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Conifex (TSE: CFF).

Established in 2008, Conifex Timber Inc. is a growth oriented publicly traded Canadian company operating in British Columbia's northern interior, with a focus is on forestry, sawmilling, and power generation.

* We manufacture structural grade SPF dimension lumber and produce clean, renewable energy from our sawmill residuals.

* We practice safety and sustainability in everything we do.

* Our strong fibre basket supports lumber production increases and our bioeconomy footprint.

http://conifex.com/about/

Conifex Announces First Quarter 2019 Results.

14/5/2019

Conifex Timber Inc. ("Conifex", "we" or "us") (TSX: CFF) today reported results for the first quarter ended March 31, 2019. Adjusted EBITDA* was negative $2.7 million for the quarter, which represented an improvement of $4.5 million over the fourth quarter of 2018, attributable to an improvement in lumber segment EBITDA of $1.9 million and in corporate and unallocated items EBITDA of $2.6 million. Compared to the first quarter of 2018, bioenergy segment EBITDA** improved by $1.1 million and lumber segment EBITDA declined by $12.6 million. Lumber segment EBITDA included softwood lumber duties expense of $3.8 million in the first quarter of 2019, $3.7 million in the fourth quarter of 2018 and $6.2 million in the first quarter of 2018.

Selected Financial Highlights.

Consolidated Net Earnings.

During the first quarter of 2019, we incurred a net loss of $11.9 million, or $0.25 per share, compared to a net loss of $23.0 million or $0.49 per share in the previous quarter and net income of $2.5 million or $0.10 per share in the first quarter of 2018.

Continuing Operations.

Our revenues totaled $133.7 million in the first quarter of 2019, a 2% decline from the prior quarter and an improvement of 43% over the same quarter last year. Compared to the first quarter of 2018, revenue growth was largely derived from the addition of our US mills and partially offset by lower shipments and unit sales realizations from our BC mills. Bioenergy segment revenues were generally consistent with the previous quarter and improved by 9% over the first quarter of 2018.

We recorded operating losses of $13.5 million in the lumber segment in the first quarter of 2019 and $15.8 million in the previous quarter and operating earnings of $6.0 million in the first quarter of 2018. Lumber segment operating results included countervailing and anti-dumping duty expense of $3.8 million in the first quarter of 2019, $3.7 million in the fourth quarter of 2018 and $6.2 million in the first quarter of 2018. The bioenergy segment contributed operating earnings of $3.0 million in the first quarter of 2019 and in the previous quarter, an improvement of 50% over the first quarter of 2018. Corporate costs of $1.9 million represented a reduction of $0.6 million from the previous quarter and an increase of $0.2 million over first quarter of 2018.

Net income from continuing operations included a foreign exchange gain on long-term debt of $4.5 million in the first quarter of 2019 and a loss of $11.3 million in the previous quarter. Finance costs were $6.1 million in the first quarter of 2019, $6.5 million in the previous quarter and $1.5 million in the first quarter of 2018. We recognized deferred income tax recovery of $1.5 million in the first quarter of 2019 and $10.2 million in the previous quarter and deferred income tax expense of $0.7 million in the same quarter last year.

Lumber Segment--Continuing Operations.

Reduced Operating Rates at our BC and US Mills.

Our lumber segment operating results were hampered by lower operating rates which resulted in higher unit cash conversion costs at our Fort St. James, BC mill (the "FSJ Mill") and our El Dorado and Glenwood, Arkansas mills in the first quarter of 2019 and the fourth quarter of 2018.

In the fourth quarter of 2018, we curtailed sawmill operations at the FSJ Mill for a total of approximately four weeks due primarily to market conditions reflecting lower lumber prices and elevated log costs, exacerbated by the ongoing imposition of softwood lumber duties. The lower operating rates at the FSJ Mill resulted in approximately 23 million board feet of reduced production in the fourth quarter of 2018.

The previously announced temporary reduction of operating capacity at the FSJ Mill commenced on January 1, 2019, with the reduced operating format expected to continue until about mid-2019. In addition, sawmill operations at the FSJ Mill were temporarily curtailed for three weeks in February. We expect the curtailments to result in an estimated 28% reduction in lumber production from our BC mills for the first six months of 2019. Lumber production at our BC mills totalled approximately 74 million board feet during the first quarter of 2019 which represented an annualized operating rate of 54% compared to 69% in the previous quarter and 92% in the first quarter of 2018.

Our US mills produced Southern Yellow Pine ("SYP") lumber at an annualized run rate of approximately 418 million board feet in the first quarter of 2019 and 380 million board feet in the fourth quarter of 2018. Production levels in the first quarter of 2019, on an annualized basis, represented approximately 89% of targeted levels for 2019 and 76% of two-shift dimension lumber production capacity of 550 million board feet. Production at our US mills of approximately 105 million board feet represented growth of 10% over the previous quarter and contributed 60% of overall production.

Overall operating results from our Arkansas mills continue to be hampered by higher operating costs related to the additional costs and ramp up of second shifts, which commenced in August 2018, without the attendant benefit of full two-shift productivity. We expect unit cash conversion costs to normalize in the second half of 2019 as operating rates approach targeted levels.

Lumber Segment Operating Results.

Prices for the bell-weather WSPF 2x4 #2 & Btr product averaged US$372 during the first quarter of 2019, an improvement of 14% over the previous quarter and a decline of 28% over the first quarter of 2018. Benchmark prices for SYP Westside averaged US$402 during the first quarter of 2019, a decline of 4% from the previous quarter and 26% from the first quarter of 2018.

The US dollar averaged US$0.752 for each Canadian dollar during the first quarter of 2019, which represented a modest weakening of the Canadian dollar compared to the previous quarter and weakening of 5% compared to the same quarter last year. Canadian dollar-denominated benchmark WSPF prices, which averaged $495 in the first quarter of 2019, improved by 15% or $63 from the previous quarter and declined by 24% or $155 from the first quarter of 2018.3

Revenues from Conifex produced lumber were $96.5 million in the first quarter of 2019 and represented a 2% decline from the previous quarter. Compared to the previous quarter, a decline in shipment volumes of 5% outweighed an improvement in sales realization of 4%. Shipments from our BC mills declined by 21% and mirrored lower production levels resulting from the change in operating format and temporary curtailment at the FSJ Mill. Shipments from the US mills increased by 11% and reflected similar improvements in production volumes. Compared to the first quarter of 2018, revenue growth of 37% was primarily attributable to the addition of shipments from the US mills, partially offset by 30% lower shipment volumes from our BC mills and a decline in sales realizations due to weaker lumber prices. Wholesale lumber revenues increased by 15% over the previous quarter and more than doubled compared to the same quarter last year.

Unit log costs were relatively flat quarter-over quarter and increased by 14% over the same quarter last year at our BC mills. The higher log costs were mainly attributable to higher market-based stumpage and purchased log costs. Unit log costs at our El Dorado and Cross City mills were generally consistent with the prior quarter. We experienced higher unit log costs and periodic production disruptions at our Glenwood mill due to extreme wet weather conditions which constrained log availability and heightened local competition for logs in the first quarter of 2019 and the previous quarter.

An increase in depreciation and amortization expense of $4.7 million over the first quarter of 2018 was largely attributable to our expanded operations in the US South.

We recorded a positive inventory valuation adjustment of $1.6 million in the first quarter of 2019 and inventory write downs of $1.4 million in the previous quarter and $0.6 million in the first quarter of 2018.

We expensed countervailing and anti-dumping duty deposits of $3.8 million in the first quarter of 2019, $3.7 million in the previous quarter and $6.2 million in the first quarter of 2018. The duty deposits were based on a combined rate of 20.23%.

The lumber segment recorded operating losses of $13.5 million in the first quarter of 2019 and $15.8 million in the previous quarter and operating income of $6.0 million in the first quarter of 2018. Compared to the previous quarter, lumber segment operating results were hampered by lower overall lumber shipments and operating rates, and higher unit operating costs at our BC mills, which outweighed the benefits of improved sales realization and a positive quarter-over-quarter variance in inventory valuation adjustments. Compared to the first quarter of 2018, lumber segment operating results were challenged by lower operating rates and higher unit operating and log costs at our BC mills, elevated operating costs at our Arkansas mills due to the ongoing ramp up of production, higher depreciation expense and lower sales realizations from our BC mills due to weaker lumber prices. These factors were partially offset by overall revenue growth from increased lumber and residual shipments, lower duty deposit expense and a positive inventory valuation adjustment.

Lumber segment EBITDA was negative $6.0 million in the first quarter of 2019, an improvement of $1.9 million over the previous quarter. Lumber segment EBITDA was $6.6 million in the first quarter of 2018.

Liquidity.

We ended the first quarter of 2019 with liquidity of $11.1 million, compared to $17.8 million at the end of 2018. The decreased level of liquidity over the recent past six months was due mostly to declines in lumber prices in the second half of the year, duty deposits on US shipments, escalating log costs at our BC mills and increased debt to fund the acquisition of our new U.S. mills. We have taken a number of actions to reduce cash outflows at our BC mills, increase cash inflows at our US mills, and more actively manage debt and working capital levels. We are also prioritizing operational enhancements and cost controls as our two Arkansas mills ramp up two-shift production to targeted operating rates. We expect our US mills to provide additional reliable sources of cash flow as productivity and other operational improvements continue to progress throughout 2019. We are also reviewing other options to increase liquidity, such as reducing discretionary capital expenditures and monetizing certain assets that are not central to our mid- and long-term development as a North American lumber producer.

Subsequent to the end of our reporting quarter, we enhanced our liquidity with the completion of the sale of Lignum on April 1, 2019 and utilized the proceeds of approximately US$11.5 million to partially repay a portion of the revolving credit facility.

Our net debt to capitalization ratio was 49% at March 31, 2019 compared to 47% at December 31, 2018. Net debt at March 31, 2019 was $309.8 million compared to $307.0 million at December 31, 2018. Our net debt to capitalization ratio, excluding borrowings for our power segment that are largely non-recourse to our other operations, was 43% at March 31, 2019 compared to 42% at December 31, 2018.

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Title Annotation:Leading Companies
Publication:Canada Pulp & Paper
Geographic Code:1CBRI
Date:Aug 6, 2019
Words:2013
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