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Ainsworth Announces Second Quarter 2014 Results

VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 08/11/14 -- Ainsworth Lumber Co. Ltd. (TSX: ANS) today announced its financial results for the second quarter ended June 30, 2014.


--  Generated adjusted EBITDA of $13.1 million ($23.3 million year to date)
--  Year to date shipment volumes 11% higher than prior year
--  Continued growth in key export markets
--  6% reduction in unit costs quarter over quarter

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."

Financial Results

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.

Selected financial information is presented in the tables below. The full financial report is available to be viewed at the following link: http://media3.marketwire.com/docs/Ainsworth_Q2_2014_FS.pdf.

Selected Financial Information
                                           Q2-14    Q2-13 YTD 2014 YTD 2013
(in millions of Canadian dollars, except
 per share data)
Sales                                    $ 117.4  $ 127.5  $ 225.2  $ 269.3
Cost of products sold                      100.5     72.7    194.3    148.1
Net (loss) income from continuing
 operations                                 12.3      2.8     (2.2)    39.3
Net (loss) income                           12.8      2.6     (2.5)    38.9
Adjusted EBITDA (1)                         13.1     50.7     23.3    113.2
Adjusted EBITDA margin (2)                  11.2%    39.8%    10.3%    42.0%
Basic and diluted earnings per share:
 Net (loss) income from continuing
  operations                                0.05     0.01    (0.01)    0.16
 Net (loss) income                          0.05     0.01    (0.01)    0.16
 Weighted average common shares
  outstanding (3)                          240.9    240.8    240.9    240.8
 (1) Adjusted EBITDA, a non-IFRS financial measure, is defined as net income
     (loss) from continuing operations before amortization, (gain) loss on
     disposal of property, plant and equipment, cost of curtailed
     operations, share-based compensation expense, finance expense, foreign
     exchange (gain) loss on long-term debt, other foreign exchange (gain)
     loss, interest income earned on investments, income tax expense
     (recovery), and non-recurring items.
 (2) Adjusted EBITDA margin, a non-IFRS financial measure, is defined as
     adjusted EBITDA divided by sales.
 (3) 240,906,309 common shares were outstanding on June 30, 2014.

Reconciliation of Net Income to Adjusted EBITDA
                                           Q2-14    Q2-13 YTD 2014 YTD 2013
(in millions of Canadian dollars)
Net (loss) income from continuing
 operations                              $  12.3  $   2.8  $  (2.2) $  39.3
Add (deduct):
 Amortization of property, plant and
  equipment                                  7.5      6.2     14.8     12.6
 Finance expense                             6.7      7.4     13.4     14.3
 Loss (Gain) on derivative financial
  instrument                                 0.6      7.5     (3.4)    (0.6)
 Foreign exchange (gain) loss on long-
  term debt                                (12.5)    13.1      1.1     20.7
 Income tax (recovery) expense              (0.6)     6.6     (1.0)    20.1
 Stock-based compensation (recovery)
  expense                                   (0.4)     1.0     (0.4)     1.1
 Other                                      (0.3)    (1.2)    (1.5)    (3.2)
 (Recovery) Costs related to LP
  acquisition                               (0.2)       -      2.2        -
 Loss on disposal of property, plant and
  equipment                                    -        -      0.3        -
 Write-down of property, plant and
  equipment                                    -      3.8        -      3.8
 Cost of curtailed operations                  -      3.5        -      5.1
Adjusted EBITDA                          $  13.1  $  50.7  $  23.3  $ 113.2

Conference Call Information

Ainsworth will hold a conference call on Tuesday, August 12, 2014 at 8:30 a.m. PT (11:30 p.m. ET). The dial-in phone number is 1-800-319-4610 from inside the USA or Canada, and +1-604-638-5340 from outside of the USA and Canada. To access the replay line, dial 1-800-319-6413, or +1-604-638-9010, Reservation 4176#. This recording will be available until the end of the day on August 19, 2014.

The financial results are based on International Financial Reporting Standards. Investors, analysts and other interested parties can access Ainsworth's 2014 Second Quarter Results as well as the Shareholders' Letter and Supplemental Information on Ainsworth's website under the Investors / Financial Reports section at www.ainsworthengineered.com.

Forward Looking Statements

Forward-looking information provided in this news release relating to the Company's expectations regarding OSB demand and pricing and the Company's future prospects and financial position are forward-looking information pursuant to National Instrument 51-102 promulgated by the Canadian Securities Administrators. The Company believes that expectations reflected in such information are reasonable, but no assurance is given that such expectations will be correct. Forward-looking information is based on the Company's beliefs and assumptions based on information available at the time the assumption was made and on management's experience and perception of historical trends, current conditions and expected further developments as well as other factors deemed appropriate in the circumstances. Investors are cautioned that there are risks and uncertainties related to such forward-looking information and actual results may vary. Important factors that could cause actual results to differ materially from those expressed or implied by such forward looking information include, without limitation, factors detailed from time to time in the Company's periodic reports filed with the Canadian Securities Administrators and other regulatory authorities. The forward-looking information is made as of the date of this news release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as explicitly required by securities laws.

About Ainsworth

Ainsworth Lumber Co. Ltd. is a leading manufacturer and marketer of oriented strand board ("OSB") with a focus on value-added specialty products for markets in North America and Asia. Ainsworth's four OSB manufacturing mills, located in Alberta, British Columbia and Ontario, have a combined annual capacity of 2.5 billion square feet (3/8-inch basis). Ainsworth is a publicly traded company listed on the Toronto Stock Exchange under the symbol ANS.

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