Ainsworth remains optimistic
Aug. 13, 2014, Vancouver – Ainsworth Lumber announced higher shipment volumes and a reduction in unit costs in its Q2 financial results.
Ainsworth President and Chief Executive Officer, Jim Lake said, "North American OSB market conditions were relatively weak as the spring building season did not materialize as anticipated. North American benchmark OSB prices were stable relative to the prior quarter, although they were nearly 40% or U.S.$130/msf lower than the second quarter of 2013. Despite the slower pace of housing growth in the near-term, we are optimistic about the longer-term recovery and continued absorption of industry supply. The recent slower market environment in North America does highlight the strategic importance of our traditional export market in Japan as well as the progress we are making in markets such as China for new applications of OSB."
Sales of $117.4 million in the second quarter of 2014 were $10.1 million lower than sales of $127.5 million for the same period in 2013. The decrease in sales was mainly due to a 24% decrease in realized pricing. The impact of the U.S. benchmark declines on our realized pricing was moderated by the effect of a weaker Canadian dollar relative to the second quarter of 2013 and more stable export pricing in Japan, combined with a 21% increase in sales volumes due to additional production from High Level.
In the first half of 2014, sales were $225.2 million compared to $269.3 million in the same period of 2013. The $44.1 million decrease was related to a 25% decrease in realized pricing, partially offset by an 11% increase in sales volumes and the same factors noted above. The increase in volume from High Level was partially offset by transportation issues that limited shipments during the first quarter of 2014.
Adjusted EBITDA was $13.1 million in the second quarter of 2014 compared to $50.7 million in the same period of 2013, largely as a result of lower realized pricing. Notwithstanding the significant reduction in gross profit, net income from continuing operations in the second quarter of 2014 was $9.5 million higher than the prior year. This increase was largely due to fluctuations in non-cash accounting gains and losses and income tax expense combined with decreased selling and administration expense.
Adjusted EBITDA for the first half of 2014 was $23.3 million compared to $113.2 million in 2013, due mainly to lower realized pricing. Net loss from continuing operations in the first six months of 2014 was $2.2 million, compared to net income of $39.3 million for the same period in 2013, representing a decrease of $41.5 million. The decrease reflected lower gross profit, partially offset by fluctuations in non-cash accounting gains and losses and income tax expense.
Adjusted EBITDA margin on sales for the second quarter of 2014 was 11.2% compared to 39.8% in the same period of 2013 (10.3% in the first half of 2014 compared to 42.0% in the same period of 2013). The decreases were largely related to lower realized pricing in North America.
Benchmark OSB pricing remained stable during the second quarter of 2014, although down significantly from the same periods last year, with North Central and Western Canadian pricing for 7/16" OSB averaging U.S.$219 and U.S. $206 per msf, respectively, representing a decrease of 37% versus the second quarter of 2013. Sequentially, the North Central benchmark price remained flat, while the Western Canadian benchmark price decreased 6% versus the prior quarter.
At June 30, 2014, Ainsworth's available liquidity, consisting of cash and cash equivalents, was $103.2 million, a reduction of $34.2 million since December 31, 2013 resulting from our seasonal log inventory build, semi-annual interest payment and capital expenditures, combined with the timing of accounts receivable and accounts payable.
While the pace of improvement has been slower than previously expected, we remain optimistic about the medium to long-term outlook as U.S. housing starts recover to more historical levels. Additionally, we continue to experience growth and stable pricing in our traditional export market of Japan. We are also continuing to advance our opportunities in export markets such as China for new applications of OSB. The restart of our High Level mill will allow us to meet the growing requirements of our existing North American and export customers as well as service new market segments over the longer term.