CALGARY, ALBERTA — (Marketwired) — 05/08/13 — Canexus Corporation (TSX: CUS) (the „Corporation“ or „Canexus“) today announced its financial results for the first quarter ended March 31, 2013.
Highlights:
„In the first quarter of 2013, market headwinds, plant outages and project delays at NATO hampered our financial performance and this will extend into the second quarter,“ said Gary Kubera, President and CEO. „We continue to expect to deliver record Cash Operating Profit in the second half of the year as major capital projects are completed and the challenges associated with establishing and ramping-up our NATO truck-to-rail transloading business are put behind us. The market fundamentals for oil-by-rail movements are solid and we are making excellent progress in establishing strategic long-term relationships with both producers and with end-use customers unlikely to be served by major pipelines.“
„Both our North American sodium chlorate business and Brazil operations are performing well and market conditions are expected to support strong business performance over the balance of the year. Over the next few quarters, we will see the successful implementation of major projects and delivery of the cash flow expectations that we have set for these initiatives,“ he added.
Distributable Cash
Distributable cash of Canexus Corporation was $21.9 million ($0.16 per common share) for the quarter resulting in a payout ratio of 85%.
Below is a reconciliation of net cash generated from operating activities to Distributable Cash of the Corporation for the three months ended March 31, 2013 and 2012.
Segmented Information for the Three Month Periods Ended March 31, 2013 and 2012
Canexus has a total of six 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 first quarter performance by segment.
Highlights for each business unit are as follows:
Market Fundamentals
North America Sodium Chlorate: Market pulp fundamentals remained relatively stable for the three months ended March 31, 2013, improving modestly in the period. Combined producer inventories were higher than historical averages for January and February, due mainly to reduced purchases from China during the Lunar New Year. As of February, producer inventories were at 35 days, slightly above a balanced level of 33 days. Softwood pulp inventories were stable from the previous month at 32 days, similar to hardwood inventories that were flat for the past two months at 39 days. Recent advances in pricing for most grades suggest that pulp shipments to China accelerated in March. Demand for pulp is expected to remain strong in most regions of the globe, as new demand coming from the start-up of several tissue machines will require market pulp. Inventories are expected to decline over the next few months due to the spring maintenance season now commencing in both North and South America. As a result of strong demand and reduced inventories, pulp prices should hold their current levels, and potentially continue their modest upward trend throughout the first half of the year.
Demand for sodium chlorate in North America was stable for the first quarter of 2013, and is expected to remain strong for the remainder of the year. Sodium chlorate exports from North America for the first two months of 2013, suggest another strong year with volumes that should mirror those of 2012. Operating rates for the North American sodium chlorate industry are expected to remain at strong levels, between 93 and 95%, for 2013.
North America Chlor-alkali: The North American chlor-alkali industry operated at an estimated 82% of capacity in the first quarter of 2013, compared with 82% in the previous quarter and 85% in the same quarter of 2012. Domestic Polyvinyl Chloride („PVC“) demand is gradually improving and export demand for PVC and isocyanates remains strong. Utilization rates are expected to be approximately 85% for the second quarter of 2013 due to increased demand from seasonal water treatment consumers.
North American caustic soda supply was balanced with demand for the first quarter of 2013, while export supply from Asia to the west coast remained strong due to weakness in domestic demand in China and Japan.
North American hydrochloric acid supply outpaced demand for the first quarter of 2013 due to strong byproduct and burner production. Hydrochloric acid demand from oil well fracturing in Western Canada was strong and balanced with supply but is expected to decline for the second quarter of 2013, consistent with reduced activity due to seasonal spring thaw conditions.
North American MECU prices held stable for the first quarter of 2013 with the exception of the west coast, where caustic soda prices declined due to the impact of lower cost imports from Asia. Downward pressure on PVC prices in Asia is resulting in higher caustic soda price nominations for export cargo booked for the second quarter of 2013. Several North American producers have announced price increases for both chlorine and caustic soda for implementation in the second quarter of 2013. Hydrochloric acid prices experienced some erosion in the first quarter of 2013 and are expected to stabilize in the second quarter of 2013.
South America: Brazilian pulp production in the first quarter was 1.8% higher than the same period in the prior year. Exports were 0.4% higher than the same period in the prior year. The Eldorado mill is now exporting and 100% capacity utilization was expected by April. Significant producers have announced price increases to be implemented May 1, 2013.
Canexus Brazil-s major sodium chlorate customer demonstrated lower than expected sodium chlorate demand due to process issues but is expected to recover these production losses by the end of the year. Canexus Brazil-s sodium chlorate plant operated close to planned volumes for the first quarter of 2013 due to higher sales to the merchant market.
In the first quarter of 2013, the Brazilian chlor alkali capacity utilization rate was 84%, approximately 3.0% lower than the same period in 2012. The reduction was due to manufacturing issues associated with two key producers. Canexus Brazil-s chlor-alkali capacity utilization was 99% during the first quarter and was in line with expectations.
Oil & Gas: Benchmark crude oil prices (Brent, WTI) eased slightly, while Western Canadian prices („WCS“) improved gradually during the first quarter of 2013. Ongoing infrastructure bottlenecks continued to hold back regional prices in North America. Price differentials between Western Canadian grades and other key benchmarks narrowed modestly during the first quarter of 2013 but remain wide enough to support strong demand for rail-based oil transportation services.
Natural gas prices rose modestly during the first quarter of 2013 but high inventory levels continued to constrain prices. Natural gas inventories remain solid and prices are expected to remain stable in the short term. Production is expected to continue to gradually fall in North America in 2013 and prices are expected to begin increasing modestly in the longer term.
Drilling activity picked up significantly in Western Canada in the first quarter of 2013 as well-service companies took advantage of frozen ground conditions to access well sites. Drilling remains predominantly focused on oil production, however gas related drilling also increased during the first quarter of 2013. Increased levels of drilling activity support continued demand for hydrochloric acid.
Financial Updates
Operating Results for the Three Months Ended March 31, 2013 and 2012
Financial Statements, Conference Call and Webcast
Financial Statements and Management-s Discussion and Analysis will be posted on the Canexus website at and filed on SEDAR. Management will host a conference call at 9 a.m. ET on May 9, 2013, to discuss the results. A Q1 2013 presentation will be available on our website to facilitate the conference call. Please call 416-644-3416 or 1-800-814-4861. The conference call will also be accessible via webcast at . A replay of the conference call will be available until midnight May 16, 2013. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 4613570#.
Non-GAAP Measures
Cash Operating Profit, Cash Operating Profit Percentage, payout ratio, distributable cash and gross profit are non-GAAP financial measures, 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 2012 MD&A 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: anticipated cash operating profit for the second half of 2013 and full year; caustic soda and hydrochloric acid prices in the third quarter of 2013; full year production of sodium chlorate from Canexus- Brandon plant; timing of the commissioning of the Bruderheim Terminal interconnection with the MEG Energy Stonefell Terminal; potential capacity constraints for unit train shipments based on anticipated incremental customer contracts and the feasibility and timing of staged unit train expansion opportunities as necessary; anticipated timing of completion of DBCO; the implementation of major capital projects and the delivery of cash flow; anticipated increases in the manifest business in the second half of 2013; hydrochloric acid expansions at Canexus- North Vancouver chlor-alkali facility; sodium chlorate demand and industry operating rates; hydrochloric acid demand and pricing in North America; cost of the pipeline connected unit train facility at Bruderheim; the impact of additional storage tanks and West rail yard capacity and bottlenecks on DBCO transload capacity and anticipated outages on transloading tracks required to implement; demand for pulp and its impact on inventories and prices; demand for and industry operating rates; chlor-alkali industry capacity utilization; North American hydrochloric acid supply; Canexus- North American chlor-alkali utilization rates; natural gas production, pricing and inventory expectations and expectations regarding drilling activity, oil prices and LNG projects and their impact on hydrochloric acid demand in Western Canada.
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. These 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 . 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, Canexus 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. Financial outlook information contained in this press 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. Such financial outlook information 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. Canexus- common shares (CUS) and debentures (Series I – CUS.DB; Series III – CUS.DB.A; Series IV – CUS.DB.B) trade on the Toronto Stock Exchange. More information about Canexus is available at .
Contacts: Canexus Corporation Gary Kubera President and CEO (403) 571-7300
Canexus Corporation Richard McLellan CFO (403) 571-7300
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