expectation of continued strong performance and supported by our strong liquidity, Acadian's Board of Directors approved a 10 per cent increase in Acadian's annual dividend to $1.10 per share effective in the first quarter of 2017.
Acadian generated net sales of $77 million in the year ended Dec. 31, 2016, a decrease of $7 million compared to the prior year. We saw continued strength in pricing for most of our non-biomass product with the exception of softwood pulp, driving a 1 per cent increase in the weighted average log selling price year-over-year, led by an ~5 per cent increase in our average realized price for hardwood products. However, strength in log selling prices in the New Brunswick market was more than offset by a 9 per cent decrease in log sales volumes due primarily to our planned reduction in hardwood harvest levels under Acadian's forest management plan. In addition, the harvest of certain softwood species was impacted by less favourable year-over-year operability.
Adjusted EBITDA for the year was $22.5 million, compared to $26.4 million in 2015, driven primarily by the above noted decrease in net sales. Adjusted EBITDA margin of 29 per cent for 2016 was slightly below 2015 levels, as longer average haul distances combined with a lower margin sales mix offset the above noted increase in average realized log selling price.
Net income for the year totaled $16.1 million, or $0.96 per share, compared to $13.6 million, or $0.82 per share in 2015. The increase is primarily a result of a significant unrealized foreign exchange loss on long term debt which impacted the year ended December 31, 2015.
New Brunswick Timberlands
Net sales for the year totaled $56.5 million compared to $60.7 million in 2015. This decrease reflects a 2 per cent increase in the weighted average log selling price, offset by a 9 per cent decrease in log sales volumes. Log sales volumes declined in 2016 to 721 thousand m3 from 791 thousand m3 in 2015, due primarily to a planned reduction in hardwood harvest volumes under Acadian's new forest management plan. In addition, volumes were impacted by less favourable harvest conditions for pine and cedar stands. The weighted average log selling price was $67.03 per m3 in 2016, up from $65.49 per m3 in 2015, due primarily to more favourable pricing for hardwood products.
Adjusted EBITDA for the year was $19.3 million, compared to $20.3 million in 2015, due primarily to the aforementioned decrease in log sales volumes. Costs were $37.2 million, compared to $40.4 million in 2015, due to lower log sales volumes and flat variable costs per m3. Adjusted EBITDA margin increased to 34 per cent in 2016 from 33 per cent in 2015, driven by an increase in the weighted average log selling price while variable costs remained flat.
Net sales for the year totaled $20.6 million compared to $23.8 million in 2015, with the decline resulting from an 11 per cent decrease in log sales volumes. This decrease is due primarily to a 12 per cent decline in softwood sales volume as local markets have been challenged by weak demand for softwood residuals. The weighted average log selling price in Canadian dollar terms was $78.61 per m3 in 2016, a decrease from $80.70 per m3 in 2015. In U.S. dollar terms, the weighted average log selling price was $58.84 per m3, a decrease of 7 per cent year-over-year, due primarily to continued weakness in softwood pulp pricing.
Adjusted EBITDA for the year was $4.3 million, compared to $7.6 million in 2015, due primarily to the aforementioned decrease in sales volumes. Costs for the year were $16.3 million, compared to $16.2 million in 2015, due primarily to higher variable cost per m3, resulting from greater hauling distances for hardwood products and an unfavourable sales mix. Variable costs per m3 increased 11 per cent in Canadian dollar terms and 6 per cent in U.S. dollar terms, respectively, year-over-year. Adjusted EBITDA margin decreased to 21 per cent this year, from 32 per cent in 2015, due to the above noted decrease in log pricing and increase in variable costs per m3.
The U.S. economy appears to have started the new year with strong momentum on the basis of robust job growth and rising wages. Housing starts would appear positioned for continued growth owing to a combination of improving employment opportunities, and the release of pent-up demand. However, shortages of skilled labour and finished lot availability remain as potential constraints. Further, potential successive rate increases and a more protectionist U.S. trade stance both remain as downside risks to housing affordability. Nevertheless, current consensus expectations still call for healthy year-over-year improvements in total housing starts for each of 2017 and 2018 of about 6-7 per cent. Industry forecasters predict that North American sawtimber demand will grow at over 3 per cent per year over the next few years to support expanding domestic construction needs.
Despite the expectation for steadily improving U.S. lumber consumption, the lumber pricing environment for 2017 remains uncertain following the recent U.S. ITC injury determination which is widely expected to result in preliminary application of countervailing duties in late spring and anti-dumping duties by early summer. As in past disputes, we would anticipate relatively high initial duties, which will be reduced over time during the litigation period. However, we anticipate a highly politicized process may obscure visibility on progress towards a negotiated settlement for at least most of 2017. During the prior U.S./Canada softwood lumber dispute, Canada's Atlantic lumber producers and Québec border mills experienced lower relative duties than the rest of Canada and we continue to believe treatment of these producers during the current dispute should be materially the same as in the past. This differential treatment is due to the significantly greater proportion of private timberlands in the Atlantic region relative to the rest of Canada as well as a long history of active cross-border log exports within the Northeast region.
Acadian's key markets include softwood sawtimber, hardwood sawtimber and hardwood pulpwood. While we anticipate softwood sawtimber markets will remain well balanced through the year, greater volatility in this market should be expected as the softwood dispute plays out. While continued oversupply of softwood sawmill residuals and softwood pulpwood markets remains a concern, we anticipate regional timberland owners will aggressively manage pulpwood harvest levels through 2017. Hardwood sawtimber markets, typically oriented to millwork and higher value specialty markets are expected to remain at healthy current levels through the upcoming year. Hardwood pulpwood, increasingly consumed by tissue and other non-publishing paper end uses, also remains in good balance, but historically very strong prices may be somewhat vulnerable in a strengthening U.S. dollar environment. Biomass is also an important market for Acadian. We anticipate domestic biomass markets to remain stable in New Brunswick and anticipate improved potential for a gradual recovery of export volumes through the year. Maine's biomass market appears positioned for at least a modest recovery following a challenging 2016, as state subsidies have now permitted three previously idled biomass generation facilities to restart. Additionally, potential for sustained higher natural gas prices may be a catalyst for a shift back to biomass consumption for regional cogeneration capacity.
Acadian is pleased to announce a dividend of $0.275 per share, payable on April 14, 2017 to shareholders of record on March 31, 2017.
Acadian Timber Corp. is a leading supplier of primary forest products in Eastern Canada and the Northeastern U.S. With a total of 2.4 million acres of land under management, Acadian is the third largest timberland operator in New Brunswick and Maine.