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Press release from Marketwire

Canexus Income Fund Announces Fourth Quarter and Year-End Results

Completed Growth Projects to Drive Increased Operating Cash Flow in 2011 and Beyond

Thursday, March 03, 2011

Canexus Income Fund Announces Fourth Quarter and Year-End Results19:03 EST Thursday, March 03, 2011CALGARY, ALBERTA--(Marketwire - March 3, 2011) - Canexus Income Fund (TSX:CUS.UN) (the "Fund" or "Canexus") today announced its results for the fourth quarter and year ended December 31, 2010. Unless otherwise noted, the Fund is reporting the 100 percent results of Canexus Limited Partnership ("Canexus LP"), of which the Fund indirectly owned 36.7 percent at December 31, 2010 (100 percent after closing of the secondary offering of Nexen Inc.'s interest in the Fund on February 7, 2011).Highlights:-- Distributable Cash within Canexus LP was $61 million for 2010, resulting in a payout ratio of 95 percent (inclusive of realized foreign exchange gains and the hydrogen settlement in Brazil), consistent with guidance -- Canexus LP declared cash distributions to the Fund and Nexen of $55.9 million -- Six strategic growth projects successfully completed, the most significant of which was the technology conversion project ("TCP") at the North Vancouver chlor-alkali facility. Other projects completed include the build-in of the second major rail line at the North American Terminal Operations ("NATO") site, the 4,400 metric tonne ("MT") sodium chlorate expansion and hydrogen projects in Brazil and the hydrochloric acid capacity expansions at our North Vancouver and Brazil facilities -- North America sodium chlorate sales volumes for 2010 increased 10 percent over the prior year benefiting from improving pulp markets. Realized selling prices were negatively affected by the stronger Canadian dollar relative to the US dollar compared to 2009 and by lower delivered prices to US consumers in 2010. Price increases took effect Q1/2011 and a price increase announcement of $50/MT was made for Q2/2011 where contracts allow. North American sodium chlorate industry operating rates are currently estimated to be 96 percent, which should allow for continued pricing momentum in 2011 and 2012. Our low-cost Brandon plant achieved record production in 2010 of approximately 301,500 MT. The power line capacity upgrade to the Brandon plant is expected to be completed mid-2012, setting the stage for further possible expansion opportunities -- Sales revenue for the North American chlor-alkali business was consistent with the prior year resulting from higher sales volumes of caustic soda (including significant volumes purchased for resale) offset by 18 percent lower realized metric electrochemical unit ("MECU") netback prices. Caustic soda prices increased in Q1/2011 and price increases for both caustic and chlorine have been announced for Q2/2011 as contracts allow. Following a six-day shutdown in early November for minor debottleneck modifications, our North Vancouver chlor-alkali facility operated reliably at design capacity. The expected incremental annual benefits of TCP of $35 to $43 million are being realized with improved electrical efficiency, manpower reductions, reduction in natural gas consumption, lower maintenance costs and expanded capacity-- Higher sales revenue in our South American business unit resulted from higher realized selling prices for sodium chlorate and caustic soda (reflecting our fixed US dollar margin contract) on lower sales volumes. Gross Margin declined from the prior year due to the impact of the stronger Canadian dollar compared to the US dollar and to higher maintenance costs arising from both planned (July) and unplanned (October) chlor-alkali plant shutdowns in 2010. The chlor-alkali plant is expected to run reliably in 2011 -- Canadian dollar foreign exchange call option contracts in place to protect US$5 million per month at US$0.9804 per Canadian dollar from January 1, 2011 to March 31, 2011. All long- term debt is borrowed in US dollars to further manage our US dollar currency exposure -- Effective February 22, 2011, maturity of Canexus LP's senior secured revolving credit facilities was extended to June 30, 2014, resulting in lower borrowing costs of 50 bps and revised financial covenants with relaxation modified and extended through September 30, 2011. At December 31, 2010, total borrowings under committed credit facilities were $332.8 million with remaining available undrawn capacity of approximately $107 million -- On February 7, 2011, Nexen disposed of its entire interest in Canexus through a secondary offering on a bought deal basis. Nexen no longer owns any Fund Units or securities convertible into Fund units and the Fund owns 100 percent of Canexus LP -- Canexus expects to seek Unitholder approval at the May 2011 Annual and Special Unitholder Meeting to convert to a corporate structure effective July 1st, 2011. No change is expected in the amount of our distribution of $0.5472 per Fund Unit annually. "Canexus' financial and operating performance in 2010 was consistent with our guidance which reflected the startup challenges with TCP and the trough of sodium chlorate and chlor-alkali pricing in the first half of 2010 brought on by the 2008/09 financial and economic crisis," said Gary Kubera, President and CEO. "With six growth projects completed in 2010, the most significant being TCP at our North Vancouver chlor-alkali facility, we are well positioned to deliver solid results in 2011. Going forward, we are firmly committed to the Fund's dual objectives of building future growth and sustaining current distribution levels for the benefit of our Unitholders.""Global pulp markets stabilized and began to improve during 2010. A substantial fourth quarter rebound in China demand rejuvenated market conditions, returning the market to a more balanced state. Consistent with stronger market conditions, global producer inventories fell by 10 percent to 30 days in December, a level generally regarded as balanced in the pulp industry. Looking ahead, global pulp demand is expected to continue to grow consistent with global economic growth. With little new global pulp capacity projected to become operational over the next two years, we continue to anticipate a healthy pulp market in the medium term, which should be very beneficial for producers of both pulp and sodium chlorate in North America.""Year-over-year, North America chlor-alkali industry operating rates improved to an estimated 87 percent in 2010. The improvement was mainly due to an increase in PVC chain exports to Asia which are projected to remain strong over the near- to mid-term. Moderate ethylene feedstock prices in North America from natural gas, favourably position North American chlorine derivative production in comparison to naptha (oil) based production in Asia. North American chlor-alkali operating rates were limited as expected in the fourth quarter of 2010 by seasonally soft chlorine demand, resulting in balanced to snug fourth quarter caustic supply supporting upward price movement. Caustic soda price increases were implemented for Q1/2011 and price increases of approximately $40/MT for both caustic and chlorine have been announced for Q2/2011 as contracts allow.""Following a six-day shutdown in November to address minor debottleneck modifications, our North Vancouver chlor-alkali facility has been capable of operating at design capacity and the expected benefits of TCP are beginning to be realized. We are confident in the ability of the plant to run at the high operating rates expected in the second and third quarters when demand for chlorine for water treatment is at its highest. The 70,000 wet MT hydrochloric acid expansion project at this facility, completed in 2010, significantly enhances our chlor-alkali production flexibility going forward. We are also studying the production of other chlorine derivatives at our North Vancouver facility and are currently evaluating the production of calcium chloride which is currently in short supply.""Our operating results in Brazil for 2010 were somewhat disappointing. Substantially higher maintenance costs and product purchases resulted from both a planned chlor-alkali maintenance shutdown in July and an unplanned chlor-alkali plant shutdown in October. We anticipate reliable operation of this facility in 2011.""During the second half of 2010, three expansion projects commenced operation at the Canexus Brazil plants: a new hydrochloric acid burner, modifications to enable hydrogen sales, and a sodium chlorate expansion. All three projects have demonstrated design capacity operating rates.""We continue to pursue opportunities to expand our NATO site at Bruderheim, Alberta and are seeing increased interest following completion in 2010 of the build-in of the second major rail line to this site. A $2 million project to construct renewable fuels transloading infrastructure is underway in support of a recently awarded contract that commences in the second quarter of 2011. In addition, mechanical integrity re-verification of our two 650,000 barrel salt caverns at the site is expected to be completed in the second quarter of 2011 in support of the potential large scale development of the site to service the oilsands region.""Our payout ratio guidance for 2011 continues to be in the 85 to 90 percent range assuming a US$0.97 exchange rate. This implies an operating cash flow target of approximately $128 million up from $69 million in 2010. Our payout ratio is expected to improve to 70 percent in 2012 with continued improvement in our markets, slightly lower maintenance capital expenditures and marginally higher chlor-alkali volumes," said Mr. Kubera.Statement of Distributable Cash Three Months Ended Years Ended ---------------------------------------- December 31 December 31 ----------------------------------------CAD thousands, except as noted 2010 2009 2010 2009 ----------------------------------------------------------------------------Canexus LP ----------------------------------------------------------------------------Net Income 4,384 12,407 9,372 73,652 ----------------------------------------------------------------------------Realized Foreign Exchange (Gains) Losses on Cash 87 78 (948) 1,240 ----------------------------------------------------------------------------Charges and Credits to Income Not Involving Cash ---------------------------------------------------------------------------- Provision for (Recovery of) Future Income Taxes (47) 392 489 6,939 ---------------------------------------------------------------------------- Amortization 18,384 11,159 57,030 46,321 ---------------------------------------------------------------------------- Unrealized (Gains) Losses on Currency Translation (10,005) (5,963) 10,214 (46,323)---------------------------------------------------------------------------- Change in Fair Value of Foreign Exchange Options 380 4,877 2,100 8,905 ---------------------------------------------------------------------------- Change in Fair Value of Foreign Exchange Forward - - - 3,796 ---------------------------------------------------------------------------- Change in Fair Value of Interest Rate Swaps (615) (344) 866 (696)---------------------------------------------------------------------------- Accrual for Future TCP Severance Costs - - - (981)---------------------------------------------------------------------------- Impairment of Sodium Chlorate Assets - - - 17,227 ---------------------------------------------------------------------------- Other 1,499 641 4,380 4,246 ----------------------------------------------------------------------------Total Charges and Credits to Income Not Involving Cash 9,596 10,762 75,079 39,434 ----------------------------------------------------------------------------Contributions to / Payments for Defined Benefit Plans (615) (462) (2,397) (2,989)----------------------------------------------------------------------------Interest Income on Restricted Investments (3) (20) (4) (262)----------------------------------------------------------------------------Purchase of Foreign Exchange Options (211) (1,798) (972) (1,798)----------------------------------------------------------------------------Expenditures on Asset Retirement Obligations (831) (651) (980) (869)----------------------------------------------------------------------------Changes in Non-Cash Operating Working Capital and Due from/to Affiliates, Net, and Interest Payments to Affiliates 3,676 12,162 7,014 8,855 ----------------------------------------------------------------------------Cash Flow From Operating Activities 16,083 32,478 86,164 117,263 ----------------------------------------------------------------------------Changes in Non-Cash Operating Working Capital and Due from/to Affiliates, Net, and Interest Payments to Affiliates (3,676) (12,162) (7,014) (8,855)----------------------------------------------------------------------------Maintenance Capital Expenditures (5,073) (6,747) (14,146) (20,102)----------------------------------------------------------------------------Amortization of the Purchase Cost of Foreign Exchange Options (310) (1,254) (2,559) (5,015)----------------------------------------------------------------------------Realized Foreign Exchange Gains (Losses) on Cash (87) (78) 948 (1,240)----------------------------------------------------------------------------Operating Non-Cash Items (239) 1,829 (2,371) 833 ----------------------------------------------------------------------------Distributable Cash within Canexus LP 6,698 14,066 61,022 82,884 ----------------------------------------------------------------------------The Fund ----------------------------------------------------------------------------Share of Canexus LP's Distributable Cash 2,463 4,807 21,886 28,978 ----------------------------------------------------------------------------Trust Administration Expenses (126) (73) (459) (348)----------------------------------------------------------------------------Distributable Cash available to the Fund 2,337 4,734 21,427 28,630 ----------------------------------------------------------------------------Cash Distributions Declared 5,344 4,611 20,270 18,225 ----------------------------------------------------------------------------Payout Ratio 229% 97% 95% 64%----------------------------------------------------------------------------Note: (1) See comments concerning non-GAAP Measures at end of release. Operations HighlightsCanexus has a total of six manufacturing plants - four in Canada and two in South America - organized into three business units. Highlights for each unit are as follows:-- North America Sodium Chlorate: -- Annual sales revenue for the North America sodium chlorate segment decreased two percent to $212.2 million in 2010 from $216.6 million in 2009 due to a 12 percent decrease in realized selling prices, partially offset by a 10 percent increase in sales volumes. The decrease in realized selling prices was primarily due to the stronger Canadian dollar relative to the US dollar (US$0.97 in 2010 vs. US$0.87 in 2009) and lower delivered prices to US customers in 2010 despite price increases implemented in the second through fourth quarters. The increase in sales volumes was due to increased customer demand as the economy recovered and to new contracted sales volumes. Gross margin percentage in 2010 decreased to 30 percent from 36 percent for 2009 primarily due to the decrease in realized selling prices and slightly higher electricity costs, partially offset by lower fixed costs and higher production volumes. -- Fourth quarter sales revenue for this segment compared to the same period in the prior year increased two percent to $53.5 million from $52.5 million due to a three percent increase in sales volumes, partially offset by a one percent decrease in realized selling prices. The increase in sales volumes was due to increased customer demand as the economy began to recover and to new contracted sales volumes. The decrease in realized selling prices was primarily due to the stronger Canadian dollar relative to the US dollar (US$0.98 in Q4/10 vs. US$0.94 in Q4/09), which more than offset price increases implemented in the second through fourth quarters of 2010. The gross margin percentage increased to 30 percent from 29 percent due to lower fixed costs and higher production volumes, partially offset by slightly higher electricity costs. Fixed costs were lower as a result of planned maintenance shutdowns at all three of our North America sodium chlorate facilities in the fourth quarter of 2009. -- Fourth quarter sales revenue for this segment compared to the third quarter of 2010 decreased five percent to $53.5 million from $56.3 million due to a six percent decrease in sales volumes, partially offset by a two percent increase in realized selling prices. The decline in sales volumes was due to the timing of shipments to customers in the fourth quarter as compared to the third quarter. The increase in realized selling prices was due to price increases implemented in the fourth quarter, partially offset by the stronger Canadian dollar. The gross margin percentage decreased from 31 percent to 30 percent as a result of higher salt costs and slightly higher electricity costs, partially offset by higher realized selling prices, lower fixed costs and higher production volumes. -- Our North America sodium chlorate business unit benefited from improving pulp markets through 2010 with sales volumes increasing by 10 percent over the prior year and operating rates reaching an estimated 96 percent of nameplate capacity in the fourth quarter. Consequently, further price improvement was realized during the fourth quarter and sodium chlorate prices in local currencies are trending upwards in 2011. -- The project to upgrade power line capacity at our low-cost Brandon, Manitoba facility is expected to be completed in the first half of 2012 and will set the stage for additional expansion opportunities at this facility. -- North America Chlor-alkali: -- Annual sales revenue for the North America chlor-alkali segment of $147 million in 2010 was consistent with sales revenue of $147.7 million in 2009. Higher sales volumes of caustic soda, including significant volumes of caustic soda purchased for resale, more than offset lower caustic soda and hydrochloric acid realized selling prices and lower chlorine and hydrochloric acid sales volumes. The gross margin percentage decreased from 29 percent in 2009 to nine percent in 2010 as a result of the delay in startup completion of TCP (which included losses incurred on product purchased to provide to customers), lower MECU realized selling prices, higher electricity prices and lower production volumes, partially offset by lower fixed costs. The decrease in production volumes was due to the delay in TCP startup completion to late July following almost three months of no production and to a six-day shutdown in early November to perform additional debottlenecking to achieve design capacity. -- Fourth quarter sales revenue for this segment compared to the same period in 2009 increased 20 percent to $41 million from $34.3 million as a result of a 30 percent increase in caustic soda sales volumes, including caustic purchased for resale, and a 10 percent increase in caustic soda realized selling prices, partially offset by slightly lower chlorine sales volumes and lower chlorine and hydrochloric acid realized selling prices. The increase in caustic soda sales volumes was due to an increase in customer demand as the economy began to recover, which Canexus LP was able to satisfy as a result of an increase in caustic soda production following the startup of TCP combined with product purchased for resale. The increase in caustic soda realized selling prices was due to the increase in demand. The decrease in chlorine and hydrochloric acid realized selling prices was due to the impact of excess chlorine supply as a result of the high demand for caustic soda, greater availability of byproduct hydrochloric acid, as well as a stronger Canadian dollar in the fourth quarter of 2010 versus the fourth quarter of 2009. Gross margins decreased to 19 percent from 20 percent primarily as a result of higher fixed costs and lower realized MECU netback prices as a result of lower chlorine and hydrochloric acid realized selling prices, partially offset by higher production volumes. Fixed costs were higher as a result of costs incurred in 2010 for tank cleaning and associated treatment and disposal of waste, and inventory impairment charges recorded on the write down of obsolete Freon inventory, and salt inventory resulting from the performance of a physical survey. -- Fourth quarter sales revenue for the North America chlor-alkali segment compared to the third quarter of 2010 increased 13 percent to $41 million from $36.3 million primarily due to a 24 percent increase in caustic soda sales volumes and a 27 percent increase in hydrochloric acid sales volumes, partially offset by 16 percent lower chlorine sales volumes. The increase in caustic soda sales volumes was due to lower sales volumes in the third quarter which resulted from lower production volumes due to the ramp-up of production following completion of the startup of TCP at the end of July. The increase in hydrochloric acid sales volumes was due to an increase in customer demand which Canexus LP was able to satisfy as a result of an increase in production volumes following completion of the hydrochloric acid expansion. The decline in chlorine sales volume was due to normal seasonal softening in chlorine demand used in water treatment. Gross margin percentage increased to 19 percent for the fourth quarter from eight percent for the third quarter as a result of the TCP ramp-up commencing in late July, with the expected benefits beginning to be realized during the fourth quarter, including improved electrical efficiency and reductions in natural gas consumption and manpower combined with higher production volumes. -- The North America chlor-alkali industry operated at an estimated 82 percent of capacity in the fourth quarter of 2010, compared with 91 percent in the third quarter of 2010 and 79 percent in the fourth quarter of 2009. The decline from the prior quarter was attributable to scheduled plant maintenance outages and slower seasonal demand. Year- over-year operating rates improved by 11 percent from 76 percent in 2009 to an estimated 87 percent in 2010. The improvement was principally due to an increase in PVC chain exports to Asia. Over the near- to mid-term, North American chlorine derivative exports to Asia are projected to remain strong. -- North America chlor-alkali operating rates were limited in the fourth quarter of 2010 by seasonally soft chlorine demand. Accordingly, North America caustic soda production decreased in the fourth quarter due to chlor-alkali operating rate reductions necessary to control chlorine inventory. In contrast to reduced supply during the quarter, domestic caustic soda demand was stable and export demand increased. As a result, fourth quarter caustic supply was balanced to snug which resulted in conditions that supported upward price movement. Overall, North America MECU prices increased in the fourth quarter as caustic soda price improvement more than offset weaker demand for the chlorine molecule. Caustic soda price momentum is projected to continue into 2011, with MECU prices increasing moderately accordingly. -- South America: -- Annual sales revenue in South America increased four percent to $98.1 million for 2010 from $94.2 million for 2009 primarily as a result of higher realized selling prices for sodium chlorate and caustic soda, partially offset by lower sales volumes of sodium chlorate and caustic soda. The increase in realized selling prices for sodium chlorate and caustic soda was due to the pass-through nature of the contract with our primary customer which contributes to higher sales revenue as costs increase. The decrease in sales volumes of sodium chlorate and caustic soda was due to reduced demand from our primary customer in January and February. Gross margin percentage decreased to 24 percent from 27 percent primarily due to the impact of the stronger Canadian dollar on our fixed US dollar margins and higher fixed costs, partially offset by higher production volumes. Fixed costs were higher as a result of both a planned chlor-alkali maintenance shutdown in July and an unplanned chlor-alkali plant shutdown in October, partially offset by the purchase of caustic soda up to our chlor-alkali plant's operating capacity volume in early 2009 at market prices which were higher than the price we could bill our primary customer. -- Fourth quarter sales revenue for this segment compared to the same period in 2009 increased nine percent to $25.8 million from $23.7 million primarily due to higher sodium chlorate sales volumes as a result of higher demand from our primary customer and higher sodium chlorate and caustic soda realized selling prices (reflecting the cost pass-through nature of our contract with our primary customer). Gross margin percentage decreased to 16 percent from 29 percent due to higher fixed costs, the impact of the stronger Canadian dollar in the fourth quarter of 2010, as compared to the fourth quarter of 2009, on our fixed US dollar margins, partially offset by higher production volumes. The increase in fixed costs was due to higher maintenance costs and costs incurred to purchase product for customers resulting from an unplanned shutdown of the chlor-alkali plant in October. -- Fourth quarter sales revenue for this segment compared to the third quarter of 2010 decreased two percent to $25.8 million from $26.4 million. Lower sales volumes of sodium chlorate were partially offset by higher sodium chlorate and caustic soda realized selling prices. Gross margin percentage declined to 16 percent for the fourth quarter from 23 percent for the third quarter as a result of higher fixed costs and the impact of the stronger Canadian dollar during the fourth quarter on our fixed US dollar margins, partially offset by higher sodium chlorate production volumes. The increase in fixed costs was due to higher maintenance costs and costs incurred to purchase product for customers, resulting from an unplanned shutdown of the chlor-alkali plant in October. -- Consistent with the strong pulp market in Brazil, the Brazil sodium chlorate plant operated at full capacity during the fourth quarter. Robust demand for Brazilian pulp is expected to continue through 2011, with associated strong sodium chlorate demand. Accordingly, the Brazil sodium chlorate plant is projected to operate at capacity through 2011. -- The Brazil chlor-alkali plant operated at 86 percent of capacity in 2010, lower than expected due to unexpected maintenance issues in October. We expect the plant to operate reliably in 2011. Merchant chlorine demand in Brazil continues to be healthy with industry capacity utilization at approximately 87 percent in 2010 and expected to remain at similar levels in 2011. -- During the second half of 2010, three expansion projects commenced operation at the Brazil plants: a new hydrochloric acid burner, modifications to enable hydrogen sales, and a sodium chlorate expansion. All three projects have demonstrated design capacity operating rates. Financial Updates-- Foreign Exchange and Long-Term Debt: -- On December 20, 2010, Canexus LP purchased Canadian dollar foreign exchange call option contracts on US $5 million per month, which entitle Canexus LP to sell US dollars and acquire Canadian dollars at a price of US $0.9804 per Canadian dollar from January 1, 2011 to March 31, 2011. -- For 2010, realized gains of $2.3 million and mark-to-market fair value losses of $2.1 million were recorded on foreign exchange call option contracts, for a net gain of $0.2 million. In the fourth quarter, mark-to-market fair value losses of $0.4 million and realized gains of $0.7 million were recorded on foreign exchange call option contracts for a net gain of $0.3 million. -- Canexus LP borrows in US dollars (which acts as a natural hedge of our US dollar revenue stream), which creates unrealized currency translation gains as the Canadian dollar strengthens. A substantial portion of our revenues are denominated in or referenced to the US dollar and are partially protected with call option contracts as explained above. During the year ended December 31, 2010, we realized currency translation gains of $24.8 million on both temporary and permanent repayments of US dollar denominated long- term debt, reversing previously recorded unrealized gains, resulting in a net unrealized currency translation loss of $9.8 million on long-term debt. We intentionally triggered $19.4 million of realized currency translation gains on temporary repayments of the Extendible Revolving Credit Facility during the three months ended September 30, 2010 to minimize borrowing costs. For the year ended December 31, 2009, we recorded unrealized currency translation gains of $46.3 million ($45.9 million on US dollar denominated long-term debt). During the fourth quarter of 2010, Canexus LP recorded unrealized currency translation gains of $10.7 million on our US dollar denominated long-term debt, compared to unrealized currency translation gains of $6.8 million during the fourth quarter of 2009. -- At December 31, 2010, total borrowings under committed credit facilities were $332.8 million with remaining available undrawn capacity of approximately $107 million. We have no debt maturing before May 2013, the maturity date of the Senior Secured Notes. Effective February 22, 2011, maturity of Canexus LP's senior secured revolving credit facilities was extended to June 30, 2014 resulting in lower borrowing costs of 50 bps and revised financial covenants with relaxation modified and extended through September 30, 2011. -- On September 28, 2010, the Fund issued $60 million of 5.75 percent convertible unsecured subordinated debentures. The net proceeds were used by Canexus LP to repay long-term debt. -- Interest capitalized on major projects was $7.2 million in 2010 compared to $4.9 million in 2009. -- Capital Expenditures: Capital expenditures for the year ended December 31, 2010 were $134.4 million compared to $214.3 million in 2009. The decline was due to decreases in expansion capital expenditures of $70.1 million, maintenance capital expenditures of $6 million, remediation capital expenditures of $2 million and continuous improvement capital expenditures of $1.9 million. The decrease in expansion capital expenditures was primarily due to the completion and startup of TCP in late July 2010, as well as other expansion capital projects completed during the year. Amortization expense increased in 2010 primarily due to amortization of growth projects completed during the year including TCP.-- Expenses and Other Income: General and administrative expense of $32.5 million for the year ended December 31, 2010, was $2.6 million lower compared to the previous year as a result of lower costs associated with preparation for the conversion to International Financial Reporting Standards ("IFRS") in 2011, lower spending on business development activities that cannot be capitalized, a lower bonus accrual for 2010 and costs incurred in 2009 for the review and implementation of SAP chemicals best practice processes. -- Included in other income are the realized and unrealized currency translation gains and losses discussed above. Canexus LP has not designated our US dollar denominated long- term debt, foreign exchange option contracts or interest rate swaps as hedges for accounting purposes and hence the fair value impact of these items flows through other income. For 2010, we recorded mark-to-market fair value losses of $0.9 million ($0.7 million gain in 2009) on interest rate swaps and realized losses of $1.5 million ($1.3 million loss in 2009) for a total loss of $2.4 million ($0.6 million net loss in 2009). During the year ended December 31, 2010, we recorded a $6.6 million gain on settlement of a contract matter to supply hydrogen in Brazil. For the year ended December 31, 2009, an impairment of sodium chlorate plant assets was recorded of $17.2 million on the closure of the Bruderheim sodium chlorate plant, and we incurred $3.3 million of severance and other closure related costs which are included in other income. -- Income taxes decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, due to lower future income taxes resulting from foreign exchange fluctuations, partially offset by higher current income taxes as a result of higher taxable earnings in Brazil as a result of the hydrogen settlement. Operating Results for the Three-Months Ended and Years Ended December 31, 2010 and 2009 Three Months Ended Years Ended December 31 December 31 ------------------------------------------CAD thousands 2010 2009 2010 2009 ----------------------------------------------------------------------------Revenues Sales 120,278 110,508 457,357 458,447 Expenses Cost of Goods Sold 92,272 81,657 356,035 312,280 Amortization 18,384 11,159 57,030 46,321 General and Administrative 8,224 8,519 32,526 35,173 Interest on Debentures 2,185 1,739 6,805 2,323 Interest 5,053 298 9,735 5,338 ---------------------------------------------------------------------------- 126,118 103,372 462,131 401,435 ----------------------------------------------------------------------------Income (Loss) before Other Income, Impairment and Income Taxes (5,840) 7,136 (4,774) 57,012 Other Income 10,688 6,752 19,350 43,707 ----------------------------------------------------------------------------Income before Impairment and Income Taxes 4,848 13,888 14,576 100,719 Impairment - - - (17,227)----------------------------------------------------------------------------Income before Income Taxes 4,848 13,888 14,576 83,492 ----------------------------------------------------------------------------Provision for (Recovery of) Income Taxes Current 511 1,089 4,715 2,901 Future (47) 392 489 6,939 ---------------------------------------------------------------------------- 464 1,481 5,204 9,840 ----------------------------------------------------------------------------Net Income 4,384 12,407 9,372 73,652 --------------------------------------------------------------------------------------------------------------------------------------------------------Financial Statements, Conference Call and WebcastFinancial Statements and Management's Discussion and Analysis will be posted on the Canexus web site at www.canexus.ca and filed on SEDAR as soon as available. Management will host a conference call at 10 a.m. ET on March 4, 2011 to discuss the results. Please call 416-644-3421 or 1-877-974-0447. The conference call will also be accessible via webcast at www.canexus.ca. A replay of the conference call will be available until midnight March 11, 2011. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 4412787#.Non-GAAP MeasuresGross margin, gross margin percentage, payout ratio, distributable cash and operating cash flow are non-GAAP financial measures, but management believes they are useful in measuring the Fund'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 Fund's performance or as a measure of the Fund's liquidity and cash flow. The Fund's method of calculating non-GAAP measures may differ from the methods used by other issuers and accordingly, the Fund's non-GAAP measures are unlikely to be comparable to similarly titled measures used by other issuers.Forward-Looking StatementsThis news release contains forward-looking statements and information relating to expected future events and financial and operating results of the Fund, Canexus LP and its subsidiaries, including with respect to pricing for sodium chlorate and chlor-alkali products, expected volumes of and demand for sodium chlorate or chlor-alkali products and industry operating rates, expected currency exchange rates, the Fund's expected payout ratio, global caustic soda demand, expectations for MECU netbacks, expectations regarding facility operations, the timing of completion and contribution to operating cash flow of growth projects, including a power line capacity upgrade at Brandon, expectations regarding the integrity of storage caverns at NATO, the timing and occurrence of the conversion from the current income trust structure to a corporation, the anticipated benefits associated therewith and the expectation to maintain the current distributions following conversion and available tax deductions. 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 Fund's Annual Information Form filed on the Fund'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 Fund and Canexus LP disclaim 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 CanexusCanexus produces sodium chlorate and chlor-alkali products largely for the pulp and paper and water treatment industries. Our four plants in Canada and two in South America 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 unitholder returns and delivers high-quality products to its customers. Canexus trust units (CUS.UN) and convertible debentures (Series I - CUS.DB; Series III - CUS.DB.A) trade on the Toronto Stock Exchange. More information about Canexus is available at www.canexus.ca.FOR FURTHER INFORMATION PLEASE CONTACT: Gary KuberaCanexus LimitedPresident and CEO(403) 571-7300ORRichard McLellanCanexus LimitedCFO(403) 571-7300www.canexus.ca