Reid Carter - President and CEO Brian Banfill - Chief Operating Officer

Paul Quinn - RBC Capital Markets David Quezada - Raymond James Andrew Kuske - Credit Suisse Mark Kennedy - CIBC

Thank you operator. And good morning or afternoon everyone and welcome to Acadian's third quarter conference call.

As many of you are aware, Erika Reilly, Acadian's Chief Financial Officer is currently on maternity leave. And I'm pleased to report that she and her new daughter are both doing very well.

Erika is expected to return in approximately six months; and during her absence, Brian Banfill, Acadian's Chief Operating Officer has assumed the CFO duties for Acadian. Brian is very familiar with this role as he was Acadian's CFO for several years prior to Erika taking over the CFO duties in December of 2013.

Brian will now proceed with the formal remarks, then I'll add my comments, at the end will take questions. Brian?

Thanks Reid. Before we get started, I would like to call your attention to the following.

This conference is being webcast simultaneously through our website at www.acadiantimber.com where you can also find a copy of the press release including the financial statement. Please note that in responding to questions and talking about our third quarter financial and operating performance as well as our outlook for the remainder of 2014 and into next year, we may make forward-looking statements.

Statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I encourage you to review Acadian's annual information form dated March 28, 2014 and other filings of Acadian with securities and regulatory authorities which are available on CEDAR at www.cedar.com and on our website.

I'll start by outlining the financial highlights for the third quarter, then Reid will provide comments of our operations, market conditions, business development activity and our outlook for the remainder of this year and into 2015. Acadian’s operations performed very well in the quarter delivering a second highest third quarter adjusted EBITDA since the inception of the company.

Good summer operating conditions and solid customer demand for our key products led the higher sales volume and prices. Net sales for the third quarter totaled $21.6 million, a $2.8 million increase compared to the same period in 2013.

This year-over-year increase in net sales reflects a 7% increase in sales volume and a 9% increase in the weighted average log selling price. The majority of the sales volume and selling price improvement occurred in Acadian’s higher margin spruce-fir sawlog sort.

This positive top-line performance with minimal per unit cost increase drove adjusted EBITDA up to $5.7 million, a $1.9 million or 50% improvement over the prior year. It also boosted the adjusted EBITDA margin which climbed to 26% from 20% in the same period last year.

After all of that positive news it seems strange to report a net loss for the quarter, but non-cash items including a larger negative fair value adjustment due to higher harvest volumes and a year-over-year difference of $5.4 million and the unrealized exchange loss on our U.S. dollar long-term debt resulted in a net loss of $0.6 million or $0.03 per share.

This compares to net income of $3.4 million or $0.20 per share in the prior year. Like adjusted EBITDA, free cash flow was up $1.9 million from the third quarter of 2013 to $4.7 million resulting in a payout ratio of just 74% compared to 123% for the same period last year.

I will now briefly review the segmented results for Acadian’s New Brunswick and Maine operations. Net sales from our New Brunswick operations for the third quarter totaled $16.3 million compared to $13.6 million for the same period last year.

The increase reflects more favorable operating and market conditions. The weighted average log selling price across all log products was $61.55 per cubic meter in the third quarter of 2014, up 10% compared to the same period last year.

This year-over-year increase in the average log selling price reflects improved selling prices for most products and a higher proportion of sawlogs in the sales mix and to some degree location of the harvest area. Costs for the third quarter of 2014 were $11.8 million versus $10.9 million in the comparable quarter of 2013.

The increase in total costs was due to higher harvest volumes of primary products. Variable costs per cubic meter were unchanged from the prior year.

Third quarter adjusted EBITDA for the New Brunswick operation was $4.5 million, up $1.8 million compared to the third quarter of 2013, again reflecting higher sales volumes and improved prices. Adjusted EBITDA margin increased to 28% from 20% in the prior year.

Switching to the Maine operation; net sales for the third quarter of 2014 were up modestly year-over-year increasing $0.2 million to $5.3 million. The benefits of improved prices for all of our products and the stronger U.S.

dollar were mostly offset by lower total sales volume. The weighted average log selling price in Canadian dollar terms were $69.95 per cubic meter in the third quarter, a 10% increase from $63.59 per cubic meter in the same period of 2013.

Weighted average log selling prices in U.S. dollar terms increased 5% year-over-year.

Costs for the third quarter were $3.8 million compared to $3.7 million during the same period in 2013. The impact of lower sales volumes was more than offset by increased road construction and maintenance activity and the adverse foreign exchange impact on variable costs per unit.

Variable cost per unit in U.S. dollar terms decreased just 1%.

Adjusted EBITDA for the Maine operation was in line with the same period of the prior year at $1.5 million. Improved log prices increased the adjusted EBITDA margin to 29% from 28% in the prior year.

Moving away from operations and over to our cash position. At the end of the third quarter, Acadian had cash on hand totaling approximately $12.9 million, which is $4.3 million higher than the cash balance at the same time last year.

The primary drivers of the increased cash balance include the generation of $2.7 million of free cash in excess of dividend payments over the last 12 months. And a short-term decrease in working capital as a result of delayed stumpage fillings on our Crown land operation.

The cash balance was up $5 million from the end of the second quarter of 2014, again reflecting strong free cash flow generation in the quarter and the decrease in working capital. As of September 27, 2014, Acadian had net liquidity of $77.7 million including funds available under Acadian’s revolving facility and our standby equity commitment with Brookfield.

The balance sheet remains strong leaving Acadian well positioned for the future. During the quarter, we distributed $0.21 per share to our shareholders, a dividend that is in line with previous quarters and supported by our steady performance.

I will now turn the call back over to Reid. Reid?

Thank you, Brian. During the quarter, Acadian’s operations experienced one recordable incident involving employees and four recordable incidents among our contractors.

While none of the incidents were serious in nature, mostly slips and falls, several did result in lost time. And we're somewhat disappointed with this performance and we'll certainly continue to work with our contractors, our employees to ensure the higher standards of workplace safety to maintain.

We're pleased to note that late September, the Maine operation successfully completed the surveillance audit under the Sustainable Forestry Initiative or SFI initiative with an impressive finding of no non-conformances and I think even more impressively, no opportunities for improvements. So clearly, our operations are running exceptionally well.

Acadian's weighted average log selling price for the third quarter increased 9% year-over-year due to higher softwood and hardwood sawlog and hardwood pulpwood prices, a stronger U.S. dollar and a higher value sales mix.

Stronger markets drove 11% increase in softwood sawlog prices relative to the third quarter of 2013 and prices for hardwood sawlogs and pulpwood also improved, each increasing by 9% over the same period last year. Softwood pulpwood pricing has remained stable.

However, the number of groundwood pulp customers operating region continues to decline. Biomass gross margin was down 20% year-over-year with the majority of the change coming from the New Brunswick operations where a smaller proportion of the volume was sold into the higher margin export markets than in the prior year.

Acadian's financial outlook for the remainder of 2014 and through into 2015 remains very positive. We believe U.S.

consumers' net wealth is steadily improving and fewer homeowners are in distress as indicated by the steady decline over the past few years in delinquency rates, foreclosures and the share of mortgages in a negative equity position. This is expected to support continued increases in housing starts through 2016 and this optimism, along with supply-side challenges and continued strong exports, should keep North American lumber prices well above historical norms.

Firm lumber prices are expected to encourage Acadian’s key solid wood customers to continue to operate at full capacity and as such, we expect to see ongoing strong demand for softwood sawlogs in the region. In addition to our positive outlook for softwood sawlogs, markets for hardwood sawlogs have been very positive and are expected to remain stable.

Demand and pricing for hard pulpwood also continues to be very strong. Acadian has been successful in selling all of its softwood pulpwood production, but this market continues to be challenged by the closure of the great northern groundwood mill, the announced or scheduled closure of Verso’s Bucksport Maine groundwood mill and to lesser extent largely a hardwood mill, the Old Town Fuel and Fiber mills; all of these even closed or settled for close at the end of the year.

Fortunately this product group represents only a small portion of Acadian sales and even lower proportion into our operating earnings. Biomass sales have begun to improve as the reduction of logistical challenges previously constraining exports from New Brunswick operations have largely been relieved.

On the business development front, we continue to actively pursue opportunities in support of the Acadian’s growth strategies in U.S. Australasia and South America.

We’re waiting to see increased transaction activity in all these markets and worked on several opportunities in United States, Brazil, Chile and New Zealand during the third quarter. Our goal is to build the balanced portfolio between current cash flow and capital appreciation with the ultimate focus being on long-term total return target of 10% to 12%.

Acadian shareholders can be confident they we’ll stay focused and disciplined in our search for growth. In closing, we’re pleased with the Acadian’s operating performance year-to-date and look forward to continued improvement in Acadian’s performance in the coming quarters.

We thank you for your continued support in Acadian. That concludes our formal remarks and we’re available to take any questions from participants on the line.

Operator?

Yes. Good morning or good afternoon wherever you are.

Just a impressive quarter, so congratulations on that and just one question. In that we've seen a number of North American timberland transactions over the last quarter or so and I just wanted your comments on the relative valuation metrics and just your ability to be competitive in the current marketplace?

Well, I don't think things have changed too much since we've commented in the last quarter. The U.S.

market in particular continues to be just exceptionally competitive as we saw with (inaudible) announcement of the acquisition from RMS and just increases in deal flow. We're certainly seeing, what we would consider to be very aggressive underwriting in the U.S.

in particular, but of course we've seen in New Zealand and to a lesser degree not so much less aggressive, but less examples in Australia. In Latin America it's quite interesting right now.

The capital markets are much less open in fact many of which closed, many have integrated large timberland manufacturing [businesses]. And there hasn't been much history of them disintegrating their business, but certainly there is a lot more interest in exploring that in Chile and in Brazil and in possibly in Uruguay.

So, I think really happy, we’re very patient here. Certainly we believe have to be very patient here and more importantly disciplined.

But we would suggest that cap rates are -- well certainly I would say is lowest as we’ve ever seen them and that would be I think (inaudible) pretty aggressive start underwriting and all the other aspects of the (inaudible) our valuation exercise.

Great, thanks. Best of luck going forward.

Thanks.

Thanks. Hi guys.

I guess just a quick question on -- you had a lot of stuff in the news about potentially declining demand for wood fiber in Asia another that’s necessarily your view or not, but do you -- should that come to pass, do you see that impacting log prices in New Zealand or Latin America or Australia I guess?

Well certainly, we saw a pretty significant inventory buildup probably a little over 5 million cubic meters in China at the end of the first quarter of this year. And that’s put a lot of the agents upside, the traders in Asia and particularly China.

And it could be taking a long time for inventory rebalancing to really try to cleanup that market. But we’ve seen after a pretty significant price decline particularly for New Zealand for radiata pruned and unpruned radiata logs probably came out from both in absolute and percentage terms the most.

We’ve seen the bottom was probably in early August and we’ve seen 5% and 10% price increases since then. I think the prices got ahead of themselves; certainly supply is getting ahead of itself.

We really need to have our U.S. market and in Asian market to be a little less volatile.

But in our own view, we are believers of Asia. While China is expected to slow and we're expected to move to more of a service economy model from sort of infrastructure build out and the manufacturing model, the need for infrastructure in most of the timber and lumber that is sold in Asia not Japan, but in China and Korea and we expect the future of countries like India is really going to be for construction, it can be concrete forming.

And we believe there is going to be very, very heavy demand over the long-term for that. So, certainly I mean this is a commodity, it's going to be volatile.

But we think that that will help Austro-Asian possibly Chilean and certainly North American and Russian timber and lumber market opportunities.

That's very helpful. Thank you.

Thank you. I guess questions for Reid and just continuing on the acquisition theme.

What are you seeing just from the standpoint in Brazil in particular this has been a pretty big devaluation of the real versus the U.S. dollar and obviously we just have the election results earlier on the week?

So, I guess what are your thoughts about that market in particular? And is it becoming much better place for you to invest on a longer term basis than say it was say three to six month ago?

Well, Brazil is a very big country and timber in Brazil sells into a very different market as you move across the country in offshore and the South Eastern, Santa Catarina and you're in fine areas that use in some sort of construction a lot of furniture making, boards and panels, big NDF. And a very big both export and domestic component to it, so in that more historic pine area, weaker currency improves the competitive position of those timberlands.

When you’re in much of the eucalyptus for pulp production areas, most of those mills despite having increasing fiber cost at least in real, our big enough, moderate enough, low enough costs they are all going to run flat out and mostly are still very, very keen on adding capacity despite the significant capacity we’ve had out over the last two and half years. So, the demand and pricing and the pressure on land prices and the like continue to be very, very strong, particularly in (inaudible).

When you get up into (inaudible) and areas where much of the eucalyptus has grown has grown charcoal production and charcoal is used either in pig iron or fuel industries or industrial gases and silicon industries. They’re really striking like with cocking coal, met coal, iron ore steel prices where they are really at absolute cyclical lows, despite the weaker real, it’s -- and very large domestic consumption of that product they’re just charging up end consumers.

So on top of that this business is experiencing a very significant growth which has really meaningfully impacted electricity prices. So many of the customers whether they’re pig iron producers or more important, so many industrial gases, silicon have shutdown and they are selling their power into the grid and more profitable that way.

So again that part of the industry is really, really struggling right now, the pulp side and I think the pine side and really running very well and the weaker real will just reduce their cost, make their export margins stronger. So some of the biggest reason in Brazil are despite pretty significant over employment, unemployment is very, very low and working to find rural labors that's skilled and don't have better employment opportunities is a challenge in many of the areas.

So, it's a big and complicated country, you need to pick the spots in it.

Okay, that's very helpful color. And I guess just maybe just continuing on the theme of you mentioned in the quarter you looked at multiple things.

Were these transactions being looked out from the BAM funds. And then you were looking at as a co-invest or is it just Acadian outright, I guess in conjunction whether BAM was actually closing of anything or not?

Yes, I think the way we have explained it first, with our growth strategy last term somewhere in 2013 is that we were going increasingly trying to create opportunities for Acadian to grow by co-investing alongside, the BAM private equity timber funds and no duplication of fees or anything like that but just simply be able to participate more broadly rather than just regionally in timber opportunities. So, I think all of these were broader Brookfield timberland acquisition initiatives.

And there we have two active funds, Brazil fund and more global funds and we’ve probably never been busier timber underwriting and pursuing growth. But as I said, we're just little a frustrated right now.

I didn't say this but it propagated by the very, very aggressive underwriting that we're coming up against of many of these transactions.

Okay, that's very helpful. And then I guess the question rather for yourself or for Reid or so for Brian.

And just relating to New Brunswick, is there any real update on just the Forestry Plan that was introduced I guess many months ago now and just is there update on, your view on what’s happening in New Brunswick?

Well, there was election in New Brunswick back in September and we have a new liberal government in New Brunswick and the Forestry Plan is introduced by the conservative government. The government continues in fact even today to make announcements as who the Deputy Ministers will be and I think there are six Deputy Ministers that can step down or no longer in place were announced today.

So there has been enough change, but this government is -- I think their official position is they’re reviewing the Forestry Plan. There hasn’t be any new announcement since really before election, certainly before since the report that was filed.

And to my knowledge, we still haven’t seen any clear definition as to where the extra volume that was offered to a number of major licensees or manufacturers exchange for some capital, significant capital investments. We really haven’t seen more details on where and under what terms that will come from and we haven’t see any changes.

So now it’s still regard to the some conservation in the areas that are being modified or reduced. So we’re -- like yourself, we’re waiting for the government to get us in place and look through this and make some plans as far as I understand.

Okay. That’s exceptionally helpful.

Thank you so much.

You’re welcome.

Hi, Reid and Brain. So, I guess one question, just you had a line in your release where you mentioned that your biomass sales have begun to improve in New Brunswick as a reduction of logistical challenges.

Can you just expand on that a bit and will that become a bigger line item in 2015?

Brian, do you want to start with or do you want me to take it either way?

No I can take that. So that export facility is located up in the Gaspé on the St.

Lawrence River and they were just really are having operational problems in their facility in terms of being able to process the material and get it loaded on to ships and they've got all of that sort of back out so that they're now more able to take the volume we can send towards them. I wouldn't expect it to have a significant impact in 2015 because it's not like we have a lot of extra volume of biomass waiting around to go out to customers.

We are getting most of it processed as it's down. So, we might have a little bit of a backlog that's built up this year that we'll catch up next year, but it won't be material and isn’t a big contributor to EBITDA in any case.

I think that Mark might be is that that market might be at least aggressive enough that it helps entering the markets where we may see some better pricing for biomass, but as Brian said, we wouldn't expect that to be. Biomass has such a small market today that is not likely to be material.

Right, right. And then as you look at your options for softwood pulpwood as paper demand continues to [erode], what other options are there for that product?

So other than biomass there really aren't great opportunities. I mean clearly as much as possible you try to merchandize your logs down to the smallest and minimize that volume.

The New Brunswick, Crown has provided much of the relief right now over the last probably I guess it's about two years where they have reduced or eliminated raised penalties for living softwood pulpwood in the wood. And so much of the softwood and pulpwood on Crown lands is left in the woods that not has reduced some supplies; it allowed softwood pulpwood prices to be maintained.

We have a very strong relationship which we were never through our fiber supply agreement. And they are one of our principal market for softwood pulpwood.

Really it doesn’t travel; it doesn’t have enough margin that it can travel very far. So it’s not really something that we can ship down to much more distant else.

So, I think it’s easy to get left in the woods, I mean if we don’t have a margin opportunity for it we need to get all the roadside and gets included in the biomass pile or it gets left in the woods. But key thing is it’s a very small volume product for us, I think Brian it’s about end up being about 6% or something.

6% to 8% of our harvest volume are closed to 1% of our EBITDA. So it’s a rounding there, but it’s always challenging to meet the lead things in the woods is never popular decision.

Waste is always an issue so (inaudible) difficult and things like this. So in some stance they would have softwood pulpwood (inaudible).

All right, all right. Okay.

No, that was it for me. Thanks.

Good. Thank you.

Well, once again thanks very much for your interest in Acadian. We certainly appreciate you participating in our calls and paying attention to our releases.

And we look forward to continued strong performance in the fourth quarter and going into 2015. Thanks very much.

Enjoy rest of your day.