Acadian Timber sees decline in log sales volumes
By Acadian Timber Corp.
Oct. 28, 2016 - Acadian Timber Corp. saw a 12 per cent decline in log sales volumes compared to the previous year, according to the company's Q3 report.
Adjusted EBITDA for the third quarter for Acadian Timber was $5.2 million compared to $6.5 million in the comparable period in 2015 as strength in log selling prices in the New Brunswick market were more than offset by a 12% decline in log sales volumes and lower margin sales mix from the same quarter in the prior year. Reduced log sales reflect a combination of the planned reduction in hardwood harvest levels under Acadian's forest management plan and reduced softwood sales as regional mill inventories remained at higher than normal levels through the quarter. Less favourable year over year seasonal operability also resulted in reduced harvest volumes of specialty softwood species.
"Acadian's operations performed well for the third quarter and continue to reflect well balanced softwood sawtimber and hardwood pulpwood markets and stable log pricing in-line with the same quarter in the prior year and up 3% for the year to date," commented Mark Bishop, Chief Executive Officer of Acadian.
For the first nine months of 2016, Acadian has distributed $0.75 per share, a payout ratio of 96% which is in line with the company's long-term target of 95%.
For the third quarter, Acadian generated net sales of $19.3 million compared with net sales of $22.6 million in the comparative year as a 1% decrease in sales volumes was accompanied by a 14% decrease in the weighted average realized selling price for the quarter due primarily to a higher proportion of biomass sales. Excluding biomass, log sales volumes were down 12% from the prior year. This decrease reflected higher than typical regional spruce fir log inventories and more favourable prior year harvest conditions for pine and cedar stands. Sales volumes also reflected the planned reduction in hardwood harvest volumes under Acadian's forest management plan. Selling prices for most of our non-biomass products were roughly in-line with the prior period. The weighted average log selling price down marginally (3%) compared to the prior year as a result of unfavourable mix due to a relative decrease in hardwood sales volumes. For the nine months ended September 24, 2016, Acadian generated net sales of $54.4 million on sales volumes of 862 thousand m3 compared to net sales of $62.7 million on sales volumes of 978 thousand m3 in the comparable period of 2015.
Adjusted EBITDA and Adjusted EBITDA margin for the third quarter was $5.2 million and 27%, respectively, compared to $6.5 million and 29%, respectively, during the comparable period in 2015. This decrease was largely due to a lower margin sales mix. For the nine months ended September 24, 2016, Adjusted EBITDA was $15.5 million; $3.5 million lower than during the same period last year.
Net income totalled $2.8 million, or $0.17 per share, for the third quarter, compared to $(0.17) for the same period in 2015. The increase is primarily due to lower non-cash fair value adjustments to our timberlands as a result of lower harvest volumes. For the nine months ended September 24, 2016, net income was $13.0 million, or $0.77 per share, an increase of $13.0 million over the same period in 2015 primarily as a result of an unrealized foreign exchange gain on long-term debt.
Three months ended September 24, 2016:
Net sales totalled $14.3 million compared to $17.0 million for the same period last year, reflecting a 13% decrease in log sales volumes and a 4% decrease in the weighted average log selling price. Log sales volumes excluding biomass declined to 190 thousand m3 from 218 thousand m3 in the prior year reflects higher than typical regional spruce fir log inventories, more favourable prior year harvest conditions for pine and cedar stands, and the planned reduction in hardwood harvest volumes under Acadian's forest management plan. The weighted average log selling price was $62.65 per m3 in the third quarter of 2016, down from $64.98 per m3 in the same period of 2015 due primarily to unfavourable mix from a relative decrease in hardwood sales volumes.
Adjusted EBITDA was $4.6 million, compared to $6.0 million in the third quarter of 2015 due primarily to the aforementioned decrease in log sales volumes and lower margin sales mix. Adjusted EBITDA margin decreased to 32% from 35% in the same period. Costs were $9.4 million, compared to $11.1 million in the same period in 2015, due to lower log sales volumes and a 3% decrease in variable costs per m3 mainly as a result of shorter hauling distances for softwood products.
There were two recordable safety incidents among employees and one recordable safety incidents among contractors during the third quarter of 2016. While all of the incidents resulted in lost time, the injuries were relatively minor in nature and the individuals have already or are expected to make a full recovery.
Three months ended September 24, 2016:
Net sales totalled $5.0 million compared to $5.6 million for the same period last year. This decrease reflects a 7% decrease in sales volumes due primarily to lower hardwood pulp sales volumes. The weighted average log selling price in Canadian dollar terms was $78.56 per m3, a 1% decrease from $79.58 per m3 in the same period of 2015. The weighted average log selling price in U.S. dollar terms was $60.24 per m3, a decrease of 1% year-over-year as continued weakness in softwood pulp pricing was mostly offset by the benefit of favourable sales mix.
Adjusted EBITDA was $0.7 million, compared to $1.0 million in the same period in 2015 due primarily to the aforementioned decrease in sales volumes, while the Adjusted EBITDA margin decreased to 15% from 18% in the prior year. Costs for the third quarter were $4.3 million, compared to $4.6 million during the same period in 2015 due primarily to the lower sales volumes. Variable costs per m3 increased 6% in both Canadian dollar and U.S. dollar terms due primarily to greater hauling distances for hardwood products.
There were no recordable safety incidents among employees and one lost time among contractors during the third quarter of 2016. In September, the Maine operations successfully completed a surveillance audit under the 2015-2019 standard of the Sustainable Forest Initiative without any non-conformances and notably with several 'exceeds expectations' determinations, which re-affirms our certificate and is a testament to the sustainability of our operations.
The U.S. economy stands out amidst a weak global economic backdrop, with growth accelerating in the third quarter following a disappointing first half of 2016. Ongoing economic growth reflects firm domestic fundamentals including robust job growth, rising wages, and low energy prices. Consumers are feeling confident as the labour market approaches full employment and solid real wage growth supports rising consumption. As inflation picks-up in the coming months, the Fed is expected to continue its rate hiking cycle. 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 steady year-over-year improvement in total housing starts for 2016 and 2017 of 7% and 10% respectively. Industry forecasters predict that U.S. 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 12-15% for the third quarter and are expected to improve modestly on a full year-over-year basis. With the expiry of the one-year moratorium on trade filings in mid-October following the end of the 2006 Softwood Lumber Agreement in 2015, the North American lumber pricing environment is again highly uncertain. In the absence of any near term settlement between Canada and the U.S., the U.S. Department of Commerce is expected to initiate a countervailing and anti-dumping investigation which could result in an imposition of duties on Canadian lumber producers as early as the second quarter 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 expect treatment of these producers during the current dispute will 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.
Regionally, our most important markets are softwood sawlogs and hardwood pulpwood. Both of these markets are in good balance and are expected to remain near current price and volume levels. Acadian's regional sawmill customers have continued to operate on full shifts, although reflecting favourable summer and early fall logging conditions are now carrying somewhat higher than typical seasonal inventories. Maine sawmills continue to face challenges with demand for softwood sawmill residuals and softwood pulpwood markets remain oversupplied. Hardwood sawlog markets remained strong and steady during the third quarter and are expected to remain near current levels. Hardwood pulp prices declined slightly in the quarter but remain historically very strong. Domestic biomass markets remain stable in New Brunswick but export and Maine markets are experiencing some weakness driven by idled mill and biomass generator capacity.
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.
Acadian owns and manages approximately 1.1 million acres of freehold timberlands in New Brunswick and Maine, and provides management services relating to approximately 1.3 million acres of Crown licensed timberlands in New Brunswick. Acadian also owns and operates a forest nursery in Third Falls, New Brunswick. Acadian's products include softwood and hardwood sawlogs, pulpwood and biomass by-products, sold to approximately 100 regional customers.
Acadian's business strategy is to maximize cash flows from its existing timberland assets while growing our business by acquiring assets on a value basis and utilizing our 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