LANGLEY, BC - Hardwoods Distribution Inc. - TSE - HWD - ("Hardwoods" or the "Company") today announced strong financial results for the three and six months ended June 30, 2013. Hardwoods is one of North America's largest wholesale distributors of hardwood lumber and related sheet good products, operating a network of 32 distribution centres in the US and Canada.

Highlights

(For the three months ended June 30, 2013)

• Second quarter sales increased $16.5 million, or 20.8%, from the same period last year
  
  
• Second quarter gross profit increased by 30.1% to $18.1 million year-over-year
  
  
• Second quarter gross profit margin increased to 18.9%, from 17.6% in the same period last year
  
  
• Second quarter EBITDA increased 65.8% to $6.7 million compared to the prior year
  
  
• Profit for the period increased 85.2% to $4.4 million compared to the same quarter last year
  
  
• On May 31, 2013, Hardwoods completed the $3.0 million acquisition of a hardwood lumber import business located in Leland, North Carolina
  
  
• The Board of Directors approved a quarterly dividend of $0.035 per share, payable on October 31, 2013 to shareholders of record as at October 18, 2013

"We achieved excellent results in the second quarter of 2013 as we responded to growing demand from the US residential construction market," said Lance Blanco, President and CEO of Hardwoods. "With nearly three quarters of our business in the US, and approximately half of our sales focused on new residential construction, we are well positioned to benefit from this recovering market. The higher sales volumes, together with increased product prices, contributed to our best quarterly sales and EBITDA results in nine years."

According to the US Census Bureau, the seasonally adjusted annual rate of US housing averaged 872,000 starts during the second quarter, up 18% from 741,000 in the same period last year. Average prices for hardwood lumber products were up approximately 14% year-over-year according to the Hardwood Lumber Review. Prices for hardwood plywood and other sheet goods vary by product type, but in the second quarter are estimated to be on average 10% to 20% higher than they were a year ago. The higher prices reflect the changing supply/demand equation, as well as the impact of preliminary trade duties on imported plywood from China. The preliminary trade duties imposed commenced in March 2013, and contributed to an immediate increase in prices for both domestic and imported panel products.

"We typically pass product price changes through to our customers, enabling us to achieve a reasonably stable gross profit margin," said Mr. Blanco. "However, during the second quarter and first half of 2013, prices increased more quickly than normal for our industry. This contributed to unusually strong gross profit margins of 18.9% in the second quarter and 18.6% in the first six months of the year as we sold lower-priced inventory into a rapidly rising price environment. We view a gross margin percentage around 18% to be a more sustainable level for our business."

The Canadian housing market was notably weaker than the US market, with the seasonally adjusted rate of housing starts down 12.5% year-over-year at the end of the second quarter, according to the Canada Mortgage and Housing Corporation. This decrease reflects the impact of tighter mortgage insurance rules implemented in 2012 to cool the housing market. Despite the reduction in activity, Hardwoods' Canadian sales revenue grew in the second quarter and first half of 2013, primarily due to higher product prices.

Strategically, the Company continued to execute on its market expansion strategies during the second quarter with the purchase of a hardwood lumber importer located in Leland, North Carolina. Acquired on May 31, 2013 for $3.0 million, the purchased business builds on Hardwoods' well-established strength as an importer of hardwood products by extending its direct sourcing capabilities to tropical lumber from Africa and South America. The acquisition also expands Hardwoods' US branch network into the US East Coast for the first time.

"The transaction was well priced and also very timely for us, as it expands our capacity in the US during a rising market," said Mr. Blanco. "Overall, we remain optimistic about the balance of 2013 and beyond. While we expect margins will trend down to more typical levels in the second half of the year, demand from the US residential construction market is expected to remain strong and drive continued sales growth for Hardwoods. At the same time as we grow and continue to invest in our business, we are pleased to announce another quarterly dividend to our shareholders of $0.035 per share."

Summary of Results

Results from Operations - Three Months Ended June 30, 2013

For the three months ended June 30, 2013, total sales increased by 20.8% to $95.6 million, from $79.2 million in the second quarter of 2012. Organic growth from existing operations accounted for $16.1 million of the increase. The new import lumber business in Leland, NC acquired on May 30, 2013 contributed approximately $0.4 million of the sales increase, reflecting the timing of the transaction late in the quarter and the relatively small size of the business.

Sales in the United States, as measured in US dollars, increased by $13.8 million, or 24.9%, to $69.5 million. This growth reflects higher sales volumes as well as increased product prices, which have risen in response to improving market conditions and the imposition of new duties on hardwood plywood imported from China. Sales in Canada increased by $1.6 million, or 6.9%, to $24.5 million. This improvement reflects the higher product pricing, partially offset by weaker volume demand in Canada.

Second quarter gross profit increased to $18.1 million, up 30.1% from $13.9 million during the same period last year. This improvement reflects the higher sales revenue, together with an increase in gross profit margin. As a percentage of sales, gross profit increased to 18.9%, from 17.6% in the second quarter of 2012. Over the longer term, Hardwoods views 18% as a more sustainable gross margin target for its business, while recognizing that results may fluctuate up or down based on short-term market conditions.

Operating expenses for the three-month period were $11.7 million, compared to $10.1 million in the second quarter of 2012. This increase primarily reflects additional personnel costs incurred to support the significant increase in sales. It also reflects a return to a more typical rate of bad debt expense following an unusually low level of bad debt expense during the same period last year. As a percentage of sales, second quarter 2013 operating expenses improved to 12.2% of sales from 12.8% in 2012.

Second quarter EBITDA increased 65.8% to $6.7 million, from $4.1 million during the same period in 2012. The EBITDA gain reflects the significant increase in gross profit, partially offset by the increase in expenses. Profit for the period increased 85.2% to $4.4 million from $2.4 million, reflecting the $2.7 million increase in EBITDA, partially offset by a $0.6 million increase in income tax expense.

Results from Operations - Six Months Ended June 30, 2013

For the six months ended June 30, 2013, total sales increased by 20.1% to $182.6 million, from $152.1 million in the first half of 2012. The growth in sales was predominantly driven by Hardwoods' US operations, where first-half sales revenue increased by US$26.7 million. The strong growth reflects increased volume demand and higher product pricing, as well as the benefits of strategy implementation. First half sales in Canada increased by $2.3 million, or 5.3% year over-year, with stronger product pricing helping to offset the impact of flat-to-slightly lower sales volumes.

First-half gross profit increased 25.8% to $34.0 million, from $27.0 million in the first six months of 2012. This gain reflects the increased sales and higher gross margin percentage. As a percentage of sales, gross profit was 18.6% in the first half of 2013, compared to 17.8% during the same period in 2012 as the Company capitalized on improving market conditions and rising product prices.

First-half operating expenses were $22.8 million, compared to $21.0 million during the same period in 2012. The increase reflects higher personnel costs incurred to support growth and the return to a more typical level of bad debt expense. As a percentage of sales, first half operating expenses improved to 12.5% of sales, from 13.8% during the same period in 2012.

First-half EBITDA increased to $11.9 million, from $6.6 million during the same period in 2012. The 79.3% gain reflects higher gross profit, partially offset by increased expenses. Profit for the period also strengthened significantly, increasing 110.5% to $7.6 million from $3.6 million in the first half of 2012. The $4.0 million year-over-year improvement reflects the $5.3 million increase in EBITDA and a $0.5 million increase in net finance income, partially offset by a $0.1 million increase in depreciation expense and a $1.7 million increase in income tax expense.

Outlook

Hardwoods anticipates that business conditions will remain strong through the balance of 2013 and beyond, with forecasters continuing to predict a multi-year strengthening trend for the US residential construction market. Given that hardwood products are typically applied at the final stages of house construction (approximately 9-to-12 months after house construction starts), the Company expects to see higher demand for its products continuing well into 2014.

The outlook for the US market is tempered by uncertainty over the impact of new US antidumping and countervailing duties against imported hardwood plywood panels produced in China. Approximately 14% of Hardwoods' total sales in 2012 were comprised of hardwood plywood manufactured in China and resold to customers in the United States. The next significant development in the trade case is expected in September 2013, when final duty determinations will be announced by the US Department of Commerce. Management is watching this case closely and investigating a range of alternative supply solutions. During the first half of 2013, the Company further improved its import capabilities from Indonesia, Malaysia, and Russia.

The outlook for the Canadian market is generally neutral with 2013 housing starts expected to remain below 2012 levels as a result of Canada's tighter mortgage insurance rules. Growth in the Canadian renovation and commercial construction markets is expected to be modest at 3.6% and 3.4% respectively.

Hardwoods' primary goal for the remainder of 2013 will be to continue capturing the US growth potential from a strengthening US housing market, both in terms of sales volumes and product pricing. In the third year of its successful market expansion strategy, the Company will also focus on:

1. Leveraging its ability to source high-quality products from a range of international markets.

2. Strengthening its presence in commercial and institutional construction markets.

3. Solidifying its presence in large geographic markets, primarily through the introduction of new products, and through the expansion of production capabilities at the Paxton branches.

"Overall our outlook for 2013 remains very positive," said Mr. Blanco. "We are successfully optimizing and growing the business organically, and we will continue to pursue well-priced, strategic acquisition opportunities."

A more detailed discussion of the Company's financial performance can be found in its Management's Discussion and Analysis (MD&A) for the three months ended June 30, 2013. The MD&A will be posted, along with the Company's condensed consolidated interim financial statements on SEDAR (www.sedar.com) and on the Company's website http://www.hardwoods-inc.com.

Non-GAAP Measures - EBITDA

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization, where interest is defined as net finance costs as per the consolidated statement of comprehensive income. In addition to profit or loss, the Company considers EBITDA to be a useful supplemental measure of a company's ability to meet debt service and capital expenditure requirements, and the Company interprets trends in EBITDA as an indicator of relative operating performance.

EBITDA is not an earnings measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS. Investors are cautioned that EBITDA should not replace profit or loss or cash flows (as determined in accordance with IFRS) as an indicator of our performance. The Company's method of calculating EBITDA may differ from the methods used by other issuers. Therefore, the Company's EBITDA may not be comparable to similar measures presented by other issuers. For a reconciliation between EBITDA and profit or loss as determined in accordance with IFRS, please refer to the discussion of Results of Operations described in section 3.0 of Management's Discussion and Analysis (MD&A) for the three and six months ended June 30, 2013 available at www.sedar.com and the Summary of Results section of this news release.

Forward-Looking Statements

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

This news release includes forward-looking statements. These involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", "expect", "may", "plan", "will", and similar terms and phrases, including references to assumptions. Such statements may involve, but are not limited to: Hardwood's view that while the Company expects margins will trend down to more typical levels in the second half of the year, demand from the US residential construction market is expected to remain strong and drive continued sales growth for Hardwoods; that Hardwoods anticipates that business conditions will remain strong through the balance of 2013 and beyond, with forecasters continuing to predict a multi-year strengthening trend for the US residential construction market; that given that hardwood products are typically applied at the final stages of house construction (approximately 9-to-12 months after house construction starts), the Company expects to see higher demand for its products continuing well into 2014; the Company's outlook for the US market is tempered by uncertainty over the impact of new US antidumping and countervailing duties against imported hardwood plywood panels produced in China as approximately 14% of Hardwoods' total sales in 2012 were comprised of hardwood plywood manufactured in China and resold to customers in the United States; the Company's outlook for the Canadian market is generally neutral with 2013 housing starts expected to remain below 2012 levels as a result of Canada's tighter mortgage insurance rules; the Company's perspective that growth in the Canadian renovation and commercial construction markets is expected to be modest at 3.6% and 3.4% respectively; Hardwoods' primary goal in the remainder of 2013 will be to continue capturing the US growth potential from a strengthening US housing market, both in terms of sales volumes and product pricing; that entering year three of its successful market expansion strategy, the Company will also focus on leveraging its ability to source high-quality products from a range of international markets, strengthening its presence in commercial and institutional construction markets, and solidifying its presence in large geographic markets, primarily through the introduction of new products, and through the expansion of production capabilities at the Paxton branches; and our intent to continue to pursue well-priced, strategic acquisition opportunities.

These forward-looking statements reflect current expectations of management regarding future events and operating performance as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: national and local business conditions; political or economic instability in local markets; competition; consumer preferences; spending patterns and demographic trends; legislation or governmental regulation (including trade outcomes that impact upon our business); acquisition and integration risks.

Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available.

All forward-looking information in this news release is qualified in its entirety by this cautionary statement and, except as may be required by law, the Company undertakes no obligation to revise or update any forward looking information as a result of new information, future events or otherwise after the date hereof.

SOURCE Hardwoods Distribution Inc.