And Initiation of Business Improvement Program
CALGARY, AB--(Marketwired - March 12, 2015) - Canexus Corporation (
Highlights:
"I am disappointed not to be in a position today to announce the sale of our NATO business unit," commented Doug Wonnacott, President and CEO. "Energy market conditions have challenged a number of parties who have expressed interest in this asset. Given the environment, the Board of Directors decided to take the prudent step to significantly reduce the dividend in order to preserve cash. A disposition of NATO, or our North American Chlor-alkali business, will stabilize the Corporation by providing funds to de-lever the balance sheet, however the success and timing is uncertain. Meanwhile, there are other self-help initiatives in addition to reducing the dividend that are being undertaken with the BIP initiative. Canexus is 100% committed to achieving the BIP targets and I am confident that our strategy to reduce debt, improve business performance and build upon our impressive portfolio of chemical assets, is the right way to move Canexus forward."
Distributable Cash | ||||||||||||
Three Months Ended December 31 |
Year Ended December 31 |
|||||||||||
CAD thousands, except as noted | 2014 | 2013 | 2014 | 2013 | ||||||||
Cash Operating Profit | 20,681 | 24,597 | 89,033 | 101,537 | ||||||||
Interest Expense | (6,191 | ) | (3,292 | ) | (20,043 | ) | (12,250 | ) | ||||
Realized Foreign Currency Translation Losses | (1,022 | ) | (136 | ) | (11,506 | ) | (2,642 | ) | ||||
Maintenance Capital Expenditures | (9,203 | ) | (8,440 | ) | (23,130 | ) | (25,817 | ) | ||||
Provision for Current Income Taxes | (42 | ) | (669 | ) | (3,143 | ) | (3,903 | ) | ||||
Cumulative Pension Funding (in Excess of) Lower than Cumulative Pension Expense | 726 | (438 | ) | (215 | ) | (2,342 | ) | |||||
Cash Settled Share-based Compensation | (202 | ) | - | (259 | ) | - | ||||||
Severance Costs | 1,237 | - | 2,206 | (274 | ) | |||||||
Other | (915 | ) | 62 | (1,945 | ) | (238 | ) | |||||
Distributable Cash | 5,069 | 11,684 | 30,998 | 54,071 | ||||||||
Distributable Cash Per Share | $0.03 | $0.08 | $0.17 | $0.38 | ||||||||
Dividends Declared Per Share | $0.1000 | $0.1368 | $0.4368 | $0.5472 | ||||||||
Cash Payout Ratio (Net of DRIP Participation) | 280% | 139% | 197% | 120% | ||||||||
Payout Ratio | 364% | 179% | 257% | 150% | ||||||||
Below is a reconciliation of net cash generated from operating activities to Distributable Cash of the Corporation for the three months and years ended December 31, 2014 and 2013.
Three Months Ended December 31 |
Year Ended December 31 |
|||||||||||
CAD thousands | 2014 | 2013 | 2014 | 2013 | ||||||||
Net Cash Generated from Operating Activities | (11,985 | ) | 11,942 | 12,644 | 77,221 | |||||||
Change in Non-Cash Operating Working Capital | 19,332 | 5,675 | 35,915 | 240 | ||||||||
Non-Cash Change in Income Taxes Payable and Interest Payable | 5,657 | 2,553 | 3,984 | 1,860 | ||||||||
Interest Income | 199 | 67 | 417 | 526 | ||||||||
Maintenance Capital Expenditures | (9,203 | ) | (8,440 | ) | (23,130 | ) | (25,817 | ) | ||||
Severance Costs | 1,237 | - | 2,206 | (274 | ) | |||||||
Operating Non-Cash Items | (168 | ) | (113 | ) | (1,038 | ) | 315 | |||||
Distributable Cash | 5,069 | 11,684 | 30,998 | 54,071 | ||||||||
Segmented Information for the Three Months and Years Ended
December 31, 2014 and 2013
Canexus has a total of six electrochemical manufacturing plants -- four in Canada and two at one site in Brazil -- organized into three business units. Canexus also provides fee-for-service hydrocarbon transloading at its NATO terminal in Bruderheim, Alberta as a separate business unit. Below is our fourth quarter and full year performance by segment.
North America | ||||||||||||||
Three Months Ended December 31, 2014 |
Sodium Chlorate |
Chlor- alkali |
South America |
NATO |
Other |
Total |
||||||||
Sales Revenue | ||||||||||||||
Total Segment | 60,195 | 52,977 | 21,371 | 8,810 | - | 143,353 | ||||||||
Inter-Segment (1)(2) | 93 | - | - | 584 | - | 677 | ||||||||
Total Sales Revenue from External Customers | 60,102 | 52,977 | 21,371 | 8,226 | 142,676 | |||||||||
Cost of Sales | 38,232 | 32,977 | 18,374 | 15,975 | 5 | 105,563 | ||||||||
Distribution, Selling and Marketing | ||||||||||||||
Total Segment | 8,466 | 15,574 | 172 | 1,258 | 663 | 26,133 | ||||||||
Inter-Segment (1)(2) | - | 677 | - | - | - | 677 | ||||||||
Total External Distribution, Selling and Marketing | 8,466 | 14,897 | 172 | 1,258 | 663 | 25,456 | ||||||||
General and Administrative | 3,023 | 3,686 | 1,069 | 144 | 3,593 | 11,515 | ||||||||
Operating Profit (Loss) | 10,381 | 1,417 | 1,756 | (9,151 | ) | (4,261 | ) | 142 | ||||||
Add: | ||||||||||||||
Depreciation and Amortization | 3,371 | 6,009 | 4,224 | 6,053 | 304 | 19,961 | ||||||||
Share-based Compensation Expense | - | - | - | - | 578 | 578 | ||||||||
Cash Operating Profit (Loss) | 13,752 | 7,426 | 5,980 | (3,098 | ) | (3,379 | ) | 20,681 | ||||||
Cash Operating Profit (Loss) Percentage | 23% | 14% | 28% | (38% | ) | 14% | ||||||||
North America | |||||||||||||||
Three Months Ended December 31, 2013 |
Sodium Chlorate |
Chlor-alkali | South America |
NATO | Other |
Total |
|||||||||
Sales Revenue | |||||||||||||||
Total Segment | 60,076 | 51,432 | 22,817 | 6,675 | - | 141,000 | |||||||||
Inter-Segment (1)(2) | 608 | - | - | 581 | - | 1,189 | |||||||||
Total Sales Revenue from External Customers | 59,468 | 51,432 | 22,817 | 6,094 | - | 139,811 | |||||||||
Cost of Sales | 37,078 | 31,248 | 19,220 | 4,975 | (883 | ) | 91,638 | ||||||||
Distribution, Selling and Marketing | |||||||||||||||
Total Segment | 8,163 | 17,435 | 146 | 1,672 | 705 | 28,121 | |||||||||
Inter-Segment (1)(2) | - | 664 | - | - | - | 664 | |||||||||
Total External Distribution, Selling and Marketing | 8,163 | 16,771 | 146 | 1,672 | 705 | 27,457 | |||||||||
General and Administrative | 3,052 | 3,723 | 1,033 | 145 | 2,475 | 10,428 | |||||||||
Operating Profit (Loss) | 11,175 | (310 | ) | 2,418 | (698 | ) | (2,297 | ) | 10,288 | ||||||
Add: | |||||||||||||||
Depreciation and Amortization | 3,272 | 5,962 | 2,647 | 904 | 287 | 13,072 | |||||||||
Share-based Compensation Expense | - | - | - | - | 1,237 | 1,237 | |||||||||
Cash Operating Profit (Loss) | 14,447 | 5,652 | 5,065 | 206 | (773 | ) | 24,597 | ||||||||
Cash Operating Profit Percentage | 24% | 11% | 22% | 3% | 18% | ||||||||||
See footnotes. | |||||||||||||||
North America | ||||||||||||||
Year Ended December 31, 2014 |
Sodium Chlorate | Chlor-alkali | South America | NATO | Other | Total | ||||||||
Sales Revenue | ||||||||||||||
Total Segment | 233,427 | 212,749 | 93,087 | 34,189 | - | 573,452 | ||||||||
Inter-Segment (1)(2) | 349 | - | - | 2,230 | - | 2,579 | ||||||||
Total Sales Revenue from External Customers | 233,078 | 212,749 | 93,087 | 31,959 | - | 570,873 | ||||||||
Cost of Sales | 144,990 | 132,107 | 73,639 | 47,757 | 137 | 398,630 | ||||||||
Distribution, Selling and Marketing | ||||||||||||||
Total Segment | 33,688 | 65,923 | 871 | 5,868 | 2,544 | 108,894 | ||||||||
Inter-Segment (1)(2) | - | 2,579 | - | - | - | 2,579 | ||||||||
Total External Distribution, Selling and Marketing | 33,688 | 63,344 | 871 | 5,868 | 2,544 | 106,315 | ||||||||
General and Administrative | 11,913 | 14,531 | 3,695 | 567 | 12,638 | 43,344 | ||||||||
Operating Profit (Loss) | 42,487 | 2,767 | 14,882 | (22,233 | ) | (15,319 | ) | 22,584 | ||||||
Add: | ||||||||||||||
Depreciation and Amortization | 13,082 | 24,220 | 11,174 | 15,923 | 1,148 | 65,547 | ||||||||
Share-based Compensation Expense | - | - | - | - | 902 | 902 | ||||||||
Cash Operating Profit (Loss) | 55,569 | 26,987 | 26,056 | (6,310 | ) | (13,269 | ) | 89,033 | ||||||
Cash Operating Profit (Loss) Percentage | 24% | 13% | 28% | (20% | ) | 16% | ||||||||
North America | ||||||||||||||
Year Ended December 31, 2013 |
Sodium Chlorate | Chlor-alkali | South America | NATO | Other | Total | ||||||||
Sales Revenue | ||||||||||||||
Total Segment | 233,155 | 202,766 | 97,034 | 23,664 | - | 556,619 | ||||||||
Inter-Segment (1)(2) | 1,318 | - | - | 2,340 | - | 3,658 | ||||||||
Total Sales Revenue from External Customers | 231,837 | 202,766 | 97,034 | 21,324 | - | 552,961 | ||||||||
Cost of Sales | 140,321 | 122,801 | 79,394 | 19,293 | (639 | ) | 361,170 | |||||||
Distribution, Selling and Marketing | ||||||||||||||
Total Segment | 31,363 | 66,014 | 708 | 5,504 | 2,933 | 106,522 | ||||||||
Inter-Segment (1)(2) | - | 2,681 | - | - | - | 2,681 | ||||||||
Total External Distribution, Selling and Marketing | 31,363 | 63,333 | 708 | 5,504 | 2,933 | 103,841 | ||||||||
General and Administrative | 11,421 | 13,931 | 4,093 | 543 | 9,092 | 39,080 | ||||||||
Operating Profit (Loss) | 48,732 | 2,701 | 12,839 | (4,016 | ) | (11,386 | ) | 48,870 | ||||||
Add: | ||||||||||||||
Depreciation and Amortization | 13,102 | 23,000 | 8,305 | 4,422 | 978 | 49,807 | ||||||||
Share-based Compensation Expense | - | - | - | - | 2,860 | 2,860 | ||||||||
Cash Operating Profit (Loss) | 61,834 | 25,701 | 21,144 | 406 | (7,548 | ) | 101,537 | |||||||
Cash Operating Profit Percentage | 27% | 13% | 22% | 2% | 18% |
Notes: | |
(1) | The North America Sodium Chlorate operating segment (i) sells sodium chlorate at market rates to the South America operating segment and (ii) provides transloading services at market rates to the NACA operating segment for caustic soda transloaded from barges into trucks for delivery to NACA customers that are eliminated for financial reporting purposes. |
(2) | NATO charges transloading fees (approximating market rates charged by third party terminals) to the NACA operating segment for hydrochloric acid and caustic soda transloaded from railcars into trucks for delivery to NACA customers that are eliminated for financial reporting purposes. |
Highlights for each business unit are as follows:
General Market Fundamentals
North America Sodium Chlorate: Market estimates suggest that 2014 global pulp demand increased by 2% from 2013 with most of the growth in demand driven by hardwood species which experienced 3.2% higher demand than 2013. China continued to fuel global pulp demand growth with a 4% increase over 2013, while North American demand experienced a modest decrease for the same period of 0.4%. Combined producer inventory levels have remained flat for the past 3 months at 34 days. Softwood inventory in December was at 31 days, whereas hardwood inventory was at 36 days. Combined inventory levels are expected to increase over the next quarter due to reduced planned downtime by producers in most northern countries, coupled with seasonally weaker demand for paper products.
For Q4 2014, North American demand for sodium chlorate was stable, and is expected to increase modestly in 2015 as an idle pulp mill is restarted. 2015 North American sodium chlorate exports are within expectations, and will most likely mirror past year's volumes. North American sodium chlorate industry operating rates during 2014 were stable in the low 90% range, and are expected to remain at these levels for Q1 2015.
North America Chlor-alkali: The North American chlor-alkali industry operated at 80% of capacity in Q4 2014 compared to 86% in Q3 2014. Consistent with historical results, chlorine demand decreased in Q4 2014 due to lower consumption from the vinyls segment and seasonal factors in the water treatment segment.
HCl supply was constrained in Q4 2014 due to production issues at several burner producers and a major by-product site. HCl demand remained strong due to drilling and hydraulic fracturing activity in the oil and gas industry and the market experienced periods of short supply during Q4 2014. See the Oil & Gas general market fundamentals section below.
Caustic soda production in North America decreased 6% in Q4 2014, mirroring the decrease in chlorine industry operating rates compared to Q3 2014. In Western Canada, a decline in regional production was offset by increases in Asian imports. Demand in the region remains strong, supported by high operating rates in the pulp and paper sector.
MECU value held flat in Q4 2014 with a modest chlorine increase offsetting erosion in caustic soda pricing. Looking ahead to Q1 2015, MECU prices are expected to remain stable with potential pressure later in the quarter due to the economic impact of significantly lower oil prices.
South America: Brazilian pulp production and exports in 2014 were 8.8% and 12.6% higher, respectively, than 2013 due to a more balanced market place which saw Brazilian pulp producers experience a price increase in the fourth quarter.
Canexus Brazil experienced slightly lower than expected sodium chlorate demand from its major customer in Q4 2014 but exceeded the anticipated demand for the year.
The Brazilian chlor-alkali industry 2014 capacity utilization rate was 83.7%, 0.8% higher than the previous year. Canexus Brazil's chlor-alkali capacity utilization rate was 95.6% for the same period.
Oil & Gas: During the Q4 2014, oil prices began a downward trend, reaching a yearly low of US$53.27/bbl on December 31, 2014. The differential between Western Canadian Select ("WCS") and West Texas Intermediate ("WTI") also weakened, averaging US$14.24/bbl in Q4 2014 as compared to US$20.18/bbl in Q3 2014. The decrease in oil prices and differentials negatively impacted the demand for crude by rail volumes, however this was partially offset by delays related to pipeline capacity improvements and expansion projects.
As a result of lower oil prices, 2015 capital budgets in the oil and gas industry have been reduced significantly resulting in reduced drilling activity and growth projects in the oil sands but this is not expected to negatively impact production rates. Limited pipeline capacity and strong production rates forecasted for oil sands operations in 2015 will help mitigate the negative impact caused by low oil prices and differentials, however, we do expect some impact on our existing NATO crude by rail transload contracts which do include partial take or pay provisions. In 2015, demand for hydrochloric acid from the drilling and hydraulic fracturing segment is expected to decrease but will not have a significant impact on activity at NATO as hydrochloric acid transloading is not a significant source of revenue for NATO.
Financial Updates
Operating Results for the Three Months and Years Ended December 31, 2014 and 2013 | ||||||||||||
Three Months Ended December 31 |
Year Ended December 31 |
|||||||||||
CAD thousands | 2014 | 2013 | 2014 | 2013 | ||||||||
Sales Revenue | 142,676 | 139,811 | 570,873 | 552,961 | ||||||||
Cost of Sales (1) | 105,563 | 91,638 | 398,630 | 361,170 | ||||||||
Gross Profit | 37,113 | 48,173 | 172,243 | 191,791 | ||||||||
Distribution, Selling and Marketing | 25,456 | 27,457 | 106,315 | 103,841 | ||||||||
General and Administrative (2) | 11,515 | 10,428 | 43,344 | 39,080 | ||||||||
Operating Profit | 142 | 10,288 | 22,584 | 48,870 | ||||||||
Finance Expense | (11,949 | ) | (8,977 | ) | (51,153 | ) | (30,146 | ) | ||||
Other Income (Expense) | (2,151 | ) | (91 | ) | (2,478 | ) | 1,712 | |||||
Impairment | (295,191 | ) | - | (295,191 | ) | - | ||||||
Income (Loss) Before Income Taxes | (309,149 | ) | 1,220 | (326,238 | ) | 20,436 | ||||||
Provision for (Recovery of) Income Taxes | ||||||||||||
Current | 42 | 669 | 3,143 | 3,903 | ||||||||
Deferred | (78,774 | ) | 895 | (79,933 | ) | 4,358 | ||||||
(78,732 | ) | 1,564 | (76,790 | ) | 8,261 | |||||||
Net Income (Loss) | (230,417 | ) | (344 | ) | (249,448 | ) | 12,175 |
Notes: | |
(1) | Depreciation and Amortization included in the three months and year ended December 31, 2014 - $19.6 million and $64.3 million, respectively; Depreciation and Amortization included for the three months and year ended December 31, 2013 - $12.8 million and $48.8 million, respectively. |
(2) | Depreciation and Amortization included for the three months and year ended December 31, 2014 - $0.3 million and $1.2 million, respectively; Depreciation and Amortization included for the three months and year ended December 31, 2013 - $0.4 million and $1.1 million, respectively. |
Financial Statements, Conference Call and Webcast
Financial Statements and Management's Discussion and Analysis ("MD&A") will be posted on the Canexus website at www.canexus.ca and filed on SEDAR. Management will host a conference call and webcast at 7 am MT (9 am ET) on March 13, 2015, to discuss the financial and operating results of the Corporation. A presentation will be available on our website to facilitate the conference call.
Please call 1-888-818-4097 or 1-800-2787-2090 outside of Canada and the USA. The conference call will also be accessible via webcast at www.canexus.ca.
A replay of the conference call will be available until end of day ET on March 20, 2015. To access the replay call 1-800-408-3053 or 1-800-3366-3052, outside of Canada and the USA, followed by passcode 2221841#.
Non-GAAP Measures
Cash operating profit, cash operating profit percentage, payout ratio, cash payout ratio and distributable cash are financial measures not determined in accordance with generally accepted accounting principles for publicly accountable enterprises in Canada ("GAAP"), but management believes they are useful in measuring the Corporation's performance. Readers are cautioned that these measures should not be construed as alternatives to net income or loss or other comparable measures determined in accordance with GAAP as an indicator of the Corporation's performance or as a measure of the Corporation's liquidity and cash flow. The Corporation's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Corporation's non-GAAP measures are unlikely to be comparable to similarly titled measures used by other issuers. Readers should consult the Corporation's MD&A for the year ended December 31, 2014 filed on SEDAR for a complete explanation of how the Corporation calculates each such non-GAAP measure.
Forward-Looking Statements
This news release contains forward-looking statements and information relating to expected future events relating to Canexus and its subsidiaries, including with respect to: the magnitude of retained funds and the purposes to which they will be applied as a result of the decrease in dividends; the potential sale of NATO and other assets; the success of initiatives to reduce debt and enhance liquidity; the success of BIP in reducing costs and improving plant uptime and the magnitude and timing thereof, including at the NATO unit train facility; expectations for reduced investment in normalized working capital and containing maintenance capital spending and the magnitude thereof; improvements to operating reliability and manufacturing conversion efficiency; reduced demand and pricing for HCl and impact thereof; production increases at Brandon; North American sodium chlorate industry operating rates and demand; North American Chlor-alkali and MECU prices in Q1 2015 and thereafter; caustic soda prices in 2015; loading time improvements at NATO unit train facility; nominations by NATO customers for unit trains and the use of spot contracts to offset lower nominations; COP from NATO unit train activities and the timing thereof; cost reduction at NATO manifest operations; inventory levels of pulp; and the impact of low oil prices and WTI/WCS differentials on the NATO transloading business. The use of the words "expects", "anticipates", "continue", "estimates", "projects", "should", "believe", "plans", "intends", "may", "will" or similar expressions are intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including market and general economic conditions, future costs, treatment under governmental regulatory, tax and environmental regimes and the other risks and uncertainties detailed under "Risk Factors" in the Corporation's Annual Information Form filed on the Corporation's SEDAR profile at www.sedar.com. Management believes the expectations reflected in these forward-looking statements are currently reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Due to the potential impact of these factors, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Any financial outlook information contained in this news release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on Management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than those for which it is disclosed herein.
About Canexus
Canexus produces sodium chlorate and chlor-alkali products largely for the pulp and paper and water treatment industries. Our four plants in Canada and two at one site in Brazil are reliable, low-cost, strategically located facilities that capitalize on competitive electricity costs and transportation infrastructure to minimize production and delivery costs. Canexus also provides fee-for-service hydrocarbon transloading services to the oil and gas industry from its terminal at Bruderheim, Alberta. Canexus targets opportunities to maximize shareholder returns and delivers high-quality products to its customers and is committed to Responsible Care® through safe operating practices. Canexus' common shares (CUS) and debentures (Series III - CUS.DB.A; Series IV - CUS.DB.B; Series V - CUS.DB.C; Series VI - CUS.DB.D) trade on the Toronto Stock Exchange. More information about Canexus is available at www.canexus.ca.
Contact Information:
Further Information:
Richard McLellan, CA
Senior Vice President Finance and CFO
Canexus Corporation
(403) 571-7300
Robin Greschner
Investor Relations
Canexus Corporation
(403) 571-7356