Conifex attributes growth to high lumber prices
By Conifex Timber
Nov. 9, 2016 - Conifex Timber's revenue in the third quarter of 2016 improved by 21 per cent over the same quarter last year thanks to higher lumber prices and shipment volumes and increased revenue from residuals partially offset by lower electricity sales, the company reports.
By Conifex Timber
Conifex expects planned capital expenditure commitments for further optimization of its two B.C. sawmill complexes to aggregate approximately $10 million, of which approximately $7 million will be spent in 2016 and the balance in early 2017.
Additionally, the company is working towards finalizing capital plans to reconstruct and modernize our currently idled sawmill complex in El Dorado, Arkansas. The goal behind the planned expansion into the U.S. South is to provide an important source of revenue diversification and reduce cash flow volatility in the company’s lumber segment.
Conifex Timber Inc. today reported results for the third quarter ended Sept. 30, 2016. Adjusted EBITDA in the third quarter of 2016 was $8.5 million, compared to a record $9.0 million in the second quarter of 2016 and $1.5 million in the third quarter of 2015. Compared to the previous quarter, an improvement in lumber segment adjusted EBITDA of $0.3 million and a reduction in corporate and other costs was offset by bioenergy segment adjusted EBITDA that was lower by $1.3 million. Compared to the third quarter of 2015, lumber segment adjusted EBITDA improved by $9.4 million while bioenergy adjusted EBITDA was lower by $0.7 million.
The company’s net income for the third quarter of 2016 was $1.4 million, or $0.07 per basic and diluted share, compared to net income of $35.2 million or $1.67 per basic share and $1.54 per diluted share in the previous quarter and a net loss of $5.6 million or $0.26 per basic and diluted share in the third quarter of 2015. Net gains from non-operational and non-recurring items totaling $32.4 million and $29.0 million, respectively, were included in the net income of the second and first quarters of 2016. Excluding these non-operational and non-operating items, we recorded a profit of $3.7 million or $0.19 per diluted share in the nine months ended September 30, 2016 compared to a net loss of $17.0 million or $0.81 per share in the first nine months of 2015.
Lumber segment adjusted EBITDA was $9.0 million in the third quarter of 2016 compared to $8.7 million in the previous quarter and negative adjusted EBITDA of $0.4 million in the third quarter of 2015.
Prices for the bell-weather WSPF #2 & Btr product generally reflected the steady demand from North American lumber markets and averaged US$321 during the third quarter of 2016, an improvement of 4% over the previous quarter and 18% over the third quarter of 2015. The U.S. dollar averaged US$0.766 for each Canadian dollar during the third quarter of 2016, which represented a weakening of 1% from the previous quarter, and was relatively unchanged from the same quarter last year.
Revenue from Conifex produced lumber was approximately $64.0 million in the third and second quarters of 2016 as an improvement in unit sales realizations of 4%, reflecting stronger lumber prices, was offset by 4% lower shipment volumes. The growth in revenue of 35% over the third quarter of 2015 was largely due to an increase in shipment volumes of 23% and an improvement in unit sales realizations of 10%. Wholesale lumber revenues remained consistent at approximately $26.0 million in each of the comparative quarters.
Lumber production totalled approximately 136 million board feet during the third quarter of 2016, which represented an annualized operating rate of 104%. Production levels in the third quarter were generally consistent with the previous quarter and improved by 21% over the same quarter last year. Hourly productivity improved by about 10% over the third quarter of 2015.
Unit log costs increased by 5% over the previous quarter, mainly due to higher market based stumpage, and remained relatively flat to the same quarter last year. A decline in unit log costs of 7% on a year-to- date basis was largely attributable to a logging season which focused on expanded volumes delivered by waterborne transportation and improvements in the company’s supply chain management systems which resulted in lower unit delivery costs. Unit cash conversion costs were consistent with the previous quarter and improved by 5% over the third quarter of 2015 as productivity gains more than offset generally higher operating costs.
The lumber segment recorded operating income of $5.6 million in the third quarter of 2016 compared to $5.4 million in the previous quarter and an operating loss of $3.2 million in the third quarter of 2015.
Compared to the previous quarter, current quarter lumber segment operating results benefited from higher lumber prices and revenue from residuals which were partially offset by lower shipment volumes and increased unit log costs. Compared to the third quarter of 2015, current quarter operating results benefited primarily from higher lumber shipments and lumber prices, and to a lesser extent, improved operating rates which resulted in lower unit cash conversion costs.
Year-to-date lumber segment operating earnings were $12.2 million, an improvement of $21.5 million over the same period last year.
Conifex’s power generation plant at Mackenzie, B.C. commenced commercial operations in May 2015.
Like other Electricity Purchase Agreements, the EPA provides BC Hydro with the option to “turn down” electricity purchased from independent power producers during periods of low demand by issuing a “dispatch order” outlining the requested dispatch period. The Mackenzie Plant, among others, was dispatched for 61 days in the second quarter of 2016, during which period Conifex produced electricity only to fulfill volume commitments under the Load Displacement Agreement. The company continued to earn revenues based upon a reduced base rate and on volumes that were generally reflective of recent average hourly megawatt production.
The Mackenzie Plant sold approximately 38 gigawatt hours of electricity under the EPA in the third quarter of 2016 compared to 55 gigawatt hours in the previous quarter and 46 gigawatt hours during the third quarter of 2015. The reduced production during the current quarter was mostly attributable to maintenance downtime early in the quarter to effect certain operating improvements. The Mackenzie Plant operated at approximately 70% of targeted rates during the third quarter of 2016.
Revenues from electricity sales were $4.9 million in the third quarter of 2016 compared to $5.0 million in the previous quarter and $5.9 million in the third quarter of 2015. Revenues for the previous quarter were impacted by lower rates earned during the plant dispatch period and the application of a “time of delivery” factor which generally produces the lowest quarterly revenues of the year during the second quarter. Compared to the third quarter of 2015, the lower revenues were attributable to lower operating rates.
Bioenergy segment operating costs were $5.4 million and segment operating loss was $0.5 million in the third quarter of 2016 compared to operating costs of $3.4 million and segment operating earnings of $1.6 million in the previous quarter, and operating costs of $5.7 million and operating earnings of $0.2 million in the third quarter of 2015. Operating costs included depreciation expense of $1.6 million in the third quarter of 2016 and 2015 and $0.8 million in the second quarter of 2016. Idled components were not depreciated during the dispatch period in the previous quarter. Cash operating costs improved by 7% compared to the third quarter of 2015 when higher costs related to the newly commissioned plant were experienced.
Interest on the power project term loan was approximately $1.3 million for each of the comparative quarters. Adjusted bioenergy segment EBITDA was $1.1 million in the third quarter of 2016, $2.4 million in the previous quarter and $1.8 million in the third quarter of 2015.
The Mackenzie Plant operated at 100% of targeted operating rates in October 2016. In the fourth quarter of 2016, the company expects sequential improvement in bioenergy segment revenues due to increased production and higher effective rates earned under the EPA. The company expects operating costs to remain relatively flat. There is currently no maintenance downtime scheduled for the fourth quarter of 2016.
For the balance of 2016, the company expects continued steady demand from North American lumber markets and moderately weaker U.S. dollar benchmark prices compared to the third quarter of 2016. Although offshore demand has strengthened, competition from currency advantaged alternate suppliers remains intense. Conifex expects receipts from lumber shipments to China and Japan to moderately improve from year to date levels. The company expects the uncertainty related to the recent expiry of the “standstill period” under the Softwood Lumber Agreement will contribute to increased market volatility.
The company expects its fourth quarter 2016 operating results to reflect a sequential increase in delivered log costs as well as reduced operating rates due to the holiday period and planned downtime related to a capital upgrade at its Mackenzie mill.