Mr. Mark Bishop reports

ACADIAN TIMBER CORP. REPORTS STRONG YEAR-END RESULTS AND DIVIDEND INCREASE

Acadian Timber Corp. has released financial and operating results (1) for the year ended Dec. 31, 2018.

Investors, analysts and other interested parties can access Acadian Timber's fourth quarter 2018 results through a conference call or webcast on Feb. 14, 2019, at 1 p.m. ET, please dial 1-866-795-3013 toll-free in North America (Canada and the United States), or for overseas calls, please dial 1-409-937-8907 at approximately 12:50 p.m. ET. For those unable to participate, a taped rebroadcast will be available until 12 a.m. on March 15, 2019. To access this rebroadcast, please dial 1-855-859-2056 or 1-404-537-3406, and enter conference ID No. 3965316.

"Acadian posted another year of strong performance. Well-balanced regional supply demand fundamentals in both softwood and hardwood segments continue to support attractive stable log pricing across all key markets," commented Mark Bishop, chief executive officer of Acadian.

Acadian generated solid results for the year ended Dec. 31, 2018. The company's adjusted EBITDA (earnings before interest, taxes, fair value adjustments, recovery of or impairment of land and roads, realized gain/loss on sale of roads and other fixed assets, unrealized exchange gain/loss on debt, depreciation, and amortization) (1) totalled $22.1-million in 2018, compared with $23.3-million during 2017. The strong demand and pricing Acadian experienced in the first half of 2018 carried through to year-end, reflecting the favourable attributes of northeast regional log markets. As a result, log sales from the company's freehold operations were strong throughout the period, with volumes and pricing up year over year, the benefits of which were offset by lower ancillary revenues from providing timber services and a lower amount of gains on land sales relative to the prior year.

Acadian declared dividends to its shareholders of $1.1225 per share during the year, representing a payout ratio (1) of 106 per cent, which is above the company's long-term target of 95 per cent. The company anticipates that over the long term, it will revert to a payout ratio consistent with its target level, and in the near term, Acadian's strong cash position supports a payout ratio in excess of the company's target.

(1) This news release makes reference to adjusted EBITDA, adjusted EBITDA margin, free cash flow and payout ratio, which are key performance measures in evaluating Acadian's operations and are important in enhancing investors' understanding of Acadian's operating performance. Adjusted EBITDA and adjusted EBITDA margin are used to evaluate operational performance. Free cash flow is used to evaluate Acadian's ability to generate sustainable cash flows from the company's operations while payout ratio is used to evaluate Acadian's ability to finance its distribution using free cash flow. Acadian's management defines adjusted EBITDA as earnings before interest, taxes, fair value adjustments, recovery of or impairment of land and roads, realized gain/loss on sale of roads and other fixed assets, unrealized exchange gain/loss on debt, depreciation, and amortization, and adjusted EBITDA margin as adjusted EBITDA as a percentage of its total revenue. Free cash flow is defined as adjusted EBITDA less interest paid, current income tax expense and capital expenditures plus net proceeds from the sale of fixed assets (selling price less gains or losses included in adjusted EBITDA). Payout ratio is defined as dividends declared divided by free cash flow. As these performance measures do not have standardized meanings prescribed by international financial reporting standards (IFRS), they may not be comparable with similar measures presented by other companies.

Review of operations

Financial and operating highlights

Acadian generated net sales of $99.8-million in 2018, a year-over-year increase of $4.4-million as the company benefited from a 3-per-cent increase in log sales volumes due to strong demand and favourable operating conditions. Acadian's weighted-average log selling price increased 2 per cent, reflecting strong markets for all products, the benefits of which were partially offset by changes in the sales mix. While log sales from the company's freehold operations were strong, ancillary revenues from providing timber services and gains on land sales were lower in 2018 versus 2017.

Costs of $78.6-million in 2018 increased 6 per cent from $74.3-million in the prior year primarily due to a 3-per-cent increase in log sales volumes. In addition, variable log harvest costs per cubic metre increased 2 per cent due to longer average haul distances and higher fuel costs, the impacts of which were partially offset by changes in the sales mix.

Acadian generated adjusted EBITDA of $22.1-million during 2018 compared with $23.3-million in the prior year while the adjusted EBITDA margin of 22 per cent for 2018 decreased from 24 per cent in 2017.

Net income for the year ended Dec. 31, 2018, totalled $26.3-million, or $1.57 per share, compared with $30.8-million, or $1.84 per share, in 2017. The decrease in 2018 is primarily the result of an unrealized foreign exchange loss on the revaluation of U.S.-dollar-denominated long-term debt compared with an unrealized gain in the prior year, partially offset by a favourable fair value revaluation of timber assets.

Segment performance

New Brunswick Timberlands

Year ended Dec. 31, 2018

Net sales for the company's New Brunswick Timberlands for the year ended Dec. 31, 2018, totalled $74.8-million, compared with $71.7-million in 2017. The increase reflects a 4-per-cent improvement in log sales volumes due to strong demand and favourable harvest conditions. The weighted-average log selling price during 2018 remained in line with the prior year as price increases for all products were offset by a change in the sales mix.

Adjusted EBITDA for the year ended Dec. 31, 2018, was $16.6-million compared with $18.1-million in 2017. The decrease was driven by higher variable log harvest costs per cubic metre, attributable to longer average haul distances and higher fuel costs, and timing of timber services, the impact of which was partially offset by the increase in log sales volumes. As a result, the adjusted EBITDA margin was 22 per cent for 2018 compared with 25 per cent in the prior year.

Maine Timberlands

Year ended Dec. 31, 2018

Net sales for the year ended Dec. 31, 2018, totalled $25.1-million compared with $23.7-million during the prior year. The current-year results reflect a 6-per-cent increase in the weighted-average log selling price due to strong demand for softwood sawlogs and hardwood pulpwood compared with the prior year. This benefit was partially offset by a 1-per-cent decrease in log sales volumes as hardwood harvest activities were adjusted to reflect the company's commitment to manage Maine Timberlands' annual harvest volumes to sustainable levels.

Adjusted EBITDA for the year ended Dec. 31, 2018, was $6.8-million, in line with 2017. While net sales were higher and variable log harvest cost per cubic metre was down year over year due to changes in the sale mix, these positive effects were offset by lower gains on sale of higher and better use (HBU) land of $1.5-million compared with the prior year. The adjusted EBITDA margin for 2018 decreased slightly to 27 per cent from 28 per cent in the prior year.

Adoption of international financial reporting standard 15 (revenue from contracts with customers)

IFRS 15 supersedes previous revenue standards (IAS 18 (Revenue)) and related interpretations, and it applies to all revenue arising from contracts with customers. On Jan. 1, 2018, the company adopted IFRS 15 using the full retrospective approach. The adoption of this standard on Jan. 1, 2018, resulted in a change in presentation from net to gross for timber services, which does not impact the company's operating earnings or net income. As a result of this change in presentation, net sales for the year ended Dec. 31, 2017, increased by $17.6-million, respectively, with a corresponding increase in operating costs and expenses. Net sales are net of discounts and rebates to customers, if any. Revenue is recognized when control passes to the customer, which is generally when timber is delivered to the customer and actual quantities delivered are determined. Sales are governed primarily by contractual terms with customers and in some cases by standard industry terms. Pursuant to the Crown lands service agreement, Acadian provides harvesting, transportation and other services to Crown licensees and sublicensees. Acadian receives payment for these services, which are recognized in revenue upon delivery of the timber and when actual quantities delivered are determined.

Market outlook

Acadian's key markets include softwood sawtimber, hardwood sawtimber and hardwood pulpwood. Northeast North American softwood dimension sawmills represent over one-third of Acadian's end use market and are the primary market for the company's softwood sawtimber. The company's mixed softwood and hardwood resource, combined with diversified end use markets, underpin Acadian's best-in-class long-term performance. Well-balanced regional supply demand fundamentals continue to support attractive stable log pricing across all key markets.

The case for continued steady recovery in U.S. housing starts over the medium term remains highly compelling. Demographics support continued solid growth in household formation, home inventories are extremely low and, on average, U.S. housing stock is beyond its prime. However, tight construction labour markets and restrictive building regulations have combined with near-term concerns of rising interest rates and the fallout from U.S. international trade policy to drive what most forecasters believe will be a short-lived slowdown in construction activity.

Recent consensus forecasts anticipate average year-over-year growth in U.S. housing starts for 2019 and 2020 of about 1 per cent and 3 per cent, respectively. Importantly, most forecasters expect the proportion of single family starts, the largest lumber consuming segment of U.S. housing starts, to improve modestly through 2019 and 2020. Additionally, home repair and remodelling, the single largest driver of North American lumber consumption, are also projected to grow modestly over the next two years. North American sawtimber demand is therefore expected to post modest year-over-year growth even under more conservative forecasts.

Average fourth quarter 2018 quarterly benchmark eastern spruce-pine-fir and southern yellow pine lumber prices declined 30 per cent and 11 per cent, respectively, from the prior quarter. The continued slide in pricing from the prior quarter was driven by weaker-than-expected home sales and building activity through the quarter. Despite the robust U.S. economy, buyer apprehension remains high due to risk of Federal Reserve interest rate increases and the potential for slowing global economic growth. Forecasters anticipate that extensive announced market downtime, which has been extended into the first quarter of 2019, principally in the high log cost region of the Interior of British Columbia, coupled with continuing steady demand growth, will support continued strong lumber pricing through 2019, albeit below the levels achieved in 2018. Considering capacity and log supply constraints exhibited in Western Canada during late 2018 and early 2019, the company anticipates continued attractive market dynamics to support stable softwood sawtimber pricing in Acadian's regional markets.

Given the current state of U.S. trade relations, there is no expectation of any meaningful discussions toward a softwood lumber agreement with Canada during 2019. Further, the company anticipates no material change in 2019 to the current duty rates for Canadian lumber producers. Average consensus forecast lumber prices for 2019 would indicate that a significant proportion of those duties will continue to be passed onto U.S. consumers. The company remains steadfast in its view that an eventual negotiated settlement will include an exemption for all Canadian Maritime producers, including those in New Brunswick.

Hardwood sawtimber markets, typically oriented to millwork and higher-value specialty markets, remain well balanced with a continued positive outlook for the foreseeable future. While there has been modest price erosion in the latest quarter, the outlook for global pulp markets remains positive, particularly in the containerboard and tissue segments. Hardwood pulpwood demand in Acadian's operating region remains stable, with well-balanced supply conditions continuing to support historically strong pricing. Softwood pulpwood markets, Acadian's smallest product segment by volume and margin, have seen some modest recovery, and the recently announced restart of a pulp mill in Maine during 2019 is expected to be a catalyst for further recovery in softwood pulpwood demand and pricing through the second half of 2019. In New Brunswick, biomass markets continue to be supported by export demand, which is expected to remain strong throughout 2019. While the biomass market in Maine remains weak, efforts to tap into biomass export markets continue to progress.

Quarterly dividend

Acadian is pleased to announce a dividend of 29 cents per share, payable on April 15, 2019, to shareholders of record on March 31, 2019.

Acadian Timber is a leading supplier of primary forest products in Eastern Canada and the northeastern United States. With a total of 2.4 million acres of land under management, Acadian is the third-largest timberland operator in New Brunswick and Maine.

Acadian owns and manages approximately 1.1 million acres of freehold timberlands in New Brunswick and Maine, and provides timber services relating to approximately 1.3 million acres of Crown-licensed timberlands in New Brunswick. Acadian's products include softwood and hardwood sawlogs, pulpwood, and biomass byproducts, sold to approximately 90 regional customers.

 
                                    CONSOLIDATED STATEMENTS OF NET INCOME 
                                      (thousands, except per-share data) 

                                                  Three months ended                        Year ended
                                          Dec. 31, 2018     Dec. 31, 2017 (1)    Dec. 31, 2018     Dec. 31, 2017 (1)

Net sales                                       $24,167              $25,805           $99,848              $95,383
Operating costs and expenses
Cost of sales                                    16,802               18,199            68,164               64,594
Selling, administration and other                 2,629                1,956             9,741                9,123
Reforestation                                       142                  120               595                  614
Depreciation and amortization                        73                   80               303                  313
                                                 19,646               20,355            78,803               74,644
Operating earnings                                4,521                5,450            21,045               20,739
Interest expense, net                            (1,004)                (706)           (3,901)              (2,895)
Other items
Fair value adjustments and other                 26,206                8,307            28,294                9,327
Unrealized exchange (loss)/gain
on long-term debt                                (5,118)                (753)           (7,489)               6,301
Gain on sale of timberlands                          56                  475               906                2,292
(Loss) on disposal of roads and
other fixed assets                                  (19)                   -              (112)                   -
Earnings before income taxes                     24,642               12,773            38,743               35,764
Current income tax expense                         (490)                (565)           (2,334)              (1,381)
Deferred income tax (expense)/recovery           (7,711)                 140           (10,145)              (3,564)
Net income                                      $16,441              $12,348           $26,264              $30,819
Net income per share --
basic and diluted                                 $0.98                $0.74             $1.57                $1.84

(1) Certain prior-year amounts have been reclassified to conform to the current-year presentation 
as a result of adoption of IFRS 15 (Revenue From Contracts with Customers) on Jan. 1, 2018.

We seek Safe Harbor.