CALGARY, AB–(Marketwired – May 05, 2016) – Canexus Corporation (TSX: CUS) (the “Corporation” or “Canexus”) today announced its financial results for the first quarter ended March 31, 2016.
Highlights
- Cash Operating Profit (“COP”) was $31.1M for the first quarter of 2016, excluding $4.6 million of one-time costs (Q4/15 – $27.1M; Q1/15 – $32.4M). Results reflect continued strong performance from the North American Sodium Chlorate and South America business units.
- On December 11, 2015, 99.19% of Canexus shareholders voted in favour of the transaction with Superior Plus (“The Transaction”). The Transaction is pending regulatory approval and is anticipated to close in the first half of 2016. Given that the Transaction is anticipated to close prior to the record date, the Corporation is not declaring a dividend at this time.
- Canexus amended its Credit Agreement with its syndicate of banks which provides the Corporation with relaxed financial covenants.
Financial Results
COP was $31.1M for the first quarter of 2016, excluding $4.6 million of one-time costs (Q4/15 – $27.1M; Q1/15 – $32.4M). Our Q1/16 results reflect strong sales volumes from our North American Sodium Chlorate business unit, robust demand in the chlorine and caustic soda markets, as well as higher realized prices in the US due to the continued benefits of the weak Canadian dollar, and greater realized margin from our US dollar fixed margin contract in Brazil due to the strong US dollar.
These positive results were partially offset by continued weak hydrochloric acid (“HCl”) demand due to reduced oil and gas hydraulic fracturing activity. The Corporation also incurred one-time G&A costs of $4.6 million; the majority related to the Transaction with Superior.
At March 31, 2016, the Corporation had approximately $94 million of available liquidity under our revolving credit facility. Following four consecutive quarters with record COP from our Sodium Chlorate business unit, and the sale of NATO in 2015, Canexus has reduced its debt and leverage by 10% since Q1/15. As previously announced on March 22, 2016, Canexus amended its Credit Agreement with its syndicate of banks. The amendment modifies certain financial leverage covenants relating to the first and second quarters of 2016, which allows ample liquidity through to the anticipated closing of the Transaction. In addition, amendments were made allowing adding back of certain one-time costs to EBITDA, which provides enhanced access to liquidity through to maturity at June 30, 2017. At the ordinary course, the Company has the opportunity to request an amendment and an extension of the facility as provided in the agreement.
Operational Results
North American Sodium Chlorate
Canexus’ North American Sodium Chlorate business continued to generate solid results, as Q1/16 COP of $22.4 million (Q4/15 – $20.1 million; Q1/15 – $16.6 million) was achieved. Strong quarterly business unit sales volumes were 96,000 MTs, reflecting a 5% improvement over the same quarter in the previous year. We experienced higher realized prices from our US customers in the first quarter as a result of the ongoing weakness of the Canadian dollar relative to the US dollar, with approximately two-thirds of our sales volume exported to the US.
North American Chlor-alkali
Canexus’ North American Chlor-alkali business had a COP of $2.4 million for the quarter (Q4/15 – $4.1 million; Q1/15 – $8.1 million). Despite continued headwinds in the HCl market, the Corporation has effectively managed its product mix and secured additional sales volumes for chlorine to maintain positive cash flow. Chlorine sales volumes were up 23% over the previous quarter. Demand for caustic soda was also strong in Q1/16 in North America led by higher export volumes from US gulf coast producers.
The North Vancouver plant continues to operate at reduced capacity due to a compressor outage caused by mechanical failure in Q3/15. Resumption to full capacity is now expected in early Q3/16 following a delay in the ongoing repair work. Given the weakness in the hydrochloric acid market, the overall impact of this setback to the business is less significant than under normal market conditions. The Corporation continues to proceed with Business Interruption and Property Claims under its insurance policies. The successful completion of last year’s caustic modernization and anode replacement projects at our North Vancouver plant, as well as the expected installation of a refurbished compressor, positions Canexus to have the potential to operate at full capacity in Q3/16, and profit from a future rebound in the hydrochloric acid market.
South America
Canexus’ Brazil operations generated COP of $7.7 million in the quarter (Q4/15 – $6.1 million; Q1/15 – $7.0 million). Brazil’s operations continue to be highly stable with our primary customer running at high production rates, resulting in strong demand for our products which are sold under a long-term, cost plus, fixed US dollar margin contract. This business is also experiencing positive uplift from the devaluation of the Canadian dollar and the Brazilian Real as compared to the US dollar, as well as lower purchased product and fixed costs.
Transaction Update
On October 6, 2015, Canexus announced it had entered into an arrangement agreement whereby Superior would acquire all the issued and outstanding common shares of Canexus by way of a court approved plan of arrangement. Under terms of the arrangement, Canexus shareholders will receive 0.153 of a Superior common share for each Canexus common share. On December 11, 2015, 99.19% of Canexus shareholders voted in favour of the Transaction. The Transaction is subject to receipt of regulatory approval and the satisfaction of certain other commercial conditions. The transaction is anticipated to close in the first half of 2016.
Financial Results
Highlights
| Three Months Ended March 31 |
|||
| 2016 | 2015 | ||
| Average Canadian to US dollar exchange | (1 CAD to USD) | .7193 | .8320 |
| Period end Canadian to US dollar exchange | (1 CAD to USD) | .7402 | .7914 |
| Sodium Chlorate Sales Volume | (000’s MT) | 110 | 105 |
| Chlor-alkali Sales Volume | (000’s MECU) | 45 | 51 |
| Sales Revenue (2) | ($000s) | 144,533 | 139,657 |
| Cash Operating Profit (1) (2) | ($000s) | 26,526 | 29,431 |
| Cash Operating Profit (excluding One-Time Costs) (1) (2) (3) | ($000s) | 31,139 | 32,430 |
| Maintenance Capital Expenditures (2) | ($000s) | 4,205 | 4,603 |
Notes:
(1) Cash Operating Profit is a non-GAAP measure. See ‘Non-GAAP Measures”.
(2) Excludes the results of discontinued operations.
(3) One-Time Costs are comprised of expenses related to the Transaction, severance, the Board’s review of strategic alternatives, and certain litigation.
Segmented Information for the Three Months Ended March 31, 2016 and 2015
Canexus has a total of six electrochemical manufacturing plants — four in Canada and two at one site in Brazil — organized into three business units. Below is our first quarter performance by segment.
| North America | ||||||||
| Three Months Ended March 31, 2016 | Sodium Chlorate |
Chlor- alkali |
South America |
Corporate |
Total |
|||
| Sales Revenue | ||||||||
| Total Segment | 71,636 | 49,166 | 23,810 | – | 144,612 | |||
| Inter-Segment (1) | 79 | – | – | – | 79 | |||
| Total Sales Revenue from External Customers | 71,557 | 49,166 | 23,810 | – | 144,533 | |||
| Cost of Sales | 39,674 | 30,585 | 18,904 | 132 | 89,295 | |||
| Distribution, Selling and Marketing | ||||||||
| Total Segment | 10,493 | 17,302 | 144 | 429 | 28,368 | |||
| Inter-Segment (1) | – | 79 | – | – | 79 | |||
| Total External Distribution, Selling and Marketing | 10,493 | 17,223 | 144 | 429 | 28,289 | |||
| General and Administrative | 2,567 | 3,204 | 728 | 6,095 | 12,594 | |||
| Operating Profit (Loss) | 18,823 | (1,846 | ) | 4,034 | (6,656 | ) | 14,355 | |
| Add: | ||||||||
| Depreciation and Amortization | 3,548 | 4,196 | 3,656 | 178 | 11,578 | |||
| Share-based Compensation Expense | – | – | – | 593 | 593 | |||
| Cash Operating Profit (Loss) | 22,371 | 2,350 | 7,690 | (5,885 | ) | 26,526 | ||
| Cash Operating Profit Percentage | 31% | 5% | 32% | – | 18% | |||
| North America | ||||||||
| Three Months Ended March 31, 2015 | Sodium Chlorate |
Chlor- alkali |
South America |
Corporate |
Total |
|||
| Sales Revenue | ||||||||
| Total Segment | 62,785 | 51,667 | 25,282 | – | 139,734 | |||
| Inter-Segment (1) | 77 | – | – | – | 77 | |||
| Total Sales Revenue from External Customers | 62,708 | 51,667 | 25,282 | – | 139,657 | |||
| Cost of Sales | 37,027 | 28,104 | 20,212 | 49 | 85,392 | |||
| Distribution, Selling and Marketing | ||||||||
| Total Segment | 9,289 | 16,627 | 168 | 458 | 26,542 | |||
| Inter-Segment (1) | – | 575 | – | – | 575 | |||
| Total External Distribution, Selling and Marketing | 9,289 | 16,052 | 168 | 458 | 25,967 | |||
| General and Administrative | 3,314 | 4,136 | 934 | 1,564 | 9,948 | |||
| Operating Profit (Loss) | 13,078 | 3,375 | 3,968 | (2,071 | ) | 18,350 | ||
| Add (Deduct): | ||||||||
| Depreciation and Amortization | 3,531 | 4,746 | 3,008 | 197 | 11,482 | |||
| Share-based Compensation Recovery | – | – | – | (401 | ) | (401 | ) | |
| Cash Operating Profit (Loss) | 16,609 | 8,121 | 6,976 | (2,275 | ) | 29,431 | ||
| Cash Operating Profit Percentage | 26% | 16% | 28% | 21% | ||||
Notes:
(1) The North America Sodium Chlorate operating segment provides transloading services at market rates to the North America Chlor-alkali (‘NACA”) operating segment for caustic soda transloaded from barges into trucks for delivery to NACA customers that are eliminated for financial reporting purposes.
Operating Results for the Three Months Ended March 31, 2016 and 2015
| Three Months Ended March 31 | |||
| CAD thousands | 2016 | 2015 | |
| CONTINUING OPERATIONS | |||
| Sales Revenue | 144,533 | 139,657 | |
| Cost of Sales (1) | 89,295 | 85,392 | |
| Gross Profit | 55,238 | 54,265 | |
| Distribution, Selling and Marketing | 28,289 | 25,967 | |
| General and Administrative (2) | 12,594 | 9,948 | |
| Operating Profit | 14,355 | 18,350 | |
| Finance Income (Expense) | 2,996 | (14,543 | ) |
| Other Income (Expense) | 1,516 | (2,524 | ) |
| Income Before Income Taxes | 18,867 | 1,283 | |
| Provision for Income Taxes | 2,351 | 1,327 | |
| Income (Loss) from Continuing Operations | 16,516 | (44 | ) |
| DISCONTINUED OPERATIONS | |||
| Loss from Discontinued Operations | – | (5,888 | ) |
| Net Income (Loss) | 16,516 | (5,932 | ) |
Notes:
(1) Depreciation and Amortization included in the three months ended March 31, 2016 – $11.4 million (three months ended March 31, 2015 – $11.3 million)
(2)
Depreciation and Amortization included for the three months ended March 31, 2016 – $0.2 million (three months ended March 31, 2015 – $0.2 million)
Conference Call
Canexus will hold a conference call on May 6, 2016 at 8:30 am MT (10:30 am ET)
to discuss Canexus’ first quarter 2016 financial results. A news release will be issued the evening before the call. Financial Statements and Management’s Discussion and Analysis will be posted on the Canexus website at www.canexus.ca and filed on SEDAR.
The call will be hosted by Doug Wonnacott, President and Chief Executive Officer; Dean Beacon, Senior Vice President, Finance and Chief Financial Officer; Brian Bourgeois, Senior Vice President Sales and Marketing; and Ross Wonnick, Vice President, General Counsel and Corporate Secretary. Following the call there will be a question and answer session for analysts and institutional investors.
To access the call, please dial 1-416-340-2219 or 1-866-225-6564 outside Canada and US. A replay of the conference call will be available until end of day ET on May 16, 2016. To access the replay call 1-905-694-9451 or 1-800-408-3053 outside Canada and US, followed by passcode 4822769#.
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 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 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.
Non-GAAP Measure
Cash operating profit (loss) is a financial measure not determined in accordance with generally accepted accounting principles for publicly accountable enterprises in Canada (“GAAP”), but management believes is useful in measuring the Corporation’s performance. Readers are cautioned that this measure should not be construed as alternative 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 three months ended March 31, 2016 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 and financial and operating results of the Corporation and its subsidiaries, including with respect to: expectations for the completion of, and the efficiencies to be gained as a result of, the Transaction, including reduced costs and enhanced synergies; expectations for operational flexibility, expected capacity constraints at North Vancouver and the timing of compressor repair at the North Vancouver plant; the impact of the covenant amendment on liquidity; expectations for savings as a result of the caustic modernization project; expectations for HCl demand and pricing; expectations for the oil & gas sector; . 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.
Further Information:
Dean R. Beacon
Senior Vice President, Finance and CFO
Canexus Corporation
(403) 571-7300
Robin Greschner
Investor Relations
Canexus Corporation
(403) 571-7356
