Canexus Announces 2015 Fourth Quarter and Year-End Results
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E-mailCALGARY, AB -- (Marketwired) -- 03/11/16 -- Canexus Corporation (TSX: CUS) (the "Corporation" or "Canexus") today announced its financial results for the fourth quarter and year-ended December 31, 2015.
Highlights
- Cash Operating Profit ("COP") was $104.7 million for the year ended December 31, 2015 ($95.3 million for the year ended December 31, 2014), including $10.4 million in one-time costs. These strong results reflect record COP results for the North American Sodium Chlorate and South America business units.
- In 2015, our Business Improvement Program ("BIP") improved total cost operating profit by $12.9 million and reduced working capital by $12.0 million, compared to 2014, through a number of initiatives to improve the operating performance of the Corporation. The results exceeded targets set when the project was initiated in March 2015 and are estimated to generate an annual run-rate improvement of $15.6 million.
- Maintenance capital was $25.6 million for 2015 which was in-line with expectations. We continue to target a 3-year maintenance capital average of $25.0M.
- The caustic modernization project was completed on-time and came in below budget. Annual savings from this project are expected to be approximately $3.5 million.
- As previously announced on October 6, 2015, Canexus has entered into an arrangement agreement (the "Transaction") with Superior Plus Corp. ("Superior"), pursuant to which Superior has agreed to acquire all of the issued and outstanding common shares of Canexus ("Canexus Shares"), payable in common shares of Superior ("Superior Shares") at an exchange ratio of 0.153 Superior Shares for each Canexus Share. Closing of the transaction is pending regulatory approval. We still expect to close the Transaction in the first half of 2016. On December 11, 2015, 99.19% of shareholders voted in favour of the Transaction.
- The Board of Directors declared a quarterly dividend of $0.01 per common share payable April 15, 2016 to shareholders of record on March 31, 2016.
Financial Results
COP was $23.7 million for the quarter ended December 31, 2015, including $3.4M of one-time costs largely related to the Transaction (Q3/15 - $24.0 million; Q4/14 - $23.8 million). Our Q4/15 results remained in line with Q3/15. Compared to the prior quarter, chlorate sales volumes remained solid, the weak Canadian dollar persisted, hyrdrochloric acid demand and pricing were relatively stable, higher caustic soda prices offset lower chlorine sales volumes and South America performance was solid. Q4/15 compared to the Q4/14 was also consistent as strong chlorate sales volumes and a weakening dollar offset poor hydrochloric market conditions due to reduced oil and gas hydraulic fracturing activity. In Q4/15 Canexus recorded $58 million of non-cash impairment charges in the fourth quarter. Impairment charges were recorded on our North American Chlor-alkali ("NACA") facility at North Vancouver due to reduced demand and pricing for hydrochloric acid ("HCl") expected in the foreseeable future primarily stemming from reduced demand in the oil and gas sector.
Looking at the full year, 2015 was incredibly strong given the market headwinds experienced by our North American chlor-alkali business unit. The Corporation maximized the benefit of a significant uplift from the weakening Canadian dollar. Record production sales volumes were experienced at our North American Sodium Chlorate business unit of 381,000 MTs, reflecting a 5% improvement over 2014. South America sales volumes were also maintained at optimal rates as usage from our main customer remained strong. The performance of North American Sodium Chlorate and South America more than offset lower hydrochloric acid demand and prices, lower caustic sales volumes and the compressor malfunction at North Vancouver. In 2015, realized losses from foreign currency hedging contracts were $5.3 million. Downside risk was protected by our standing internal mandate to hedge a maximum of 50% of our total US dollar cash exposure.
In 2015, costs and margins were effectively managed through our BIP resulting in approximately $2.9 million in revenue and margin improvements, $1.7 million in operational efficiencies, and $8.3 million in G&A reduction. In 2015, total COP improvement was $12.9 million, which translates into $15.6 million on an annualized run-rate basis. Capital spending was also controlled through the implementation of new approval and tracking processes. We completed the caustic modernization and anode refurbishment projects at our North Vancouver facility on-time and under-budget. Maintenance capital was in line with our 3-year average target of $25 million.
At December 31, 2015, the Corporation had approximately $34.2 million of available liquidity under our revolving credit facility. A request has been made to the banking syndicate to amend the current bank facility to further relax financial covenants to provide the Company with flexibility and an appropriate level of liquidity until the expected closing of the transaction with Superior Plus. There can be no certainty that any amendments will be successfully negotiated on terms satisfactory to Canexus, if at all.
Business Unit Results
North American Sodium Chlorate
Canexus' North American Sodium Chlorate business continued record breaking performance in Q4/15. Record COP of $20.1 million (Q3/15 - $19.6 million; Q4/14 - $13.8 million) was achieved. We experienced higher realized prices from our US customers in the fourth quarter given the devaluation of the Canadian dollar relative to the US dollar, with approximately two-thirds of our sales volume exported to the US. Sodium chlorate market prices in Q4/15 were relatively flat to the prior quarter. North American sodium chlorate industry operating rates were approximately 93% percent following the closure of a competitor's plant in the southeastern US in early December.
North American Chlor-alkali
Canexus' North American Chlor-alkali business had a COP of $4.1 million for the quarter (Q3/15 - $0.6 million loss; Q4/14 - $7.4 million profit). The North American chlor-alkali operating rate declined to 80% in Q4, an expected decline and consistent with seasonal demand reduction and planned production outages. The decrease in caustic soda production was offset by lower seasonal demand and export shipments. Metric electrochemical unit pricing in Q4 increased as the result of a caustic price increase implementation in the quarter.
Conversely, North American hydrochloric acid demand continued to be under pressure during the quarter. The precipitous decline in global crude prices has severely impacted drilling activity and the need for hydrochloric acid used in the fracturing process. Canexus acid sales volumes declined 27% in 2015, compared to 2014. North American acid production has been reduced to address the new realities in the oil and gas industry, however by-product acid production increased in Q4 following planned and unplanned outages.
The North Vancouver plant will continue to operate at reduced capacity due to a compressor outage caused by mechanical failure in Q3/15. The Corporation continues to proceed with Business Interruption and Property Claims under its insurance policies and indications are that these will likely be covered claims. Production capacity is expected to be approximately 70% until early May 2016 when repairs are planned to be completed and full production capacity is expected to be available.
South America
Canexus' Brazil operations generated COP of $6.1 million in the quarter (Q3/15 - $7.5 million; Q4/14 - $6.0 million). Brazil's operations continue to be highly stable with our primary customer running at high 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.
At the time that the Transaction is closed, a change of control will be triggered and Superior will be required to make an offer in writing within 30 days of the closing date to purchase all of the then outstanding 5.75% convertible unsecured subordinated Series IV debentures (the "Series IV Debentures") at 101% of principal amount and the 6.00% convertible unsecured subordinated Series V and the 6.50% convertible unsecured subordinated VI debentures at 100% of principal amount, amount plus accrued and unpaid interest; provided that in the case of the Series IV Debentures Superior may elect to redeem the Series IV Debentures equal to the greater of 101% of the principal amount or the Canada Yield Price (as defined in the debenture indenture pertaining to such debentures), together with accrued and unpaid interest.
Conference Call
Canexus will hold a conference call on March 11, 2016 at 8:30 am MT (10:30 am ET) to discuss Canexus' fourth quarter 2015 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 1-416-340-8010 or 1-866-226-1792 outside Canada and USA. A replay of the conference call will be available until end of day ET on March 18, 2016. To access the replay call 1-905-694-9451 or 1-800-408-3053 outside Canada and USA, followed by passcode 4138026#.
Financial Results
Segmented Information for the Three Months Ended December 31, 2015 and 2014
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 fourth quarter performance by segment.
North America
------------------
Three Months Ended Sodium Chlor- South
December 31, 2015 Chlorate alkali America Corporate Total
-------- -------- -------- --------- --------
Sales Revenue
Total Segment 68,622 46,947 24,052 - 139,621
Inter-Segment(1) 79 - - - 79
-------- -------- -------- --------- --------
Total Sales Revenue from
External Customers 68,543 46,947 24,052 - 139,542
-------- -------- -------- --------- --------
Cost of Sales 39,770 28,763 19,932 128 88,593
-------- -------- -------- --------- --------
Distribution, Selling and
Marketing
Total Segment 9,658 16,250 111 433 26,452
Inter-Segment(1) - 79 - - 79
-------- -------- -------- --------- --------
Total External
Distribution, Selling
and Marketing 9,658 16,171 111 433 26,373
-------- -------- -------- --------- --------
General and
Administrative 2,481 3,096 872 7,337 13,786
-------- -------- -------- --------- --------
Operating Profit (Loss) 16,634 (1,083) 3,137 (7,898) 10,790
Add:
Depreciation and
Amortization 3,473 5,168 2,955 178 11,774
Share-based Compensation
Expense - - - 1,143 1,143
-------- -------- -------- --------- --------
Cash Operating Profit
(Loss) 20,107 4,085 6,092 (6,577) 23,707
-------- -------- -------- --------- --------
Cash Operating Profit
Percentage 29% 9% 25% - 17%
-------- -------- -------- --------- --------
North America
------------------
Three Months Ended Sodium Chlor- South
December 31, 2014 Chlorate alkali America Corporate Total
-------- -------- -------- --------- --------
Sales Revenue
Total Segment 60,195 52,977 21,371 - 134,543
Inter-Segment(1) 93 - - - 93
-------- -------- -------- --------- --------
Total Sales Revenue from
External Customers 60,102 52,977 21,371 - 134,450
-------- -------- -------- --------- --------
Cost of Sales 38,232 32,977 18,374 5 89,588
-------- -------- -------- --------- --------
Distribution, Selling and
Marketing
Total Segment 8,466 15,574 172 663 24,875
Inter-Segment(1) (2) - 677 - - 677
-------- -------- -------- --------- --------
Total External
Distribution, Selling
and Marketing 8,466 14,897 172 663 24,198
-------- -------- -------- --------- --------
General and
Administrative 3,023 3,686 1,069 3,593 11,371
-------- -------- -------- --------- --------
Operating Profit (Loss) 10,381 1,417 1,756 (4,261) 9,293
Add:
Depreciation and
Amortization 3,371 6,009 4,224 304 13,908
Share-based Compensation
Expense - - - 578 578
-------- -------- -------- --------- --------
Cash Operating Profit
(Loss) 13,752 7,426 5,980 (3,379) 23,779
-------- -------- -------- --------- --------
Cash Operating Profit
Percentage 23% 14% 28% 18%
-------- -------- -------- --------- --------
See footnotes on the following page.
North America
------------------
Year Ended December 31, Sodium Chlor- South
2015 Chlorate alkali America Corporate Total
-------- -------- -------- --------- --------
Sales Revenue
Total Segment 267,667 193,767 101,196 - 562,630
Inter-Segment(1) 329 - - - 329
-------- -------- -------- --------- --------
Total Sales Revenue from
External Customers 267,338 193,767 101,196 - 562,301
-------- -------- -------- --------- --------
Cost of Sales 155,329 117,729 81,110 469 354,637
-------- -------- -------- --------- --------
Distribution, Selling and
Marketing
Total Segment 38,684 69,107 547 1.585 109,923
Inter-Segment(1) (2) - 1,246 - - 1,246
-------- -------- -------- --------- --------
Total External
Distribution, Selling
and Marketing 38,684 67,861 547 1.585 108,677
-------- -------- -------- --------- --------
General and
Administrative 11,980 14,952 3,702 11,798 42,432
-------- -------- -------- --------- --------
Operating Profit (Loss) 61,345 (6,775) 15,837 (13,852) 56,555
Add:
Depreciation and
Amortization 14,006 19,661 12,188 753 46,608
Share-based Compensation
Expense - - - 1,559 1,559
-------- -------- -------- --------- --------
Cash Operating Profit
(Loss) 75,351 12,886 28,025 (11,540) 104,722
-------- -------- -------- --------- --------
Cash Operating Profit
Percentage 28% 7% 28% - 19%
-------- -------- -------- --------- --------
North America
------------------
Year Ended December 31, Sodium Chlor- South
2014 Chlorate alkali America Corporate Total
-------- -------- -------- --------- --------
Sales Revenue
Total Segment 233,427 212,749 93,087 - 539,263
Inter-Segment(1) 349 - - - 349
-------- -------- -------- --------- --------
Total Sales Revenue from
External Customers 233,078 212,749 93,087 - 538,914
-------- -------- -------- --------- --------
Cost of Sales 144,990 132,107 73,639 137 350,873
-------- -------- -------- --------- --------
Distribution, Selling and
Marketing
Total Segment 33,688 65,923 871 2,544 103,026
Inter-Segment(1) (2) - 2,579 - - 2,579
-------- -------- -------- --------- --------
Total External
Distribution, Selling
and Marketing 33,688 63,344 871 2,544 100,447
-------- -------- -------- --------- --------
General and
Administrative 11,913 14,531 3,695 12,638 42,777
-------- -------- -------- --------- --------
Operating Profit (Loss) 42,487 2,767 14,882 (15,319) 44,817
Add:
Depreciation and
Amortization 13,082 24,220 11,174 1,148 49,624
Share-based Compensation
Expense - - - 902 902
-------- -------- -------- --------- --------
Cash Operating Profit
(Loss) 55,569 26,987 26,056 (13,269) 95,343
-------- -------- -------- --------- --------
Cash Operating Profit
Percentage 24% 13% 28% 18%
-------- -------- -------- --------- --------
Notes:
- 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.
- NATO charged 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
Operating Results for the Three Months and Years Ended December 31, 2015 and 2014
Three Months Ended Year Ended December
December 31 31
-------------------- --------------------
CAD thousands 2015 2014 2015 2014
--------- --------- --------- ---------
CONTINUING OPERATIONS
Sales Revenue 139,542 134,450 562,301 538,914
Cost of Sales(1) 88,593 89,588 354,637 350,873
--------- --------- --------- ---------
Gross Profit 50,949 44,862 207,664 188,041
Distribution, Selling and
Marketing 26,373 24,198 108,677 100,447
General and Administrative(2) 13,786 11,371 42,432 42,777
--------- --------- --------- ---------
Operating Profit 10,790 9,293 56,555 44,817
Finance Expense (6,164) (11,867) (48,964) (50,816)
Other Expense (4,913) (2,282) (14,721) (2,949)
Impairment (58,000) (92,191) (58,000) (92,191)
--------- --------- --------- ---------
Loss Before Income Taxes (58,287) (97,047) (65,130) (101,139)
Recovery of Income Taxes (13,445) (78,732) (68,367) (76,790)
--------- --------- --------- ---------
Income (Loss) from Continuing
Operations (44,842) (18,315) 3,237 (24,349)
DISCONTINUED OPERATIONS
Loss from Discontinued
Operations (184) (212,101) (220,549) (225,099)
--------- --------- --------- ---------
Net Loss (45,026) (230,416) (217,312) (249,448)
--------- --------- --------- ---------
Notes:
- Depreciation and Amortization included in the three months and year ended December 31, 2015 - $11.6 million and $45.8 million, respectively (three months and year ended December 31, 2014 - $13.6 million and $48.4 million, respectively)
- Depreciation and Amortization included for the three and nine months ended December 31, 2015 - $0.2 million and $0.8 million, respectively (three months and year ended December 31, 2014 - $0.3 million and $1.2 million, respectively)
Adjusted Cash Operating Profit
Three Months Ended Year Ended December
December 31 31
-------------------- --------------------
CAD thousands 2015 2014 2015 2014
--------- --------- --------- ---------
Revenue 139,542 134,450 562,301 538,914
Gross Profit 50,949 44,862 207,664 188,041
--------- --------- --------- ---------
Cash Operating Profit from
Operating Segments (1) (2) 30,284 27,158 116,262 108,612
Interest Expense (9,924) (7,909) (38,408) (26,369)
Cash Income Tax Expense (3,361) (520) (6,472) (4,842)
Cash Operating Profit (Loss)
from Corporate (1) (2) (6,577) (3,379) (11,540) (13,269)
Realized Losses on Foreign
Currency Hedging Contracts (1,716) (257) (5,284) (1,121)
--------- --------- --------- ---------
Adjusted Cash Operating Profit
(1) 8,706 15,093 54,558 63,011
Other Costs (3) 3,446 1,762 10,395 4,924
--------- --------- --------- ---------
Adjusted Cash Operating Profit
before Other Costs (1) 12,152 16,855 64,953 67,935
--------- --------- --------- ---------
Notes:
- Cash Operating Profit (Loss) and Adjusted Cash Operating Profit ("ACOP") are non-GAAP measures. See "Non-GAAP Measures".
- Cash Operating Profit from Operating Segments is Operating Profit from North America Sodium Chlorate, NACA and South America, excluding depreciation and amortization. Cash Operating Profit (Loss) from Corporate is Operating Profit (Loss) from corporate segment, excluding depreciation and amortization and share-based compensation.
- Other Costs are comprised of expenses related to the Arrangement Agreement with Superior Plus Corp., severance, salt inventory adjustments, the Board's review of strategic alternatives, and certain litigation.
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 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.
Non-GAAP Measures
Cash operating profit, cash operating profit percentage, and adjusted cash operating profit 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. Cash operating profit is adjusted for interest expense, cash income tax expense and realized losses on foreign currency hedging contracts to calculate adjusted cash operating profit. Readers should consult the Corporation's Management's Discussion & Analysis for the year ended December 31, 2015 filed on SEDAR for a complete explanation of how the Corporation calculates each of the other non-GAAP measures.
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; expected successful negotiation of a covenant amendment and its impact 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) 571-7300Robin GreschnerInvestor RelationsCanexus Corporation(403) 571-7356
Source: Canexus Corporation
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