VANCOUVER,
April 29, 2015 /CNW/ - Canfor
Corporation (TSX: CFP) today reported net income attributable to
shareholders ("shareholder net income") of $29.3 million, or $0.22 per share, for the first quarter of 2015,
compared to $29.9 million, or
$0.22 per share, for the fourth
quarter of 2014 and $45.5 million, or
$0.33 per share, for the first
quarter of 2014.
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian dollars,
except per share amounts) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Sales |
|
$ |
930.0 |
|
|
$ |
860.4 |
|
|
$ |
741.9 |
Operating income before
amortization |
|
$ |
133.0 |
|
|
$ |
108.9 |
|
|
$ |
128.9 |
Operating income |
|
$ |
83.7 |
|
|
$ |
62.0 |
|
|
$ |
84.4 |
Net income attributable to equity
shareholders of the Company |
|
$ |
29.3 |
|
|
$ |
29.9 |
|
|
$ |
45.5 |
Net income per share attributable
to equity shareholders of the Company, basic and diluted |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.33 |
Adjusted shareholder net
income |
|
$ |
45.7 |
|
|
$ |
35.1 |
|
|
$ |
46.4 |
Adjusted shareholder net income
per share, basic and diluted |
|
$ |
0.34 |
|
|
$ |
0.26 |
|
|
$ |
0.34 |
After adjusting for items affecting comparability with the prior
periods, the Company's adjusted shareholder net income for the
first quarter of 2015 was $45.7
million, or $0.34 per share,
compared to an adjusted shareholder net income of $35.1 million, or $0.26 per share, for the fourth quarter of
2014. Canfor's adjusted shareholder net income for the first
quarter of 2014 was $46.4 million, or
$0.34 per share.
The Company reported operating income of $83.7 million for the first quarter of 2015, up
$21.7 million compared to operating
income of $62.0 million for the
fourth quarter of 2014. Current quarter results include the
consolidation of the Company's recent US South acquisitions of
Beadles Lumber Company Inc. & Balfour Lumber Company ("Beadles
& Balfour") and Scotch & Gulf Lumber, LLC ("Scotch Gulf"),
which were considered to be controlled by Canfor for accounting
purposes on January 2, 2015 and
January 30, 2015, respectively.
Increased operating income in the lumber segment primarily
reflected the Company's recent acquisitions in the US South, and to
a lesser extent, a modest increase in lumber sales realizations.
With respect to productivity performance, gains at many of the
Company's Western Canadian sawmill operations largely offset higher
unit log costs in the current quarter. In the Company's pulp
and paper segment, operating income also increased due to a weaker
Canadian dollar which more than offset a modest reduction in US
dollar market prices, and to a lesser extent, reduced pulp unit
manufacturing costs which were mostly attributable to a scheduled
maintenance outage in the previous quarter.
Abnormally severe winter weather across Eastern North America hampered home building
activity during the first quarter, with US housing starts down 9%
from the fourth quarter of 2014, averaging 969,000 units on a
seasonally adjusted basis for the first quarter of 2015. In
Canada, housing starts were down
5% compared to the fourth quarter of 2014, to 177,000 units in
first quarter of 2015 on a seasonally adjusted basis.
Offshore lumber consumption was lower than the previous quarter
reflecting higher-than-normal inventory levels and lower real
estate development activity in offshore markets.
The Company's lumber sales realizations in the current quarter
reflected the favourable impact of a 9% weaker Canadian dollar and,
to a lesser degree, a higher-value sales mix which more than offset
lower US dollar lumber prices. The average Random Lengths
Western Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price decreased by
9%, or US$32 per Mfbm, to
US$308 per Mfbm in the current
quarter, while price decreases in lower grade products were
somewhat less pronounced. The average Random Lengths Southern
Yellow Pine ("SYP") 2x4 #2 price also experienced a decline
compared to the fourth quarter of 2014, down US$14 per Mfbm, or 3%. Offshore lumber
sales realizations also benefitted from the significantly weaker
Canadian dollar during the first quarter of 2015.
Compared to the previous quarter, lumber production was up 15%
reflecting the Company's expansion in the US South, improved
productivity at the Western SPF operations and additional operating
hours in the first quarter of 2015. Lumber shipments were up
7% in the current quarter with higher lumber production offset in
part by delayed offshore shipments as a result of a US West Coast
port strike (which was resolved at the end of February 2015) and lower shipments during the
Chinese Lunar New Year holiday.
Overall total lumber unit manufacturing costs were marginally
higher than the previous quarter with decreases in Western SPF cash
conversion costs largely offsetting continued log cost pressures in
Western Canada and weather-related
disruptions at the US South operations.
Softwood pulp markets weakened somewhat in the first quarter of
2015, for the most part reflecting strong industry operating rates
and increased inventory levels in the marketplace. Reflecting the
global softwood pulp market conditions, average list prices for
Northern Bleached Softwood Kraft ("NBSK") pulp, as published by
RISI, were down in all regions, with the North American average
NBSK pulp list price declining US$30
per tonne, or 3%, to US$995 and the
list price to China seeing a
larger decline, down US$52 per tonne,
or 7%. Despite this, the Company's NBSK pulp sales
realizations showed a modest increase from the prior quarter,
largely as a result of the sharp deterioration of the Canadian
dollar (down 9%) and increased shipments to higher-margin regions
in the current quarter.
Pulp shipments were down 8% from the previous quarter with
increased demand from North
America more than offset by reduced shipments to
Asia, in part reflecting the
traditional Chinese Lunar New Year
holiday in the current quarter. Pulp production levels were
up 4% reflecting increased NBSK pulp production following a
scheduled maintenance outage at the Northwood Pulp Mill in the
previous quarter. Pulp unit manufacturing costs in the first
quarter of 2015 were down moderately compared to the fourth quarter
of 2014, principally attributable to the maintenance outage in the
previous quarter.
On April 1, 2015, Canfor completed
the acquisition of Southern Lumber Company located in Mississippi, further expanding the Company's
presence in the US South.
Commenting on the Company's first quarter results, Canfor's
President and Chief Executive Officer, Don
Kayne, said, "Our lumber operations showed solid
productivity gains through the quarter following the ramp-ups of
several major capital upgrades completed in 2014. Our recent US
South acquisitions are having an increasingly positive impact on
our results."
After the challenging weather in many regions of North America in the first quarter of 2015,
the North American lumber market is off to a slow start in the
second quarter with benchmark lumber prices having continued to
trend downward. A modest improvement for the North American
market is anticipated towards the middle of the year as the US
housing market gains momentum. Offshore markets are forecast
to be flat in the second quarter of 2015 with a modest improvement
in the second half of 2015 as inventory balances gradually return
to more normalized levels. NBSK pulp markets are projected to
stabilize somewhat during the industry's annual spring maintenance
period in the second quarter of 2015.
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and
operating results will be held on Thursday,
April 30, 2015 at 8:00 AM Pacific
time. To participate in the call, please dial
416-764-8688 or Toll-Free 888-390-0546. For instant replay
access until May 14, 2015, please
dial 888-390-0541 and enter participant pass code 838478#.
The conference call will be webcast live and will be available at
www.canfor.com. This news release, the attached financial
statements and a presentation used during the conference call can
be accessed via the Company's website at
http://www.canfor.com/investor-relations/webcasts.
Forward Looking Statements
Certain statements in this press release constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words
such as "expects", "anticipates", "projects", "intends", "plans",
"will", "believes", "seeks", "estimates", "should", "may", "could",
and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements
are based on management's current expectations and beliefs and
actual events or results may differ materially. There are
many factors that could cause such actual events or results
expressed or implied by such forward-looking statements to differ
materially from any future results expressed or implied by such
statements. Forward-looking statements are based on current
expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as
required by law.
Canfor is a leading integrated forest products company based
in Vancouver, British Columbia
("BC") with interests in BC, Alberta, North and South Carolina, Alabama, Georgia and Mississippi. Canfor produces primarily
softwood lumber and also owns a 50.9% interest in Canfor Pulp
Products Inc., which is one of the largest global producers of
market northern bleached softwood kraft pulp and a leading producer
of high performance kraft paper and bleached chemi-thermo
mechanical pulp. Canfor shares are traded on The Toronto
Stock Exchange under the symbol CFP.
Canfor Corporation
First Quarter 2015
Management's Discussion and Analysis
This interim Management's Discussion and Analysis
("MD&A") provides a review of Canfor Corporation's ("Canfor" or
"the Company") financial performance for the quarter ended
March 31, 2015 relative to the
quarters ended December 31, 2014 and
March 31, 2014, and the financial
position of the Company at March 31,
2015. It should be read in conjunction with Canfor's
unaudited interim consolidated financial statements and
accompanying notes for the quarters ended March 31, 2015 and 2014, as well as the 2014
annual MD&A and the 2014 audited consolidated financial
statements and notes thereto, which are included in Canfor's Annual
Report for the year ended December 31,
2014 (available at www.canfor.com). The financial
information in this interim MD&A has been prepared in
accordance with International Financial Reporting Standards
("IFRS"), which is the required reporting framework for Canadian
publicly accountable enterprises.
Throughout this discussion, reference is made to Operating
Income (Loss) before Amortization which Canfor considers to be a
relevant indicator for measuring trends in the performance of each
of its operating segments and the Company's ability to generate
funds to meet its debt repayment and capital expenditure
requirements. Reference is also made to Adjusted Shareholder
Net Income (Loss) (calculated as Shareholder Net Income (Loss) less
specific items affecting comparability with prior periods - for the
full calculation, see reconciliation included in the section
"Analysis of Specific Material Items Affecting Comparability of
Shareholder Net Income (Loss)") and Adjusted Shareholder Net Income
(Loss) per Share (calculated as Adjusted Shareholder Net Income
(Loss) divided by the weighted average number of shares outstanding
during the period). Operating Income (Loss) before Amortization and
Adjusted Shareholder Net Income (Loss) and Adjusted Shareholder Net
Income (Loss) per Share are not generally accepted earnings
measures and should not be considered as an alternative to net
income or cash flows as determined in accordance with IFRS.
As there is no standardized method of calculating these measures,
Canfor's Operating Income (Loss) before Amortization, Adjusted
Shareholder Net Income (Loss) and Adjusted Shareholder Net Income
(Loss) per Share may not be directly comparable with similarly
titled measures used by other companies. Reconciliations of
Operating Income (Loss) before Amortization to Operating Income
(Loss) and Adjusted Shareholder Net Income (Loss) to Net Income
(Loss) reported in accordance with IFRS are included in this
MD&A.
Factors that could impact future operations are also
discussed. These factors may be influenced by both known and
unknown risks and uncertainties that could cause the actual results
to be materially different from those stated in this discussion.
Factors that could have a material impact on any future oriented
statements made herein include, but are not limited to: general
economic, market and business conditions; product selling prices;
raw material and operating costs; currency exchange rates; interest
rates; changes in law and public policy; the outcome of labour and
trade disputes; and opportunities available to or pursued by
Canfor.
All financial references are in millions of Canadian dollars
unless otherwise noted. The information in this report is as at
April 28, 2015.
Forward Looking Statements
Certain statements in this MD&A constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words such as
"expects", "anticipates", "projects", "intends", "plans", "will",
"believes", "seeks", "estimates", "should", "may", "could", and
variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements
are based on management's current expectations and beliefs and
actual events or results may differ materially. There are many
factors that could cause such actual events or results expressed or
implied by such forward-looking statements to differ materially
from any future results expressed or implied by such statements.
Forward-looking statements are based on current expectations and
the Company assumes no obligation to update such information to
reflect later events or developments, except as required by
law.
FIRST QUARTER 2015 OVERVIEW
Selected Financial Information and Statistics
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian
dollars, unless otherwise noted) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Operating income
(loss) by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Lumber |
|
$ |
48.3 |
|
|
$ |
40.6 |
|
|
$ |
56.4 |
|
Pulp and Paper |
|
$ |
43.0 |
|
|
$ |
29.4 |
|
|
$ |
36.5 |
|
Unallocated and Other |
|
$ |
(7.6) |
|
|
$ |
(8.0) |
|
|
$ |
(8.5) |
Total operating
income |
|
$ |
83.7 |
|
|
$ |
62.0 |
|
|
$ |
84.4 |
Add: Amortization |
|
$ |
49.3 |
|
|
$ |
46.9 |
|
|
$ |
44.5 |
Total operating
income before amortization1 |
|
$ |
133.0 |
|
|
$ |
108.9 |
|
|
$ |
128.9 |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Working capital movements |
|
$ |
(101.2) |
|
|
$ |
11.6 |
|
|
$ |
(177.8) |
|
Defined benefit plan withdrawals
(contributions), net |
|
$ |
3.0 |
|
|
$ |
(3.9) |
|
|
$ |
(13.5) |
|
Income taxes paid, net |
|
$ |
(22.0) |
|
|
$ |
(3.1) |
|
|
$ |
(11.8) |
|
Other operating cash flows,
net2 |
|
$ |
29.0 |
|
|
$ |
3.2 |
|
|
$ |
24.1 |
Cash from (used in)
operating activities |
|
$ |
41.8 |
|
|
$ |
116.7 |
|
|
$ |
(50.1) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Finance expenses paid |
|
$ |
(2.6) |
|
|
$ |
(2.7) |
|
|
$ |
(2.8) |
|
Share purchases |
|
$ |
(26.0) |
|
|
$ |
- |
|
|
$ |
(2.0) |
|
Distributions paid to
non-controlling interests |
|
$ |
(3.0) |
|
|
$ |
(2.5) |
|
|
$ |
(2.1) |
|
Capital additions, net |
|
$ |
(45.8) |
|
|
$ |
(54.7) |
|
|
$ |
(53.1) |
|
Change in restricted
cash3 |
|
$ |
50.2 |
|
|
$ |
(50.2) |
|
|
$ |
- |
|
Acquisition of Beadles &
Balfour |
|
$ |
(50.8) |
|
|
$ |
- |
|
|
$ |
- |
|
Acquisition of Scotch Gulf |
|
$ |
(22.3) |
|
|
$ |
- |
|
|
$ |
- |
|
Repayment from (Loan to) Scotch
Gulf |
|
$ |
4.1 |
|
|
$ |
4.8 |
|
|
$ |
2.6 |
|
Proceeds from long-term debt |
|
$ |
- |
|
|
$ |
75.0 |
|
|
$ |
- |
|
Other, net |
|
$ |
(4.7) |
|
|
$ |
2.5 |
|
|
$ |
(0.9) |
Change in cash /
operating loans |
|
$ |
(59.1) |
|
|
$ |
88.9 |
|
|
$ |
(108.4) |
ROIC - Consolidated
period-to-date4 |
|
|
2.8% |
|
|
|
2.6% |
|
|
|
3.5% |
Average exchange rate
(US$ per C$1.00)5 |
|
$ |
0.806 |
|
|
$ |
0.881 |
|
|
$ |
0.906 |
1 |
Amortization includes amortization of
certain capitalized major maintenance costs. |
2 |
Further information on operating cash
flows can be found in the Company's unaudited interim consolidated
financial statements. |
3 |
Change in restricted cash relates to
amounts transferred into an escrow bank account for the first phase
of the Beadles & Balfour acquisition which closed on January 2,
2015. |
4 |
Consolidated Return on Invested
Capital ("ROIC") is equal to operating income/loss plus realized
gains/losses on derivatives, equity income/loss from joint venture
and other income/expense, all net of minority interest, divided by
the average invested capital during the period. Invested
capital is equal to capital assets, plus long-term investments and
net non-cash working capital, all excluding minority interest
components. |
5 |
Source - Bank of Canada (average noon
rate for the period). |
Analysis of Specific Material Items Affecting Comparability of
Shareholder Net Income
After-tax impact, net of
non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars,
except per share amounts) |
|
|
Q1
2015 |
|
|
|
Q4
2014 |
|
|
|
Q1
2014 |
Shareholder net income, as
reported |
|
$ |
29.3 |
|
|
$ |
29.9 |
|
|
$ |
45.5 |
Loss on derivative financial
instruments |
|
$ |
16.4 |
|
|
$ |
5.2 |
|
|
$ |
2.1 |
Gain on sale of Daaquam
operation |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(1.6) |
Mark-to-market adjustment to
Canfor-LP OSB sale contingent consideration6 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.4 |
Net impact of above items |
|
$ |
16.4 |
|
|
$ |
5.2 |
|
|
$ |
0.9 |
Adjusted shareholder net
income |
|
$ |
45.7 |
|
|
$ |
35.1 |
|
|
$ |
46.4 |
Shareholder net income per
share (EPS), as reported |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.33 |
Net impact of above items per
share |
|
$ |
0.12 |
|
|
$ |
0.04 |
|
|
$ |
0.01 |
Adjusted shareholder net income
per share |
|
$ |
0.34 |
|
|
$ |
0.26 |
|
|
$ |
0.34 |
6 |
The Company completed the sale of its
50% share of the Canfor-LP OSB Limited Partnership ("Canfor-LP
OSB") in the second quarter of 2013 and recorded a gain of $33.4
million (after tax). As part of the sale, Canfor may receive
additional annual consideration over a 3 year period, starting June
1, 2013, based on Peace Valley OSB's annual adjusted earnings
before interest, tax, depreciation and amortization. An asset
was recorded based on the fair value of this additional
consideration and will be adjusted to current estimated fair value
each reporting period. The estimated fair value of the
contingent consideration at March 31, 2015 is nil. |
The Company reported operating income of $83.7 million for the first quarter of 2015, up
$21.7 million compared to operating
income of $62.0 million for the
fourth quarter of 2014. Current quarter results include the
consolidation of the Company's recent US South acquisitions of
Beadles Lumber Company Inc. & Balfour Lumber Company ("Beadles
& Balfour") and Scotch & Gulf Lumber, LLC ("Scotch Gulf"),
which were considered to be controlled by Canfor for accounting
purposes on January 2, 2015 and
January 30, 2015, respectively.
Increased operating income in the lumber segment primarily
reflected the Company's recent acquisitions in the US South, and to
a lesser extent, a modest increase in lumber sales realizations.
With respect to productivity performance, gains at many of the
Company's Western Canadian sawmill operations largely offset higher
unit log costs in the current quarter. In the Company's pulp
and paper segment, operating income also increased due to a weaker
Canadian dollar which more than offset a modest reduction in US
dollar market prices, and to a lesser extent, reduced pulp unit
manufacturing costs which were mostly attributable to a scheduled
maintenance outage in the previous quarter.
Abnormally severe winter weather across Eastern North America hampered home building
activity during the first quarter, with US housing starts down 9%
from the fourth quarter of 2014, averaging 969,000 units on a
seasonally adjusted basis for the first quarter of 2015. In
Canada, housing starts were down
5% compared to the fourth quarter of 2014, to 177,000 units in
first quarter of 2015 on a seasonally adjusted basis.
Offshore lumber consumption was lower than the previous quarter
reflecting higher-than-normal inventory levels and lower real
estate development activity in offshore markets.
The Company's lumber sales realizations in the current quarter
reflected the favourable impact of a 9% weaker Canadian dollar and,
to a lesser degree, a higher-value sales mix partly offset by lower
US dollar lumber prices. The average Random Lengths Western
Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price decreased by 9%, or
US$32 per Mfbm, to US$308 per Mfbm in the current quarter, while
price decreases in lower grade products were somewhat less
pronounced. The average Random Lengths Southern Yellow Pine
("SYP") 2x4 #2 price also experienced a decline compared to the
fourth quarter of 2014, down US$14
per Mfbm, or 3%. Offshore lumber sales realizations also
benefitted from the significantly weaker Canadian dollar during the
first quarter of 2015.
Compared to the previous quarter, lumber production was up 15%
reflecting the Company's expansion in the US South, improved
productivity at the Western SPF operations and additional operating
hours in the first quarter of 2015. Lumber shipments were up
7% in the current quarter with higher lumber production offset in
part by delayed offshore shipments as a result of a US West Coast
port strike (which was resolved at the end of February 2015) and lower shipments during the
Chinese Lunar New Year holiday.
Overall total lumber unit manufacturing costs were marginally
higher than the previous quarter with decreases in Western SPF cash
conversion costs largely offsetting continued log cost pressure in
Western Canada and weather-related
disruptions at the US South operations.
Softwood pulp markets weakened somewhat in the first quarter of
2015, for the most part reflecting strong industry operating rates
and increased inventory levels in the marketplace. Reflecting the
global softwood pulp market conditions, average list prices for
Northern Bleached Softwood Kraft ("NBSK") pulp, as published by
RISI, were down in all regions, with the North American average
NBSK pulp list price declining US$30
per tonne, or 3%, to US$995 and the
list price to China seeing a
larger decline, down US$52 per tonne,
or 7%. Despite this, the Company's NBSK pulp sales
realizations showed a modest increase from the prior quarter,
largely as a result of the sharp deterioration of the Canadian
dollar (down 9%) and increased shipments to higher-margin regions
in the current quarter.
Pulp shipments were down 8% from the previous quarter with
increased demand from North
America more than offset by reduced shipments to
Asia, in part reflecting the
traditional Chinese Lunar New Year
holiday in the current quarter. Pulp production levels were
up 4% reflecting increased NBSK pulp production following a
scheduled maintenance outage at the Northwood Pulp Mill in the
previous quarter. Pulp unit manufacturing costs in the first
quarter of 2015 were down moderately compared to the fourth quarter
of 2014, principally attributable to the maintenance outage in the
previous quarter.
For the first quarter of 2015, the Company recorded a net loss
of $25.7 million related to its
derivative financial instruments principally reflecting the impact
of the continued weakening of the Canadian dollar on US dollar
foreign exchange collars. Unrealized losses on crude oil
collars, due to the continued decline in oil prices in the first
quarter of the 2015, as well as smaller unrealized losses on the
Company's lumber derivative instruments and interest rate swaps
also contributed to the loss in the quarter.
Operating income in the first quarter of 2015 was broadly in
line with the same quarter in 2014 reflecting a solid improvement
in pulp and paper segment earnings offset by lower earnings in the
lumber segment. In the lumber segment, reduced operating
income was largely attributable to higher log costs in Western Canada. Lumber production and
shipments were up 7% and 17% respectively from the same quarter in
2014 reflecting the Company's acquisitions in the US South coupled
with productivity improvement and, in the case of shipments, the
weather related transportation challenges and a truckers' strike at
the Vancouver Port in the first quarter of the prior year. Results
in the first quarter of 2014 included lumber production from the
Company's Quesnel sawmill, which
was permanently closed in March 2014,
and its Daaquam sawmill, which was sold in March 2014. The increase in pulp and paper
segment earnings compared to the first quarter of 2014 largely
reflected higher earnings generated at Canfor Pulp's Kraft paper
operation while earnings from the pulp operations were broadly in
line with the comparative period. Overall the pulp and paper
segment generated higher pulp and paper unit sales realizations
stemming from the weaker Canadian dollar as well as higher
shipments largely due to the aforementioned transportation
challenges in the first quarter of 2014.
OPERATING RESULTS BY BUSINESS SEGMENT
Lumber
Selected Financial Information and Statistics - Lumber
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian dollars
unless otherwise noted) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Sales |
|
$ |
647.0 |
|
|
$ |
564.4 |
|
|
$ |
495.7 |
Operating income before
amortization |
|
$ |
80.5 |
|
|
$ |
70.6 |
|
|
$ |
84.3 |
Operating income |
|
$ |
48.3 |
|
|
$ |
40.6 |
|
|
$ |
56.4 |
Average SPF 2x4 #2&Btr lumber
price in US$7 |
|
$ |
308 |
|
|
$ |
340 |
|
|
$ |
367 |
Average SPF price in Cdn$ |
|
$ |
382 |
|
|
$ |
386 |
|
|
$ |
405 |
Average SYP 2x4 #2 lumber price in
US$8 |
|
$ |
413 |
|
|
$ |
427 |
|
|
$ |
403 |
Average SYP price in Cdn$ |
|
$ |
513 |
|
|
$ |
485 |
|
|
$ |
445 |
US housing starts (thousand units
SAAR)9 |
|
|
969 |
|
|
|
1,063 |
|
|
|
925 |
Production - SPF lumber
(MMfbm)10 |
|
|
966.0 |
|
|
|
904.9 |
|
|
|
978.1 |
Production - SYP lumber
(MMfbm)10, 11 |
|
|
234.5 |
|
|
|
137.4 |
|
|
|
139.1 |
Shipments - SPF lumber
(MMfbm)12 |
|
|
930.6 |
|
|
|
937.7 |
|
|
|
779.4 |
Shipments - SYP lumber
(MMfbm)11, 12 |
|
|
236.4 |
|
|
|
151.3 |
|
|
|
143.2 |
Shipments - wholesale lumber
(MMfbm) |
|
|
5.4 |
|
|
|
2.5 |
|
|
|
4.8 |
7 |
Western Spruce/Pine/Fir, per thousand
board feet (Source - Random Lengths Publications, Inc.). |
8 |
Southern Yellow Pine, Eastside, per
thousand board feet (Source - Random Lengths Publications,
Inc.). |
9 |
Source - US Census Bureau, seasonally
adjusted annual rate ("SAAR"). |
10 |
Excluding production of trim
blocks. Production in prior periods has been restated from
sawmill production to finished lumber production. |
11 |
Effective January 2, 2015 and January
30, 2015, SYP lumber production and shipment volumes include volume
from Beadles & Balfour and Scotch Gulf, respectively (see
further discussion in the "Commitments and Subsequent Events"
section of this document). |
12 |
Canfor-produced lumber, including
lumber purchased for remanufacture and excluding trim blocks. |
Overview
Operating income for the lumber segment was $48.3 million for the first quarter of 2015, an
increase of $7.7 million compared to
operating income of $40.6 million in
the previous quarter, and a decrease of $8.1
million from $56.4 million
reported for the same quarter in the prior year. Results in
the first quarter of 2015 reflected higher lumber shipments and
operating earnings related to the Company's recent growth in the US
South. The Company's Western SPF operations recorded a solid
improvement in production performance, with the resulting lower
cash conversion costs substantially offsetting higher log costs in
Western Canada. Lumber sales
realizations saw a modest improvement from the previous quarter as
a significant weakening in the Canadian dollar more than offset
declines in US dollar benchmark prices during the quarter.
Total lumber production was up 15% from the previous quarter in
large part due to the additional production in the US South,
coupled with productivity improvements at the Western SPF
operations as well as additional operating hours during the current
quarter. SYP productivity and log deliveries were hampered
somewhat by challenging weather in Eastern North America during the quarter.
Compared to the first quarter of 2014, the reduced operating
income in the lumber segment was attributable to market-driven log
cost pressure in Western Canada
throughout 2014 and into 2015, as well as lower benchmark lumber
prices partly offset by the 11% weakening of the Canadian dollar
and a higher value SYP sales mix. Lumber production was up 7%
from the same period in 2014 as a result of incremental production
from the Scotch Gulf and Beadles & Balfour operations and
improved productivity at the Western SPF operations. The
first quarter of 2014's lumber production included volume from the
Quesnel sawmill, which was
permanently closed in March 2014, and
the Daaquam sawmill, which sold in March
2014. Excluding production from Scotch Gulf and
Beadles & Balfour in the current quarter and Quesnel and Daaquam in the first quarter of
2014, lumber production was up 8% from the first quarter of
2014.
Markets
North American lumber consumption was lower in the first quarter
of 2015 than for the last quarter of 2014 as homebuilding activity
in Eastern North America was
hampered by severe winter weather. Total US housing starts
averaged 969,000 units13 SAAR (seasonally adjusted
annual rate) for the first quarter of 2015, down 9% from the fourth
quarter of 2014 and up 5% from the same period in 2014.
Single-family starts, which consume a higher proportion of lumber,
were also down 10% compared to the fourth quarter of 2014 to
636,000 units13 SAAR. While Canfor maintained its
market diversification in the first quarter of 2015, several other
producers redirected lumber to the US market in response to the
stronger US dollar and higher-than-normal offshore inventory
levels. As a result, Western SPF lumber prices declined
through the quarter with the average North American Random Length
Western SPF 2X4 #2&Btr price down US$32 per Mfbm to US$308 per Mfbm from the fourth quarter of
2014.
In Canada, housing starts in
the current quarter were down 5% compared to the previous quarter,
at an average of 177,000 units14 SAAR and in line with
the same period in 2014.
Offshore lumber consumption was lower in both China and Japan, with China seeing lower real estate development
activity and higher-than-normal inventory levels, in part
reflecting increased supply from Russia and Europe as a result of the devaluation of the
Russian Ruble and European Euro, respectively.
13 |
US Census Bureau |
14 |
CMHC - Canada Mortgage and Housing
Corporation
|
Sales
Sales for the lumber segment in the first quarter of 2015 were
$647.0 million, compared to
$564.4 million in the previous
quarter and $495.7 million in the
first quarter of 2014. The increase in sales compared to the
fourth quarter of 2014 principally reflected incremental sales
related to consolidation of Scotch Gulf and Beadles & Balfour
in January 2015, and the continued
weakening of the Canadian dollar, which more than offset weaker US
dollar benchmark prices. Current quarter sales realizations
also included seasonally higher log sales compared to the fourth
quarter of 2014. Higher sales revenue compared to the first
quarter of 2014 reflected a combination of the additional sales
volumes from the recently acquired mills in the US South, higher
Western SPF lumber shipments due to the weather related
transportation challenges and a truckers' strike at the Vancouver
Port that disrupted deliveries in early 2014 as well as the
benefits of the weaker Canadian dollar on unit sales
realizations.
Total lumber shipments in first quarter of 2015, at over 1.1
billion board feet, were up 7% from the previous quarter largely
reflecting lumber shipments from the Scotch Gulf and Beadles &
Balfour operations offset by a build in Western SPF inventory in
advance of the spring home building season. Offshore
shipments in the first quarter of 2015 were marginally lower than
the previous quarter in part due to the US West Coast port strike
that was resolved by the end of February
2015 and, to a lesser extent, the Chinese Lunar New Year holiday during the current
quarter. Compared to the first quarter of 2014, lumber
shipments were up 26%, again reflecting the Company's expansion in
the US South as well as the significant weather related
transportation challenges and a truckers' strike at the Vancouver
Port in the comparative quarter of 2014. Lumber shipments in
the first quarter of 2014 also included production from the
Quesnel and Daaquam sawmills.
Overall a moderate improvement in lumber sales realizations
compared to the previous quarter principally reflected the
favourable impact of the 9% weaker Canadian dollar and, to a lesser
degree, a higher-value sales mix offset in part by lower Western
SPF and SYP benchmark US dollar lumber prices. North American
Western SPF sales realizations (in Canadian dollars) were slightly
higher than the previous quarter as the benefits of the
8 cent, or 9%, weaker Canadian dollar
were offset by declines in most benchmark lumber prices throughout
the quarter. The average Random Lengths Western SPF 2x4
#2&Btr price decreased by 9%, or US$32 per Mfbm, to US$308 per Mfbm in the current quarter, while
price decreases in lower grade products were somewhat less
pronounced. Offshore sales realizations showed a moderate
improvement from the previous quarter reflecting favourable foreign
exchange rates, and offshore pricing, much of which is negotiated
monthly or quarterly in advance. The average Random Lengths
SYP 2x4 #2 price was down US$14 per
Mfbm, or 3%, from the fourth quarter of 2014. Despite
declines in SYP benchmark prices through the quarter, overall US
dollar sales realizations for SYP products were up reflecting the
sale of higher-value products from the Scotch Gulf and Beadles
& Balfour operations.
Compared to the first quarter of 2014, lumber sales realizations
showed a marginal improvement reflecting the favourable foreign
exchange impact of a 10 cent, or 11%,
weaker Canadian dollar and a higher-value sales mix.
Offsetting these factors was a decrease in North American Western
SPF sales realizations with the North American Random Lengths
Western SPF 2x4 #2&Btr price down US$59 per Mfbm, or 16%, from the same quarter in
the prior year, while price decreases in certain wider dimensions
and lower grade products were less pronounced. Offshore sales
realizations were moderately higher compared to the same quarter in
the prior year largely due to the 11% lower Canadian dollar and
less pronounced price decreases in low grade products primarily
destined for the Chinese market. US dollar SYP lumber sales
realizations were up marginally from the first quarter of 2014
reflecting an increase the average Random Lengths SYP 2x4 #2 price
which was up US$10 per Mfbm, or 2%,
and the aforementioned higher-value sales mix.
Residual fibre revenue was moderately higher in the current
quarter compared to the fourth quarter of 2014, mainly attributable
to higher sawmill residual chip prices and, to a lesser degree,
higher residual shipments driven in part by increased lumber
production. Compared to the first quarter of 2014, total
residual fibre revenue was also up, with higher sawmill residual
chip prices more than offsetting slightly lower shipments of
sawmill residual chips.
Operations
Lumber production, at just over 1.2 billion board feet, was up
15% from the previous quarter in large part reflecting
consolidation of the Scotch Gulf and Beadles & Balfour results
during the first quarter of 2015. Excluding Scotch Gulf and
Beadles & Balfour, total lumber production was up 8% from the
fourth quarter of 2014, resulting from improved productivity at the
Western SPF operations and more operating hours largely due to the
statutory holidays in the fourth quarter of 2014, offset in part by
abnormally severe winter weather across Eastern North America which disrupted log
deliveries and impacted productivity at the US South operations
early in the quarter. Productivity improvements at the
Western SPF operations in the current quarter were mostly
attributable to production gains at various mills following capital
projects in 2014.
Lumber production was up 7% compared to the same period in
2014. As previously mentioned, the current quarter lumber
production included consolidation of production related to the
Scotch Gulf and Beadles & Balfour mills while the same period
of 2014 included production volume from the Quesnel and Daaquam sawmills which were closed
and sold, respectively at the end of the first quarter of
2014. Excluding lumber production related to Scotch Gulf and
Beadles & Balfour from the first quarter of 2015 and lumber
production related to the Quesnel
and Daaquam sawmills in the first quarter of 2014, lumber
production was up 8% quarter-over-quarter reflecting the
aforementioned improved productivity in the Western SPF operations,
additional shifts at certain operations and more capital-related
downtime in the comparative period.
Overall, unit manufacturing costs were marginally higher in the
first quarter of 2015 than for the previous quarter with lower
Western SPF cash conversion costs related to improved productivity
largely offsetting increased log costs in Western Canada. Also contributing to the
marginally higher unit manufacturing costs was the disruption to
the US South operations from the abnormally severe weather as well
as the addition of costs related to the Scotch Gulf and Beadles
& Balfour operations. Higher unit log costs in
Western Canada were primarily
attributable to the market-driven increases in stumpage, offset in
part by lower fuel costs.
Compared to the first quarter of 2014, moderately higher unit
manufacturing costs were driven principally by higher unit log
costs in Western Canada reflecting
market-driven stumpage increases and upward pressure on hauling and
logging costs, as well as the addition of the new US South
operations, partly offset by lower fuel costs.
Pulp and Paper
Selected Financial Information and Statistics - Pulp and
Paper15
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian dollars
unless otherwise noted) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Sales |
|
$ |
283.0 |
|
|
$ |
296.0 |
|
|
$ |
246.2 |
Operating income before
amortization16 |
|
$ |
58.9 |
|
|
$ |
45.0 |
|
|
$ |
53.0 |
Operating income |
|
$ |
43.0 |
|
|
$ |
29.4 |
|
|
$ |
36.5 |
Average pulp price delivered to US
- US$17 |
|
$ |
995 |
|
|
$ |
1,025 |
|
|
$ |
1,017 |
Average price in Cdn$ |
|
$ |
1,235 |
|
|
$ |
1,164 |
|
|
$ |
1,122 |
Production - pulp (000 mt) |
|
|
308.2 |
|
|
|
295.7 |
|
|
|
310.4 |
Production - paper (000 mt) |
|
|
35.4 |
|
|
|
36.0 |
|
|
|
36.7 |
Shipments - pulp (000 mt) |
|
|
287.4 |
|
|
|
314.0 |
|
|
|
255.9 |
Shipments - paper (000 mt) |
|
|
32.1 |
|
|
|
35.8 |
|
|
|
31.3 |
15 |
Includes the Taylor Pulp Mill and
100% of Canfor Pulp Products Inc., which are consolidated in
Canfor's results. The Taylor Pulp Mill was sold to Canfor Pulp
Products Inc. on January 30, 2015. Pulp production and
shipment volumes presented are for both NBSK and bleached
chemi-thermo mechanical pulp ("BCTMP"). |
16 |
Amortization includes amortization of
certain capitalized major maintenance costs. |
17 |
Per tonne, NBSK pulp list price
delivered to US (as published by RISI) |
Overview
Operating income for the pulp and paper segment was $43.0 million for the first quarter of 2015, up
$13.6 million from the previous
quarter, and up $6.5 million from the
first quarter of 2014.
Improved pulp and paper segment results compared to the previous
quarter reflected a modest improvement in NBSK pulp sales
realizations, driven by a 9% weaker Canadian dollar as well as
reduced manufacturing costs mainly attributable to the scheduled
maintenance outage in the previous quarter, offset in part by
seasonally higher energy costs. NBSK pulp sales realizations
also benefitted from increased shipments to higher-margin
regions. Partially offsetting these improvements in the
quarter were reduced NBSK pulp US dollar list prices, reflecting a
weakening of the NBSK pulp market over the quarter, and overall
lower NBSK pulp shipment volumes, in part due to the Chinese
Lunar New Year holiday.
Operating income at the Company's paper operation was moderately
higher compared to the previous quarter due to increased unit sales
realizations largely offset by higher unit manufacturing costs and
10% lower shipments.
Compared to the first quarter of 2014, the pulp and paper
segment's results were up driven by higher earnings from the
Company's paper operation while earnings from the pulp operations
were broadly in line with the with the same period in 2014.
Increased NBSK pulp shipments and an 11% weaker Canadian dollar
were offset by moderate reductions in US dollar prices to all
regions and a marginal increase in unit manufacturing costs.
Higher pulp unit manufacturing costs reflected a largely
market-driven increase in fibre costs and to a lesser degree,
higher chemical costs, offset in part by lower energy costs due to
reduced natural gas prices as well as lower energy
consumption. Results at the Company's paper operation
included the favourable impact of a weaker Canadian dollar and
increased prime bleached sales on unit sales realizations offset
somewhat by marginally higher unit manufacturing costs reflecting
higher slush pulp costs, the unfavourable impact of reduced
production volumes and the timing of maintenance spend.
Markets
Global softwood pulp markets weakened through the first quarter
of 2015 reflecting strong industry operating rates and producer
inventories outside of the balanced range. The industry
historically takes minimal maintenance downtime during the first
quarter of the year. Pulp producer inventories increased to
33 days of supply, up 2 days from December
201418. Market conditions are generally
considered balanced when inventories are in the 27-30 days of
supply range.
Global shipments of bleached softwood kraft pulp were down 3% in
the first quarter of 2015 compared to the previous quarter and
broadly in line with the same period in 201419.
The decrease in softwood pulp shipments compared to the fourth
quarter of 2014 reflected decreased shipments to Asia, which are typically slower in the first
quarter reflecting the impact of the Chinese Lunar New Year break.
18 |
World 20 data is based on twenty
producing countries representing 80% of world chemical market pulp
capacity and is based on information compiled and prepared by the
Pulp and Paper Products Council ("PPPC"). |
19 |
As reported by PPPC statistics. |
Sales
The Company's pulp shipments in the first quarter of 2015
totalled 287,400 tonnes, a decrease of 26,600 tonnes, or 8%, from
the previous quarter, reflecting a reduction in shipments to
Asia, primarily China, in part due to the traditional Chinese
Lunar New Year holiday in the current
quarter, while shipments of NBSK pulp to North America saw a moderate increase.
Compared to the same period in 2014, pulp shipments were up 31,500
tonnes, or 12%, due to higher NBSK pulp demand in North America and Asia, which more than offset weaker demand
from Europe. Paper shipments
at 32,100 tonnes were down 3,700 tonnes, or 10%, compared to the
previous quarter and up 800 tonnes, or 3%, from the same period of
the previous year. The reduced paper shipments compared to
the previous quarter were principally due to lower demand from
North America, while the increased
paper shipments compared to the same period in 2014 in part
reflected the transportation challenges faced in that quarter.
Average NBSK pulp list prices, as published by RISI, declined
modestly to all regions through the first quarter of 2015, driven
in part by a modest growth in producer inventories reflecting
minimal industry maintenance during the first quarter. The
North American average NBSK pulp list price decreased US$30 per tonne, or 3%, to US$995 and the list price to China saw a more marked decline, down
US$52 per tonne, or 7%. Overall
current quarter NBSK pulp sales realizations were up modestly,
benefitting from the continued weakening of the Canadian dollar,
which was down 9% from the previous quarter, and increased
shipments to higher-margin regions, which more than offset the
lower US dollar NBSK pulp prices. BCTMP unit sales
realizations also benefitted from the weaker Canadian dollar, which
more than offset moderately lower market prices in the current
quarter. Paper unit sales realizations saw a moderate
increase from the fourth quarter of 2014 principally due to the
impact of the weaker Canadian dollar, down 9%, as well as the
increased prime bleached shipments relative to the comparable
period.
Compared to the first quarter of 2014, NBSK pulp sales
realizations also experienced modest gains, largely as a result of
the 11% weaker Canadian dollar. Offsetting the full benefit
of the weaker Canadian dollar were lower NBSK pulp US dollar list
prices in all regions, as published by RISI, and to a lesser
extent, increased discounts in North
America. The average NBSK pulp list price to North America saw a modest decrease of
US$22 per tonne, while the average
list price to China saw a more
significant decline of US$94 per
tonne. BCTMP sales realizations also reflected the favourable
impact of the weaker Canadian dollar which more than outweighed
declines in market prices. Paper unit sales realizations saw
a moderate increase from the same quarter in 2014 principally due
to the impact of the weaker Canadian dollar as well as the
increased prime bleached shipments relative to the comparable
period.
Operations
Pulp production in the current quarter was 308,200 tonnes, up
12,500 tonnes, or 4%, from the previous quarter, and broadly in
line with first quarter of 2014. The 4% increase in pulp
production from the fourth quarter of 2014 largely reflected a
scheduled maintenance outage at the Northwood Pulp Mill in the
comparative period which resulted in reduced market pulp production
of 17,000 tonnes. The current quarter NBSK pulp production
included planned recovery boiler maintenance at all facilities
ranging from 2 to 3 days, while NBSK pulp operating rates were in
line with the prior quarters. Paper production in the first
quarter of 2015 was 35,400 tonnes relatively in line with the
previous quarter and down 1,300 tonnes, or 4%, from the first
quarter of 2014. The decrease in paper production compared to
the first quarter of 2014 in part reflected slightly lower
operating rates in the current quarter.
Pulp unit manufacturing costs saw a moderate decrease from the
previous quarter reflecting the higher costs associated with the
scheduled maintenance outage in the fourth quarter of 2014, offset
somewhat by seasonally higher energy costs. Fibre costs were
broadly in line with the fourth quarter of 2014 as market-related
increases in prices for sawmill residual chips, where prices are
linked to Canadian dollar NBSK pulp sales realizations, were offset
by seasonal pricing adjustments and, to a lesser extent, a reduced
proportion of higher-cost whole log chips. Paper unit
manufacturing costs increased marginally from the previous quarter,
driven by higher slush pulp costs due to higher overall pulp sales
realizations in the current quarter and to a lesser degree,
seasonally higher energy costs, offset in part by reduced spend on
maintenance (timing related) and operating supplies in the current
quarter.
Compared to the first quarter of 2014, unit manufacturing costs
were up marginally, primarily driven by increased fibre costs and
to a lesser extent, higher chemical costs and the impact of lower
production levels as well as increased planned maintenance spend
(timing related). Somewhat mitigating these increased costs
were lower energy costs, mainly as a result of lower natural gas
prices in the current quarter. Contributing to the higher
fibre costs in the current quarter were higher prices for sawmill
residual chips, reflecting increased market prices, coupled with a
modestly increased proportion of higher-cost whole log chips.
Paper unit manufacturing costs increased marginally reflecting the
impact of higher market pulp prices on slush pulp costs, coupled
with the unfavourable impact of lower production volumes on unit
costs and the timing of spend on maintenance in the current
quarter.
Unallocated and Other Items
Selected Financial Information
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian
dollars) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Operating loss of Panels
operations20 |
|
$ |
(0.7) |
|
|
$ |
(0.8) |
|
|
$ |
(1.3) |
Corporate costs |
|
$ |
(6.9) |
|
|
$ |
(7.2) |
|
|
$ |
(7.2) |
Finance expense, net |
|
$ |
(5.3) |
|
|
$ |
(4.6) |
|
|
$ |
(4.4) |
Loss on derivative financial
instruments |
|
$ |
(25.7) |
|
|
$ |
(7.4) |
|
|
$ |
(3.5) |
Other income, net |
|
$ |
8.5 |
|
|
$ |
3.1 |
|
|
$ |
3.3 |
20 |
The Panels operations include the
Company's PolarBoard oriented strand
board ("OSB") plant, which is currently indefinitely idled and its
Tackama
plywood plant, which was closed in January 2012. |
Corporate costs were $6.9 million
for the first quarter of 2015, down slightly from both comparative
periods in 2014.
Net finance expense at $5.3
million for the first quarter of 2015 was up $0.7 million from the previous quarter and up
$0.9 million from the same quarter in
2014. The increase compared to both comparative periods
largely reflects higher net interest expense related to the
Company's employee future benefit plans.
The Company uses a variety of derivative financial instruments
as partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs, lumber prices and interest
rates. In the first quarter of 2015, the Company recorded a
net loss of $25.7 million related to
its derivative instruments, principally reflecting unrealized
losses on US dollar foreign exchange collars as a result of the
continued weakening of the Canadian dollar. Also contributing
to the loss, to a lesser degree, were unrealized losses on crude
oil collars stemming from the continued decline in oil prices in
the first quarter of 2015 as well as unrealized losses on the
Company's lumber derivative instruments and interest rate
swaps.
Other income, net of $8.5 million
in the first quarter of 2015, principally reflected foreign
exchange gains on US dollar denominated working capital resulting
from the weakening of the Canadian dollar relative to the US dollar
over the course of the quarter.
Other Comprehensive Income (Loss)
The following table summarizes Canfor's Other Comprehensive
Income (Loss) for the comparable periods:
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian dollars) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Foreign exchange translation
differences for foreign operations, net of tax |
|
$ |
34.3 |
|
|
$ |
10.9 |
|
|
$ |
10.6 |
Defined benefit actuarial losses, net of tax |
|
$ |
(3.2) |
|
|
$ |
(46.4) |
|
|
$ |
(24.3) |
Other comprehensive income (loss), net of tax |
|
$ |
31.1 |
|
|
$ |
(35.5) |
|
|
$ |
(13.7) |
In the first quarter of 2015, the Company recorded an after-tax
loss of $3.2 million in relation to
changes in the valuation of the Company's employee future benefit
plans. The loss principally reflects a lower discount rate
used to value the net defined benefit obligation, offset in part by
a return on plan assets. After-tax losses of $46.4 million and $24.3
million were recorded in the fourth and first quarter of
2014, respectively, both reflecting lower discount rates, offset in
part by returns on plan assets.
In addition, the Company recorded $34.3
million of other comprehensive income in the quarter for
foreign exchange translation differences for foreign operations,
reflecting favourable foreign exchange movements during the
quarter. This compared to a foreign exchange translation gain
of $10.9 million in the previous
quarter and $10.6 million in the
first quarter of 2014.
SUMMARY OF FINANCIAL POSITION
The following table summarizes Canfor's cash
flow and selected ratios for and as at the end of the following
periods:
|
|
|
Q1 |
|
|
|
Q4 |
|
|
|
Q1 |
(millions of Canadian
dollars, except for ratios) |
|
|
2015 |
|
|
|
2014 |
|
|
|
2014 |
Increase (decrease) in
cash and cash equivalents |
|
$ |
55.9 |
|
|
$ |
11.9 |
|
|
$ |
(1.6) |
|
Operating activities |
|
$ |
41.8 |
|
|
$ |
116.7 |
|
|
$ |
(50.1) |
|
Financing activities |
|
$ |
81.7 |
|
|
$ |
(7.2) |
|
|
$ |
99.9 |
|
Investing activities |
|
$ |
(67.6) |
|
|
$ |
(97.6) |
|
|
$ |
(51.4) |
Ratio of current
assets to current liabilities |
|
|
1.8:1 |
|
|
|
2.1:1 |
|
|
|
1.7:1 |
Net debt to
capitalization |
|
|
10.9% |
|
|
|
5.1% |
|
|
|
13.1% |
ROIC - Consolidated
period-to-date |
|
|
2.8% |
|
|
|
2.6% |
|
|
|
3.5% |
Changes in Financial Position
Cash generated from operating activities was
$41.8 million in the first quarter of
2015, compared to cash generated of $116.7
million in the fourth quarter of 2014 and cash used of
$50.1 million in the same quarter of
2014. The decrease in operating cash flows from the previous
quarter principally reflects a seasonal log inventory build in
Western Canada coupled with an
increase in accounts receivable at period end due mostly to the
timing of shipments compared to the previous quarter. The
increase in non-cash working capital of $101.2 million was more than offset by cash
earnings in the first quarter of 2015. Compared to the first
quarter of 2014, the increase in operating cash flows was mostly
attributable to higher cash earnings as well as a smaller build in
log inventories in the first quarter of 2015 than the same quarter
in 2014 due to unseasonably warm weather in Western Canada which resulted in lower log
deliveries.
Cash generated from financing activities was
$81.7 million in the current quarter,
compared to cash used of $7.2 million
in the previous quarter and cash generated of $99.9 million in the first quarter of 2014.
During the current quarter, Canfor purchased 1,112,300 common
shares under its Normal Course Issuer Bid for $29.3 million, of which $26.0 million was paid during the quarter.
In addition, Canfor Pulp purchased 489,710 common shares under a
separate Normal Course Issuer Bid for $7.0
million, of which $1.7 million
was paid (see further discussion of the shares purchased under the
Normal Course Issuer Bid in the following "Liquidity and Financial
Requirements" section). During the first quarter of 2015, the
Company withdrew $115.0 million on
its operating loan facility and had $183.0
million outstanding on the facility at the end of the
quarter. In the fourth quarter of 2014, the Company completed
a $75.0 million debt financing for
the construction of pellet plants in Fort
St. John and Chetwynd and
various energy projects in the lumber segment.
Cash used for investing activities was
$67.6 million in the current quarter,
compared to $97.6 million in the
previous quarter and $51.4 million in
the same quarter of 2014. Cash used for capital additions was
$45.8 million, down $8.9 million from the previous quarter and down
$7.3 million from the first quarter
of 2014. Current quarter capital expenditures included
spending on the construction of the Company's pellet plants in
Chetwynd and Fort St. John (see further discussion on the
pellet plants in the following "Commitments and Subsequent Events"
section), the Polar sawmill rebuild as well as smaller capital
projects at both the SYP and Western SPF operations. In the
pulp and paper segment, capital expenditures related primarily to
the completion of the Intercontinental Pulp Mill turbine
upgrade. Investing activities in the current quarter also
included the transfer of $50.2
million out of an escrow account in connection with the
first phase of the purchase of Beadles & Balfour on
January 2, 2015 as well as a net
payment of $22.3 million for third
phase of the purchase of Scotch Gulf on January 30, 2015 (see further discussion on the
Beadles & Balfour and Scotch Gulf acquisitions in the
"Commitments and Subsequent Events" section). The Company
also received a $4.1 million
repayment on the term loan issued to Scotch Gulf prior to
consolidation of the subsidiary on January
30, 2015.
Liquidity and Financial Requirements
At March 31, 2015, the Company on
a consolidated basis had cash of $214.2
million, $183.0 million drawn
on its operating loans, and an additional $50.6 million reserved for several standby
letters of credit. Total available undrawn operating loans at
period end were $283.9 million.
Canfor has $100.0 million of
floating interest rate term debt, repayable in February 2017 and $75.0
million of floating interest term debt, repayable in
November 2019. CPPI has
$50.0 million of floating interest
rate term debt, repayable in November
2018.
The Company and CPPI remained in compliance with the covenants
relating to their operating loans and long-term debt during the
quarter, and expect to remain so for the foreseeable future.
The Company's consolidated net debt to total capitalization at
the end the first quarter of 2015 was 10.9%. For Canfor,
excluding CPPI, net debt to capitalization at the end of the first
quarter of 2015 was 14.4%.
On March 5, 2015, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 6,767,993 common shares or approximately 5% of
its issued and outstanding common share as of February 28, 2015. The renewed normal
course issuer bid is set to expire on March
5, 2016. During the first quarter of 2015, Canfor
purchased 1,112,300 common shares for $29.3
million (an average of $26.34
per common share), of which $26.0
million was paid during the quarter. CPPI purchased
489,710 common shares from non-controlling shareholders for
$7.0 million (an average of
$14.29 per common share) resulting in
an increase in Canfor's interest in CPPI to 50.9% at March 31, 2015. Canfor and CPPI may purchase more
shares through the balance of 2015 subject to the terms of their
normal course issuer bids and certain Board approved criteria.
Commitments and Subsequent Events
On January 30, 2015, the Company
completed the third phase of the acquisition of Scotch Gulf
increasing its ownership to 50%. On completion of this phase
of the acquisition, Canfor obtained control for accounting purposes
with the consolidation of Scotch Gulf starting on January 30, 2015. The final phase, whereby
the Company will own 100% of Scotch Gulf, is scheduled to close in
August 2016. The aggregate
purchase price for Scotch Gulf is US$80.5
million plus working capital.
On January 2,
2015, the first phase of the acquisition of Beadles &
Balfour closed representing an initial 55% ownership
interest. Canfor obtained control for accounting purposes
with the consolidation of Beadles & Balfour starting on
January 2, 2015. The final phase
whereby Canfor will wholly own Beadles & Balfour is scheduled
to close at the beginning of 2017. The aggregate purchase
price for Beadles & Balfour is US$68.0
million plus working capital.
In September 2014,
the Company entered into a purchase agreement with Southern Lumber
Company Inc. ("Southern Lumber"). The transaction involves the
purchase of all operating assets at an aggregate purchase price,
excluding working capital, of US$48.7
million. Subsequent to period end, on April 1, 2015, Canfor completed the acquisition
of Southern Lumber.
Also in September
2014, the Company announced plans to construct a pellet
plant at both the Chetwynd and
Fort St. John Sawmill sites, in the Northern British Columbia interior (the
"Pellet Plants") in partnership with Pacific BioEnergy Corporation
("Pacific BioEnergy"). The total investment cost is estimated to be
$58.0 million and production is
scheduled to commence in late 2015. Canfor owns an approximate 95%
interest in the Pellet Plants while Pacific BioEnergy owns the
remaining 5% and has an option to increase its ownership interest
in the Pellet Plants up to a total of 30% over a three year
period.
OUTLOOK
Lumber
After the challenging weather in many regions of North America in the first quarter of 2015,
the North American lumber market is off to a slow start in the
second quarter with benchmark lumber prices having continued to
trend downward. A modest improvement for the North American
market is anticipated towards the middle of the year as the US
housing market gains momentum. Offshore markets are forecast
to be flat in the second quarter of 2015 with a modest improvement
in the second half of 2015 as inventory balances gradually return
to more normalized levels.
With the decline in the Random Lengths Framing Lumber Composite
Price throughout the first quarter of 2015, an export duty of 5%
will be paid on exports to the US in April and May 2015, the first time since October 2013.
Pulp and Paper
NBSK pulp markets are projected to stabilize somewhat during the
industry's annual spring maintenance period in the second quarter
of 2015. For the months of April and May 2015, Canfor Pulp announced NBSK pulp list
prices of US$980 per tonne in
North America, unchanged from
March 2015, and list price increases
to China of US$10 per tonne for the month of April 2015, and a further US$20 per tonne for May
2015.
Maintenance outages are planned at the Intercontinental and
Prince George Mills in the second quarter of 2015, with a projected
10,000 tonnes of reduced NBSK pulp production. The Taylor
BCTMP mill will complete a planned maintenance outage in the second
quarter of 2015 with a projected 3,000 tonnes of reduced
production.
OUTSTANDING SHARES
At April 28, 2015, there were
134,154,663 common shares outstanding.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
International Financial Reporting Standards requires management to
make estimates and assumptions that affect the amounts recorded in
the financial statements. On an ongoing basis, management
reviews its estimates, including those related to useful lives for
amortization, impairment of long-lived assets, certain accounts
receivable, pension and other employee future benefit plans and
asset retirement and deferred reforestation obligations based upon
currently available information. While it is reasonably
possible that circumstances may arise which cause actual results to
differ from these estimates, management does not believe it is
likely that any such differences will materially affect the
Company's financial condition.
ACCOUNTING STANDARDS ISSUED AND NOT
APPLIED
In July 2014, the
International Accounting Standards Board ("IASB") issued IFRS 9,
Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company is in process of assessing the impact, if any, on the
financial statements of this new standard.
In May 2014, the
IASB issued IFRS 15, Revenue from Contracts with Customers,
which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations.
The new standard is effective for annual periods beginning on or
after January 1, 2017. The
Company is still in the process of assessing the impact, if any, on
the financial statements of this new standard.
Further details of the new accounting Standards
and the potential impact on Canfor can be found in the Company's
Annual Report for the year ended December
31, 2014.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended March 31,
2015, there were no changes in the Company's internal
controls over financial reporting that materially affected, or
would be reasonably likely to materially affect, such controls.
RISKS AND UNCERTAINTIES
A comprehensive discussion of risks and uncertainties is
included in the Company's 2014 annual statutory reports which are
available on www.canfor.com or www.sedar.com.
Softwood Lumber Agreement
Canadian softwood lumber exports to the US are currently subject
to export taxes under the Softwood Lumber Agreement ("SLA") which
has been in place since October
2006. In January 2012,
Canada and the US agreed to a two
year extension to the SLA extending the expiry of the agreement to
October 2015. Discussions on the
upcoming expiry are currently underway between the governments of
Canada and the US. The
outcome of these discussions is uncertain and could result in
significant impacts to the Company's US lumber exports.
Should an agreement not be reached before the October 2015 expiry, the current SLA provides
that no trade actions may be imposed for the importation of
softwood lumber from Canada to the
US for a period of twelve months following the current SLA expiry
date.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
2015 |
|
|
|
Q4
2014 |
|
|
|
Q3
2014 |
|
|
|
Q2
2014 |
|
|
|
Q1
2014 |
|
|
|
Q4
2013 |
|
|
|
Q3
2013 |
|
|
|
Q2
2013 |
Sales and income
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
930.0 |
|
|
$ |
860.4 |
|
|
$ |
838.0 |
|
|
$ |
907.3 |
|
|
$ |
741.9 |
|
|
$ |
809.5 |
|
|
$ |
755.9 |
|
|
$ |
843.2 |
Operating income |
|
$ |
83.7 |
|
|
$ |
62.0 |
|
|
$ |
85.6 |
|
|
$ |
97.3 |
|
|
$ |
84.4 |
|
|
$ |
53.8 |
|
|
$ |
49.3 |
|
|
$ |
128.2 |
Net income |
|
$ |
47.0 |
|
|
$ |
40.5 |
|
|
$ |
58.2 |
|
|
$ |
64.5 |
|
|
$ |
58.6 |
|
|
$ |
35.1 |
|
|
$ |
33.6 |
|
|
$ |
114.3 |
Shareholder net income |
|
$ |
29.3 |
|
|
$ |
29.9 |
|
|
$ |
45.5 |
|
|
$ |
54.3 |
|
|
$ |
45.5 |
|
|
$ |
28.0 |
|
|
$ |
28.4 |
|
|
$ |
110.3 |
Per common share (Canadian
dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder net income - basic and
diluted |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.34 |
|
|
$ |
0.39 |
|
|
$ |
0.33 |
|
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
0.77 |
Book value22 |
|
$ |
9.76 |
|
|
$ |
10.25 |
|
|
$ |
10.24 |
|
|
$ |
9.75 |
|
|
$ |
10.05 |
|
|
$ |
9.82 |
|
|
$ |
9.47 |
|
|
$ |
9.25 |
Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber shipments (MMfbm) |
|
|
1,172 |
|
|
|
1,092 |
|
|
|
1,124 |
|
|
|
1,236 |
|
|
|
927 |
|
|
|
1,109 |
|
|
|
1,172 |
|
|
|
1,224 |
Pulp shipments (000 mt) |
|
|
287 |
|
|
|
314 |
|
|
|
291 |
|
|
|
314 |
|
|
|
256 |
|
|
|
330 |
|
|
|
268 |
|
|
|
308 |
Average exchange rate -
US$/Cdn$ |
|
$ |
0.806 |
|
|
$ |
0.881 |
|
|
$ |
0.918 |
|
|
$ |
0.917 |
|
|
$ |
0.906 |
|
|
$ |
0.953 |
|
|
$ |
0.963 |
|
|
$ |
0.977 |
Average Western SPF 2x4 #2&Btr
lumber price (US$) |
|
$ |
308 |
|
|
$ |
340 |
|
|
$ |
357 |
|
|
$ |
335 |
|
|
$ |
367 |
|
|
$ |
370 |
|
|
$ |
328 |
|
|
$ |
335 |
Average SYP (East) 2x4 #2 lumber
price (US$) |
|
$ |
413 |
|
|
$ |
427 |
|
|
$ |
438 |
|
|
$ |
405 |
|
|
$ |
403 |
|
|
$ |
415 |
|
|
$ |
393 |
|
|
$ |
392 |
Average NBSK pulp list price
delivered to US (US$) |
|
$ |
995 |
|
|
$ |
1,025 |
|
|
$ |
1,030 |
|
|
$ |
1,030 |
|
|
$ |
1,017 |
|
|
$ |
983 |
|
|
$ |
947 |
|
|
$ |
937 |
22 |
Book value per common share is equal
to shareholders' equity at the end of the period, divided by the
number of common shares outstanding at the end of the period. |
In addition to exposure to changes in product prices and foreign
exchange, the Company's financial results are impacted by seasonal
factors such as weather and building activity. Adverse
weather conditions can cause logging curtailments, which can affect
the supply of raw materials to sawmills and pulp mills.
Market demand also varies seasonally to some degree. For
example, building activity and repair and renovation work, which
affects demand for lumber products, is generally stronger in the
spring and summer months. Shipment volumes are affected by
these factors as well as by global supply and demand
conditions.
Other material factors that impact the comparability of the
quarters are noted below:
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
After-tax impact, net of
non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions of
Canadian dollars, except for
per share amounts) |
|
|
Q1
2015 |
|
|
|
Q4
2014 |
|
|
|
Q3
2014 |
|
|
|
Q2
2014 |
|
|
|
Q1
2014 |
|
|
|
Q4
2013 |
|
|
|
Q3
2013 |
|
|
|
Q2
2013 |
Shareholder net income, as
reported |
|
$ |
29.3 |
|
|
$ |
29.9 |
|
|
$ |
45.5 |
|
|
$ |
54.3 |
|
|
$ |
45.5 |
|
|
$ |
28.0 |
|
|
$ |
28.4 |
|
|
$ |
110.3 |
(Gain) loss on
derivative financial
instruments |
|
$ |
16.4 |
|
|
$ |
5.2 |
|
|
$ |
0.7 |
|
|
$ |
(2.1) |
|
|
$ |
2.1 |
|
|
$ |
0.1 |
|
|
$ |
(2.2) |
|
|
$ |
1.0 |
Mark-to-market
adjustment to Canfor-LP
OSB sale contingent consideration |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4.5 |
|
|
$ |
4.5 |
|
|
$ |
0.4 |
|
|
$ |
3.6 |
|
|
$ |
1.0 |
|
|
$ |
- |
Gain on sale of
Canfor-LP OSB (including
contingent consideration) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(33.4) |
Gain on sale of
Daaquam operation |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(1.6) |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
Foreign exchange
(gain) loss on long-term
debt and investments, net |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1.5 |
|
|
$ |
(1.0) |
|
|
$ |
1.8 |
Mill closure provisions |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14.8 |
|
|
$ |
- |
|
|
$ |
- |
One-time costs
associated with collective
agreements for the lumber business |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.8 |
|
|
$ |
- |
|
|
$ |
- |
Canfor's 50% interest in Canfor-LP
OSB's
income, net of tax |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3.8 |
Change in substantively enacted
tax rate |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4.2 |
Net impact of above items |
|
$ |
16.4 |
|
|
$ |
5.2 |
|
|
$ |
5.2 |
|
|
$ |
2.4 |
|
|
$ |
0.9 |
|
|
$ |
20.8 |
|
|
$ |
(2.2) |
|
|
$ |
(22.6) |
Adjusted shareholder net
income |
|
$ |
45.7 |
|
|
$ |
35.1 |
|
|
$ |
50.7 |
|
|
$ |
56.7 |
|
|
$ |
46.4 |
|
|
$ |
48.8 |
|
|
$ |
26.2 |
|
|
$ |
87.7 |
Shareholder net income per
share (EPS), as reported |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.34 |
|
|
$ |
0.39 |
|
|
$ |
0.33 |
|
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
0.77 |
Net impact of above items per
share |
|
$ |
0.12 |
|
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
0.15 |
|
|
$ |
(0.02) |
|
|
$ |
(0.16) |
Adjusted net
income per share |
|
$ |
0.34 |
|
|
$ |
0.26 |
|
|
$ |
0.38 |
|
|
$ |
0.41 |
|
|
$ |
0.34 |
|
|
$ |
0.35 |
|
|
$ |
0.18 |
|
|
$ |
0.61 |
Canfor Corporation
Condensed Consolidated Balance Sheets
(millions of Canadian dollars, unaudited) |
|
|
As at
March 31,
2015 |
|
|
|
As at
December 31,
2014 |
ASSETS |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
214.2 |
|
|
$ |
158.3 |
Restricted cash (Note
13(b)) |
|
|
- |
|
|
|
50.2 |
Accounts
receivable |
- Trade |
|
|
136.6 |
|
|
|
91.3 |
|
- Other |
|
|
48.9 |
|
|
|
38.8 |
Inventories (Note
2) |
|
|
640.3 |
|
|
|
517.7 |
Prepaid expenses and
other assets |
|
|
72.5 |
|
|
|
46.3 |
Total current
assets |
|
|
1,112.5 |
|
|
|
902.6 |
Property, plant and
equipment |
|
|
1,322.9 |
|
|
|
1,216.1 |
Timber
licenses |
|
|
515.7 |
|
|
|
519.5 |
Goodwill and other
intangible assets (Note 13(a,b)) |
|
|
136.7 |
|
|
|
105.0 |
Retirement benefit
surplus (Note 5) |
|
|
1.8 |
|
|
|
0.6 |
Long-term
investments and other (Note 3) |
|
|
42.0 |
|
|
|
101.3 |
Deferred income
taxes, net |
|
|
1.7 |
|
|
|
1.7 |
Total
assets |
|
$ |
3,133.3 |
|
|
$ |
2,846.8 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Operating loans (Note
4) |
|
$ |
183.0 |
|
|
$ |
68.0 |
Accounts payable and
accrued liabilities |
|
|
380.7 |
|
|
|
305.8 |
Current portion of
deferred reforestation obligations |
|
|
52.0 |
|
|
|
52.1 |
Total current
liabilities |
|
|
615.7 |
|
|
|
425.9 |
Long-term
debt |
|
|
228.9 |
|
|
|
228.6 |
Retirement benefit
obligations (Note 5) |
|
|
278.1 |
|
|
|
263.2 |
Deferred
reforestation obligations |
|
|
72.6 |
|
|
|
60.0 |
Other long-term
liabilities |
|
|
19.7 |
|
|
|
19.6 |
Forward purchase
liabilities (Note 13(a,b)) |
|
|
108.2 |
|
|
|
- |
Deferred income
taxes, net |
|
|
187.6 |
|
|
|
211.9 |
Total
liabilities |
|
$ |
1,510.8 |
|
|
$ |
1,209.2 |
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
Share capital |
|
$ |
1,059.3 |
|
|
$ |
1,068.0 |
Contributed surplus
and other equity |
|
|
(74.5) |
|
|
|
31.9 |
Retained earnings |
|
|
264.9 |
|
|
|
260.1 |
Accumulated foreign
exchange translation differences |
|
|
61.5 |
|
|
|
27.2 |
Total equity
attributable to equity holders of the Company |
|
|
1,311.2 |
|
|
|
1,387.2 |
Non-controlling
interests |
|
|
311.3 |
|
|
|
250.4 |
Total
equity |
|
$ |
1,622.5 |
|
|
$ |
1,637.6 |
Total liabilities
and equity |
|
$ |
3,133.3 |
|
|
$ |
2,846.8 |
Subsequent Events (Notes 8 & 13(c))
The accompanying notes are an integral part of these condensed
consolidated financial statements.
APPROVED BY THE BOARD
"R.S. Smith" |
|
|
|
|
|
|
|
|
|
|
"M.J. Korenberg" |
Director, R.S.
Smith |
|
|
|
|
|
|
|
|
|
|
Director, M.J. Korenberg |
Canfor Corporation
Condensed Consolidated Statements of Income
|
|
3 months ended March
31, |
(millions of Canadian
dollars, except per share data, unaudited) |
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
$ |
930.0 |
|
|
$ |
741.9 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
Manufacturing and product
costs |
|
|
|
|
|
625.8 |
|
|
|
478.7 |
|
Freight and other distribution
costs |
|
|
|
|
|
146.2 |
|
|
|
113.8 |
|
Amortization |
|
|
|
|
|
49.3 |
|
|
|
44.5 |
|
Selling and administration
costs |
|
|
|
|
|
22.3 |
|
|
|
18.3 |
|
Restructuring, mill closure and
severance costs |
|
|
|
|
|
2.7 |
|
|
|
2.2 |
|
|
|
|
|
|
846.3 |
|
|
|
657.5 |
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
|
|
|
|
83.7 |
|
|
|
84.4 |
|
|
|
|
|
|
|
|
|
|
|
Finance expense,
net |
|
|
|
|
|
(5.3) |
|
|
|
(4.4) |
Loss on derivative
financial instruments (Note 6) |
|
|
|
|
|
(25.7) |
|
|
|
(3.5) |
Other income, net |
|
|
|
|
|
8.5 |
|
|
|
3.3 |
Net income before
income taxes |
|
|
|
|
|
61.2 |
|
|
|
79.8 |
Income tax expense
(Note 7) |
|
|
|
|
|
(14.2) |
|
|
|
(21.2) |
Net Income |
|
|
|
|
$ |
47.0 |
|
|
$ |
58.6 |
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to: |
|
|
|
|
|
|
|
|
|
|
Equity shareholders of
the Company |
|
|
|
|
$ |
29.3 |
|
|
$ |
45.5 |
Non-controlling
interests |
|
|
|
|
|
17.7 |
|
|
|
13.1 |
Net income |
|
|
|
|
$ |
47.0 |
|
|
$ |
58.6 |
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share: (in Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
Attributable to equity
shareholders of the Company |
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted (Note 8) |
|
|
|
|
$ |
0.22 |
|
|
$ |
0.33 |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Canfor Corporation
Condensed Consolidated Statements of Other Comprehensive Income
(Loss)
|
3 months ended March 31, |
(millions of Canadian
dollars, unaudited) |
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
47.0 |
|
|
$ |
58.6 |
Other comprehensive
income (loss) |
|
|
|
|
|
|
|
|
|
|
Items that will not be
recycled through net income: |
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plan actuarial
losses (Note 5) |
|
|
|
|
|
(4.3) |
|
|
|
(32.8) |
|
Income tax recovery on defined
benefit actuarial losses (Note 7) |
|
|
|
|
|
1.1 |
|
|
|
8.5 |
|
|
|
|
|
|
(3.2) |
|
|
|
(24.3) |
Items that may be
recycled through net income: |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
differences for foreign operations, net of tax |
|
|
|
|
|
34.3 |
|
|
|
10.6 |
Other comprehensive
income (loss), net of tax |
|
|
|
|
|
31.1 |
|
|
|
(13.7) |
Total comprehensive
income |
|
|
|
|
$ |
78.1 |
|
|
$ |
44.9 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income attributable to: |
|
|
|
|
|
|
|
|
|
|
Equity shareholders of
the Company |
|
|
|
|
$ |
61.5 |
|
|
$ |
35.2 |
Non-controlling
interests |
|
|
|
|
|
16.6 |
|
|
|
9.7 |
Total comprehensive
income |
|
|
|
|
$ |
78.1 |
|
|
$ |
44.9 |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Canfor Corporation
Condensed Consolidated Statements of Changes in Equity
|
|
3 months ended March 31, |
(millions of Canadian dollars,
unaudited) |
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period |
|
|
|
|
$ |
1,068.0 |
|
|
$ |
1,103.7 |
Share purchases (Note 8) |
|
|
|
|
|
(8.7) |
|
|
|
(1.5) |
Balance at end of period |
|
|
|
|
$ |
1,059.3 |
|
|
$ |
1,102.2 |
|
|
|
|
|
|
|
|
|
|
|
Contributed surplus and other
equity |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period |
|
|
|
|
$ |
31.9 |
|
|
$ |
31.9 |
Forward purchase liability related
to acquisitions (Note 13(a,b)) |
|
|
|
|
|
(106.4) |
|
|
|
- |
Balance at end of period |
|
|
|
|
$ |
(74.5) |
|
|
$ |
31.9 |
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period |
|
|
|
|
$ |
260.1 |
|
|
$ |
234.2 |
Net income attributable to equity
shareholders of the Company |
|
|
|
|
|
29.3 |
|
|
|
45.5 |
Defined benefit plan actuarial
losses, net of tax |
|
|
|
|
|
(2.1) |
|
|
|
(20.9) |
Share purchases (Note 8) |
|
|
|
|
|
(20.6) |
|
|
|
(3.5) |
Acquisition of non-controlling
interests (Note 8) |
|
|
|
|
|
(1.8) |
|
|
|
- |
Balance at end of period |
|
|
|
|
$ |
264.9 |
|
|
$ |
255.3 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated foreign exchange
translation differences |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period |
|
|
|
|
$ |
27.2 |
|
|
$ |
4.5 |
Foreign exchange translation
differences for foreign operations, net of tax |
|
|
|
|
|
34.3 |
|
|
|
10.6 |
Balance at end of period |
|
|
|
|
$ |
61.5 |
|
|
$ |
15.1 |
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to
equity holders of the
Company |
|
|
|
|
$ |
1,311.2 |
|
|
$ |
1,404.5 |
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period |
|
|
|
|
$ |
250.4 |
|
|
$ |
223.1 |
Net income attributable to
non-controlling interests |
|
|
|
|
|
17.7 |
|
|
|
13.1 |
Defined benefit plan actuarial
losses attributable to non-controlling interests, net of taxes |
|
|
|
|
|
(1.1) |
|
|
|
(3.4) |
Distributions to non-controlling
interests |
|
|
|
|
|
(3.0) |
|
|
|
(2.1) |
Acquisition of non-controlling
interest (Note 8) |
|
|
|
|
|
(5.2) |
|
|
|
- |
Non-controlling interests arising
on acquisitions (Note 13(a,b)) |
|
|
|
|
|
52.5 |
|
|
|
- |
Balance at end of period |
|
|
|
|
$ |
311.3 |
|
|
$ |
230.7 |
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
$ |
1,622.5 |
|
|
$ |
1,635.2 |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Canfor Corporation
Condensed Consolidated Statements of Cash Flows
|
|
3 months ended March 31, |
(millions of Canadian
dollars, unaudited) |
|
|
|
|
|
2015 |
|
|
|
2014 |
Cash generated from
(used in): |
|
|
|
|
|
|
|
|
|
|
Operating
activities |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
$ |
47.0 |
|
|
$ |
58.6 |
|
Items not affecting
cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
49.3 |
|
|
|
44.5 |
|
|
Income tax expense |
|
|
|
|
|
14.2 |
|
|
|
21.2 |
|
|
Long-term portion of deferred
reforestation obligations |
|
|
|
|
|
12.4 |
|
|
|
13.4 |
|
|
Changes in mark-to-market value of
derivative financial instruments |
|
|
|
|
|
19.1 |
|
|
|
3.4 |
|
|
Employee future benefits |
|
|
|
|
|
3.7 |
|
|
|
3.2 |
|
|
Finance expense, net |
|
|
|
|
|
5.3 |
|
|
|
4.4 |
|
|
Other, net |
|
|
|
|
|
11.0 |
|
|
|
4.3 |
|
Defined benefit plan
withdrawals (contributions), net |
|
|
|
|
|
3.0 |
|
|
|
(13.5) |
|
Income taxes paid,
net |
|
|
|
|
|
(22.0) |
|
|
|
(11.8) |
|
|
|
|
|
|
143.0 |
|
|
|
127.7 |
|
Net change in non-cash
working capital (Note 9) |
|
|
|
|
|
(101.2) |
|
|
|
(177.8) |
|
|
|
|
|
|
41.8 |
|
|
|
(50.1) |
Financing
activities |
|
|
|
|
|
|
|
|
|
|
|
Change in operating
bank loans (Note 4) |
|
|
|
|
|
115.0 |
|
|
|
106.8 |
|
Finance expenses
paid |
|
|
|
|
|
(2.6) |
|
|
|
(2.8) |
|
Share purchases (Note
8) |
|
|
|
|
|
(26.0) |
|
|
|
(2.0) |
|
Acquisition of
non-controlling interests (Note 8) |
|
|
|
|
|
(1.7) |
|
|
|
- |
|
Cash distributions
paid to non-controlling interests |
|
|
|
|
|
(3.0) |
|
|
|
(2.1) |
|
|
|
|
|
|
81.7 |
|
|
|
99.9 |
Investing
activities |
|
|
|
|
|
|
|
|
|
|
|
Additions to property,
plant and equipment and intangible assets, net |
|
|
|
|
|
(45.8) |
|
|
|
(53.1) |
|
Change in restricted
cash (Note 13(b)) |
|
|
|
|
|
50.2 |
|
|
|
- |
|
Acquisition of Beadles
& Balfour (Note 13(b)) |
|
|
|
|
|
(50.8) |
|
|
|
- |
|
Acquisition of Scotch
Gulf, net of cash acquired (Note 13(a)) |
|
|
|
|
|
(22.3) |
|
|
|
- |
|
Loan repayment from
Scotch Gulf (Note 13(a)) |
|
|
|
|
|
4.1 |
|
|
|
2.6 |
|
Other, net |
|
|
|
|
|
(3.0) |
|
|
|
(0.9) |
|
|
|
|
|
|
(67.6) |
|
|
|
(51.4) |
Increase (decrease)
in cash and cash equivalents* |
|
|
|
|
|
55.9 |
|
|
|
(1.6) |
Cash and cash
equivalents at beginning of period* |
|
|
|
|
|
158.3 |
|
|
|
89.5 |
Cash and cash
equivalents at end of period* |
|
|
|
|
$ |
214.2 |
|
|
$ |
87.9 |
*Cash and cash equivalents include cash on hand less unpresented
cheques.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Canfor Corporation
Notes to the Condensed Consolidated Financial Statements
(unaudited, millions of Canadian dollars unless otherwise
noted)
1. Basis of Preparation
These condensed consolidated interim financial
statements (the "financial statements") have been prepared in
accordance with International Accounting Standard ("IAS") 34
Interim Financial Reporting, and include the accounts of
Canfor Corporation and its subsidiary entities, hereinafter
referred to as "Canfor" or "the Company".
These financial statements do not include all of the disclosures
required by International Financial Reporting Standards ("IFRS")
for annual financial statements. Additional disclosures
relevant to the understanding of these financial statements,
including the accounting policies applied, can be found in the
Company's Annual Report for the year ended December 31, 2014, available at www.canfor.com or
www.sedar.com.
There have been no new estimates or judgments since the 2014
annual financial statements with the exception of those related to
the acquisitions of Scotch & Gulf Lumber, LLC ("Scotch Gulf")
and Beadles Lumber Company & Balfour Lumber Company Inc.
("Beadles & Balfour") (Note 13).
Canfor's financial results are impacted by seasonal factors such
as weather and building activity. Adverse weather conditions
can cause logging curtailments, which can affect the supply of raw
materials to sawmills and pulp mills. Market demand also
varies seasonally to some degree. For example, building
activity and repair and renovation work, which affects demand for
solid wood products, are generally stronger in the spring and
summer months. Shipment volumes are affected by these factors
as well as by global supply and demand conditions.
These financial statements were authorized for issue by the
Company's Board of Directors on April 28,
2015.
Accounting Standards Issued and Not
Applied
In July 2014, the
International Accounting Standards Board ("IASB") issued IFRS 9,
Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company is in process of assessing the impact, if any, on the
financial statements of this new standard.
In May 2014, the
IASB issued IFRS 15, Revenue from Contracts with Customers,
which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations.
The new standard is effective for annual periods beginning on or
after January 1, 2017. The
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
Further details of the new accounting standards
and potential impact on Canfor can be found in the Company's Annual
Report for the year ended December 31,
2014.
2. Inventories
(millions of Canadian
dollars) |
|
|
|
As at
March 31,
2015 |
|
|
|
As at
December 31,
2014 |
Logs |
|
|
$ |
181.1 |
|
|
$ |
122.6 |
Finished products |
|
|
|
341.2 |
|
|
|
281.0 |
Residual fibre |
|
|
|
10.5 |
|
|
|
10.3 |
Processing materials and
supplies |
|
|
|
107.5 |
|
|
|
103.8 |
|
|
|
$ |
640.3 |
|
|
$ |
517.7 |
3. Long-Term Investments and Other
(millions of Canadian
dollars) |
|
|
|
As at
March 31,
2015 |
|
|
|
As at
December 31,
2014 |
Investments |
|
|
$ |
23.6 |
|
|
$ |
64.4 |
Term loan Scotch Gulf (Note
13(a)) |
|
|
|
- |
|
|
|
23.2 |
Other deposits, loans and
advances |
|
|
|
18.4 |
|
|
|
13.7 |
|
|
|
$ |
42.0 |
|
|
$ |
101.3 |
On January 30, 2015 Canfor was
deemed to have control of Scotch Gulf (Note 13 (a)). The
acquisition method of accounting was applied on the acquisition
date of January 30, 2015 and the
equity investment in Scotch Gulf recorded in Long-Term Investments
and Other was derecognised. The term loan between Canfor and
Scotch Gulf was eliminated on consolidation of Scotch Gulf.
Investments also include the Company's 33.3% investment in Lakeland
Mills Ltd. and Winton Global Lumber Ltd. for which the Company does
not exercise significant influence and records as a level 3
financial instrument measured at fair value, which is determined
based on the future expected cash flows of the underlying
investments.
4. Operating Loans
Available Operating Loans
(millions of Canadian
dollars) |
|
|
|
As at
March 31,
2015 |
|
|
|
As at
December 31,
2014 |
Canfor (excluding
CPPI) |
|
|
|
|
|
|
|
|
Available Operating
Loans: |
|
|
|
|
|
|
|
|
|
Operating loan facility - Canfor
(excluding CPPI) |
|
|
$ |
350.0 |
|
|
$ |
350.0 |
|
Facility for letters of credit -
Canfor (excluding CPPI) |
|
|
|
37.5 |
|
|
|
37.5 |
|
Total operating loans - Canfor
(excluding CPPI) |
|
|
|
387.5 |
|
|
|
387.5 |
|
Operating loan drawn |
|
|
|
(183.0) |
|
|
|
(68.0) |
|
Letters of credit |
|
|
|
(38.8) |
|
|
|
(13.8) |
Total available
operating loans - Canfor (excluding CPPI) |
|
|
$ |
165.7 |
|
|
$ |
305.7 |
CPPI |
|
|
|
|
|
|
|
|
Available Operating
Loans: |
|
|
|
|
|
|
|
|
|
Operating loan facility |
|
|
$ |
110.0 |
|
|
$ |
110.0 |
|
Facility for letters of credit
related to energy agreements |
|
|
|
20.0 |
|
|
|
20.0 |
|
Total operating loans - CPPI |
|
|
|
130.0 |
|
|
|
130.0 |
|
Operating loan drawn |
|
|
|
- |
|
|
|
- |
|
Energy letters of credit |
|
|
|
(11.8) |
|
|
|
(12.2) |
Total available
operating loans - CPPI |
|
|
$ |
118.2 |
|
|
$ |
117.8 |
Consolidated: |
|
|
|
|
|
|
|
|
Total operating
loans |
|
|
$ |
517.5 |
|
|
$ |
517.5 |
Total available
operating loans |
|
|
$ |
283.9 |
|
|
$ |
423.5 |
Canfor's principal operating loans, excluding
Canfor Pulp Products Inc. ("CPPI"), mature on February 28, 2019. Interest is payable at
floating rates based on the lenders' Canadian prime rate, bankers
acceptances, US dollar base rate or US dollar LIBOR rate, plus a
margin that varies with the Company's net debt to total
capitalization ratio.
The terms of CPPI's operating loan facility
include interest payable at floating rates that vary depending on
the ratio of net debt to total capitalization and is based on
lenders' Canadian prime rate, bankers acceptances, US dollar base
rate or US dollar LIBOR rate, plus a margin. The maturity
date of this facility is January 31,
2018.
Canfor (excluding CPPI) has a separate facility
to cover letters of credit. At March
31, 2015, $34.4 million of
letters of credit were covered under this facility with the balance
of $4.4 million covered under the
Canfor's general operating loan facility.
CPPI has a separate facility with a maturity date of
June 30, 2015 to cover energy-related
letters of credit. At March 31,
2015, $9.4 million of
energy-related letters of credit were covered under this facility
with the balance of $2.4 million
covered under CPPI's general operating loan facility.
Both Canfor's and CPPI's operating loan
facilities have certain financial covenants that stipulate maximum
net debt to total capitalization ratios and minimum net worth
amounts based on shareholders' equity.
As at March 31, 2015, the Company
and CPPI were in compliance with all covenants relating to their
operating loans. Substantially all borrowings of CPPI (operating
loans and long-term debt) are non-recourse to other entities within
the Company.
5. Employee Future Benefits
For the three months ended March 31,
2015, a defined benefit actuarial loss of $4.3 million (before tax) was recognized in other
comprehensive income. The loss recorded in the first quarter
of 2015 reflects a lower discount rate used to value the net
defined benefit obligations, offset in part by the return on plan
assets. For the three months ended March 31, 2014, a loss of $32.8 million (before tax) was recognized in
other comprehensive income.
For the Company's defined benefit plans, a one percentage point
increase in the discount rate used in calculating the actuarial
estimate of future liabilities would decrease the accrued benefit
obligation by an estimated $113.0
million.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Benefit Plans |
|
|
|
|
Benefit Plans |
March 31, 2015 |
|
|
|
|
|
|
|
|
|
3.60% |
|
|
|
|
3.60% |
December 31, 2014 |
|
|
|
|
|
|
|
|
|
3.90% |
|
|
|
|
3.90% |
March 31, 2014 |
|
|
|
|
|
|
|
|
|
4.40% |
|
|
|
|
4.50% |
December 31, 2013 |
|
|
|
|
|
|
|
|
|
4.80% |
|
|
|
|
4.90% |
6. Financial Instruments
Canfor's cash and cash equivalents, accounts
receivable, other deposits, loans and advances, operating loans,
accounts payable and accrued liabilities, and long-term debt are
measured at amortized cost subsequent to initial measurement.
At March 31, 2015, the fair value of
the Company's long-term debt approximates its amortized cost of
$228.9 million (December 31, 2014 - $228.6
million).
Derivative instruments are measured at fair
value. IFRS 13, Fair Value Measurement, requires
classification of financial instruments within a hierarchy that
prioritizes the inputs to fair value measurement.
The three levels of the fair value hierarchy are:
|
|
|
Level 1 - Unadjusted quoted prices in active markets for
identical assets or liabilities; |
|
|
|
Level 2 - Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly; |
|
|
|
Level 3 - Inputs that are not based on observable market
data. |
The following table summarizes Canfor's financial instruments
measured at fair value at March 31,
2015 and December 31, 2014,
and shows the level within the fair value hierarchy in which they
have been classified:
(millions of Canadian
dollars) |
|
Fair Value
Hierarchy
Level |
|
|
|
As at
March 31,
2015 |
|
|
|
As at
December 31,
2014 |
Financial assets
measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - held for
trading |
|
Level 2 |
|
|
$ |
- |
|
|
$ |
0.3 |
|
Royalty receivable - available for sale |
|
Level 3 |
|
|
|
2.2 |
|
|
|
2.9 |
|
|
|
|
|
$ |
2.2 |
|
|
$ |
3.2 |
Financial
liabilities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - held for
trading |
|
Level 2 |
|
|
$ |
28.0 |
|
|
$ |
9.1 |
|
|
|
|
|
$ |
28.0 |
|
|
$ |
9.1 |
The royalty receivable is measured at fair value at each
reporting period and is presented in Other Accounts Receivable on
the consolidated balance sheet. The fair value of the royalty
receivable is determined by discounting future expected cash flows
based on energy price assumptions and future sales volume
assumptions until the termination of the royalty agreement in
September 2015.
The Company uses a variety of derivative financial instruments
to reduce its exposure to risks associated with fluctuations in
foreign exchange rates, lumber prices, pulp prices, energy costs,
and floating interest rates on long-term debt.
At March 31, 2015, the fair value
of derivative financial instruments was a net liability of
$28.0 million (December 31, 2014 - net liability of $8.8 million). The fair value of these
financial instruments was determined based on prevailing market
rates for instruments with similar characteristics.
The following table summarizes the gain (loss) on derivative
financial instruments for the three month periods ended
March 31, 2015 and 2014:
|
|
3 months ended
March 31, |
(millions of Canadian dollars) |
|
|
|
|
|
2015 |
|
|
|
2014 |
Foreign exchange collars and forward
contracts |
|
|
|
|
$ |
(19.5) |
|
|
$ |
(2.9) |
Energy derivatives |
|
|
|
|
|
(2.6) |
|
|
|
0.2 |
Lumber futures |
|
|
|
|
|
(2.3) |
|
|
|
0.1 |
Pulp futures |
|
|
|
|
|
- |
|
|
|
(0.3) |
Interest rate swaps |
|
|
|
|
|
(1.3) |
|
|
|
(0.6) |
Loss on derivative financial instruments |
|
|
|
|
$ |
(25.7) |
|
|
$ |
(3.5) |
7. Income Taxes
|
|
3 months ended March 31, |
(millions of Canadian dollars) |
|
|
|
|
|
2015 |
|
|
|
2014 |
Current |
|
|
|
|
$ |
(21.3) |
|
|
$ |
(13.9) |
Deferred |
|
|
|
|
|
7.1 |
|
|
|
(7.3) |
Income tax expense |
|
|
|
|
$ |
(14.2) |
|
|
$ |
(21.2) |
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
|
3 months ended March
31, |
(millions of Canadian dollars) |
|
|
|
|
|
2015 |
|
|
|
2014 |
Income tax expense at statutory rate
2015 - 26.0% (2014 - 26.0%) |
|
|
|
|
$ |
(15.9) |
|
|
$ |
(20.7) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
Non-taxable income related to non-controlling
interests |
|
|
|
|
|
1.0 |
|
|
|
0.1 |
|
Entities with different income tax rates and other
tax adjustments |
|
|
|
|
|
0.9 |
|
|
|
(0.4) |
|
Permanent difference from capital gains and losses
and other non-deductible items |
|
|
|
|
|
(0.2) |
|
|
|
(0.2) |
Income tax expense |
|
|
|
|
$ |
(14.2) |
|
|
$ |
(21.2) |
In addition to the amounts recorded to net
income, a tax recovery of $1.1
million was recorded to other comprehensive income for the
three month period ended March 31,
2015 (three months ended March 31,
2014 - recovery of $8.5
million) in relation to the actuarial losses on defined
benefit employee compensation plans. Also included in other
comprehensive income for the three months ended March 31, 2015 was an expense of $2.5 million related to foreign exchange gains on
translation of investments in foreign operations (three months
ended March 31, 2014 - nil).
8. Earnings Per Share and Normal Course Issuer Bid
Basic net income per share is calculated by dividing the net
income attributable to common shareholders by the weighted average
number of common shares outstanding during the period.
|
|
3 months ended March 31, |
|
|
|
2015 |
|
|
2014 |
Weighted average number of common shares |
|
|
135,158,503 |
|
|
139,894,792 |
On March 5, 2015,
the Company renewed its normal course issuer bid whereby it can
purchase for cancellation up to 6,767,993 common shares or
approximately 5% of its issued and outstanding common shares as of
February 28, 2015. The renewed normal
course issuer bid is set to expire on March
4, 2016. During the first quarter of 2015, Canfor
purchased 1,112,300 common shares for $29.3
million (an average of $26.34
per common share), of which $26.0
million was paid in the quarter, with the balance paid in
early April 2015. Under a
separate normal course issuer bid, CPPI purchased shares from
non-controlling shareholders increasing Canfor's ownership from
50.5% at December 31, 2014 to 50.9%
at March 31, 2015. Subsequent
to quarter end, on April 1 and 2,
2015, Canfor purchased 110,000 common shares for $2.7 million (an average of $24.55 per common share). As at
April 28, 2015, there were
134,154,663 common shares outstanding.
9. Net Change in Non-Cash Working Capital
|
|
3 months ended
March 31, |
(millions of Canadian
dollars) |
|
|
|
|
|
2015 |
|
2014 |
Accounts receivable |
|
|
|
|
$ |
(38.9) |
$ |
(13.8) |
Inventories |
|
|
|
|
|
(96.9) |
|
(194.9) |
Prepaid expenses and other
assets |
|
|
|
|
|
(12.8) |
|
(2.2) |
Accounts payable, accrued
liabilities and current portion of deferred reforestation
obligations |
|
|
|
|
|
47.4 |
|
33.1 |
Net increase in non-cash working
capital |
|
|
|
|
$ |
(101.2) |
$ |
(177.8) |
10. Segment Information
Canfor has two reportable segments (lumber segment and pulp and
paper segment) which offer different products and are managed
separately because they require different production processes and
marketing strategies.
Sales between segments are accounted for at prices that
approximate fair value. These include sales of residual fibre
from the lumber segment to the pulp and paper segment for use in
the pulp production process.
The Company's panels business does not meet the criteria to be
reported fully as a separate segment and is included in Unallocated
& Other below.
(millions of Canadian
dollars) |
|
|
Lumber |
|
|
Pulp &
Paper |
|
|
Unallocated
&
Other |
|
|
Elimination
Adjustment |
|
|
|
Consolidated |
3 months ended
March 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers |
|
$ |
647.0 |
|
|
283.0 |
|
|
- |
|
|
- |
|
|
$ |
930.0 |
Sales to other
segments |
|
$ |
42.5 |
|
|
- |
|
|
- |
|
|
(42.5) |
|
|
$ |
- |
Operating income
(loss) |
|
$ |
48.3 |
|
|
43.0 |
|
|
(7.6) |
|
|
- |
|
|
$ |
83.7 |
Amortization |
|
$ |
32.2 |
|
|
15.9 |
|
|
1.2 |
|
|
- |
|
|
$ |
49.3 |
Capital
expenditures1 |
|
$ |
30.8 |
|
|
13.5 |
|
|
1.5 |
|
|
- |
|
|
$ |
45.8 |
Identifiable
assets |
|
$ |
2,061.3 |
|
|
788.2 |
|
|
283.8 |
|
|
- |
|
|
$ |
3,133.3 |
3 months ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers |
|
$ |
495.7 |
|
|
246.2 |
|
|
- |
|
|
- |
|
|
$ |
741.9 |
Sales to other segments |
|
$ |
35.5 |
|
|
- |
|
|
- |
|
|
(35.5) |
|
|
$ |
- |
Operating income (loss) |
|
$ |
56.4 |
|
|
36.5 |
|
|
(8.5) |
|
|
- |
|
|
$ |
84.4 |
Amortization |
|
$ |
27.9 |
|
|
16.5 |
|
|
0.1 |
|
|
- |
|
|
$ |
44.5 |
Capital
expenditures1 |
|
$ |
39.6 |
|
|
10.1 |
|
|
3.4 |
|
|
- |
|
|
$ |
53.1 |
Identifiable
assets |
|
$ |
1,920.0 |
|
|
782.0 |
|
|
183.1 |
|
|
- |
|
|
$ |
2,885.1 |
1 |
Capital expenditures represent cash
paid for capital assets during the periods. Pulp & Paper
includes capital expenditures by CPPI that were partially financed
by government grants. Capital expenditures for the three
months ended March 31, 2015 exclude the assets purchased as part of
the acquisitions of Scotch Gulf and Beadles & Balfour (Note
13(a,b)). |
11. Sale of Daaquam Operation
On March 28, 2014, the Company
completed the sale of its Daaquam operation. Total gross
proceeds related to the disposition of the Daaquam operation were
$25.0 million. A pre-tax gain
of $2.2 million was recorded in the
first quarter of 2014 in Other Income.
12. Sale of Taylor Pulp Mill
On January 30,
2015, the Company completed the sale of its BCTMP Taylor
Pulp Mill to CPPI for cash consideration of $12.6 million including final working
capital. The sale also includes a long-term fibre supply
agreement under which Canfor will supply the Taylor Pulp Mill with
fibre at prices that approximate fair market value. In
addition to the cash consideration paid on the acquisition date,
Canfor may receive additional consideration over a 3 year period,
starting January 31, 2015, contingent
on the Taylor Pulp Mill's annual adjusted operating income before
amortization. On the acquisition date and as at March 31, 2015, the fair value of the contingent
consideration was $1.8 million.
13. US South Acquisitions
(a) Phased Purchase of Scotch Gulf
On August 9, 2013, Canfor
completed the first phase of the phased purchase of Scotch Gulf
representing an initial 25% interest. On August 1, 2014, Canfor completed the second phase
of the acquisition for $9.9 million
increasing its ownership to 33.3%. On January 30, 2015, Canfor completed the third
phase of the acquisition for $23.3
million bringing Canfor's interest in Scotch Gulf to
50%. Upon obtaining a 50% interest in Scotch Gulf, Canfor
obtained control for accounting purposes and the acquisition method
of accounting was applied with an acquisition date of January 30, 2015. Canfor was deemed to have
control of Scotch Gulf due to its 50% interest in the company,
various debt arrangements between Canfor and Scotch Gulf and
Canfor's commitment to purchase 100% of the company by August 2016. The acquisition has been
accounted for in accordance with IFRS 3, Business
Combinations.
The acquisition included three sawmills and a treating facility
located in Mobile, Jackson and Fulton,
Alabama with combined annual lumber production capacity of
440 million board feet following capital upgrades and additional
shifts.
The following summarizes the consideration paid for Scotch Gulf
and preliminary recognized amounts of assets acquired and
liabilities assumed and the non-controlling interest at the
acquisition date:
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
Total consideration |
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
$ |
23.3 |
|
Fair value of equity interest in Scotch Gulf held
immediately before the business combination |
|
|
|
|
|
|
|
46.6 |
Total consideration |
|
|
|
|
|
|
$ |
69.9 |
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
Recognized amounts of identifiable
assets acquired and liabilities assumed |
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
$ |
1.0 |
|
Land |
|
|
|
|
|
|
|
2.7 |
|
Buildings, equipment and mobile |
|
|
|
|
|
|
|
64.5 |
|
Non-cash working capital, net |
|
|
|
|
|
|
|
38.5 |
Total net identifiable assets |
|
|
|
|
|
|
$ |
106.7 |
|
Non-controlling interest |
|
|
|
|
|
|
|
(53.3) |
|
Goodwill |
|
|
|
|
|
|
|
5.5 |
|
Deferred tax asset, net |
|
|
|
|
|
|
|
11.0 |
Total consideration |
|
|
|
|
|
|
$ |
69.9 |
The Company incurred acquisition-related costs of $1.4 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts are recorded
in the Company's consolidated statement of income for the three
months ended March 31, 2015. Scotch
Gulf's results are recorded in the lumber segment.
The goodwill of $5.5 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration transferred, the amount of
non-controlling interests and the fair value of the previously held
equity interest over the fair value of the identifiable assets
acquired and liabilities assumed. The goodwill arising from
the acquisition is attributable to management strength, expected
future income and cash-flow projections, access to new markets in
North America and the ability to
diversify Canfor's product offering. Goodwill calculated for
tax purposes is expected to be tax deductible over 15 years.
As part of the consolidation of Scotch Gulf, a net deferred tax
asset of $11.0 million was recognized
for differences between tax and accounting values of the property,
plant and equipment and goodwill acquired.
Canfor elected to calculate the non-controlling interest related
to Scotch Gulf as 50% of the fair value of the net identifiable
assets at the acquisition date. On the acquisition date, a
forward purchase liability of $69.9
million was recognized related to the Company's commitment
to purchase the remaining 50% of Scotch Gulf by August 2016 and was recorded as a long-term
liability and reduction to other equity.
(b) Phased Purchase of Beadles & Balfour
On January 2,
2015, the Company completed the first phase of the
acquisition of Beadles & Balfour for $51.6 million, plus transaction closing costs
representing an initial 55% interest. The aggregate purchase
price for Beadles & Balfour is US$68.0
million, plus the acquisition of certain capital assets and
working capital. Canfor's initial 55% interest will increase
to 100% after two years.
On completion of the first phase of the
acquisition, Canfor was deemed to have control of Beadles &
Balfour and the acquisition method of accounting was applied with
an acquisition date of January 2,
2015. The acquisition has been accounted for in
accordance with IFRS 3, Business Combinations.
The acquisition included two sawmills located in Thomasville and Moultrie, Georgia with annual production
capacity of 210 million board feet following capital upgrades and
additional shifts.
The following summarizes the consideration paid for Beadles
& Balfour and preliminary recognized amounts of assets acquired
and liabilities assumed and the non-controlling interest at the
acquisition date:
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
Total consideration |
|
|
|
|
|
|
|
|
|
Cash consideration paid |
|
|
|
|
|
|
$ |
50.8 |
|
Consideration payable |
|
|
|
|
|
|
|
0.8 |
Total consideration |
|
|
|
|
|
|
$ |
51.6 |
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
$ |
2.6 |
|
Buildings, equipment and mobile |
|
|
|
|
|
|
|
34.1 |
|
Non-cash working capital, net |
|
|
|
|
|
|
|
8.3 |
Total net identifiable assets |
|
|
|
|
|
|
$ |
45.0 |
|
Non-controlling interest |
|
|
|
|
|
|
|
(20.2) |
|
Goodwill |
|
|
|
|
|
|
|
17.7 |
|
Deferred tax asset, net |
|
|
|
|
|
|
|
9.1 |
Total consideration |
|
|
|
|
|
|
$ |
51.6 |
The Company incurred acquisition-related costs of $0.5 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts were recorded
in the Company's consolidated statement of income in 2014 when
incurred. Beadles & Balfour's results are recorded in the
lumber segment.
The goodwill of $17.7 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration transferred and the amount of
non-controlling interests over the fair value of the identifiable
assets acquired and liabilities assumed. The goodwill arising
from the acquisition is attributable to expected synergies with
other Canfor-owned mills located in close proximity, management
strength, expected future income and cash-flow projections, access
to new markets and ability to diversify Canfor's product
offering. Goodwill calculated for tax purposes is expected to
be tax deductible over 15 years. As part of the consolidation
of Beadles & Balfour, a net deferred tax asset of $9.1 million was recognized for differences
between tax and accounting values of the property, plant and
equipment and goodwill acquired.
Canfor elected to calculate the non-controlling interest related
to Beadles & Balfour as 45% of the fair value of the net
identifiable assets at the acquisition date. On the
acquisition date, a forward purchase liability of $36.5 million was recognized related to the
Company's commitment to purchase the remaining 45% of Beadles &
Balfour within two years and was recorded as a long-term liability
and reduction to other equity.
(c) Purchase of Southern Lumber Company Inc. ("Southern
Lumber")
On April 1, 2015, the Company
completed the acquisition of Southern Lumber's Mississippi operating assets for cash
consideration of US$48.7 million,
excluding working capital. As a result of the acquisition,
Canfor will recognize approximately US$2.5
million of working capital and US$48.7 million of long-term assets acquired net
of liabilities assumed. Given the acquisition date, Canfor
will be completing the purchase price allocation in the second
quarter of 2015.
SOURCE Canfor Corporation
Image with caption: "Canfor Corporation (CNW Group/Canfor
Corporation)". Image available at:
http://photos.newswire.ca/images/download/20150429_C9203_PHOTO_EN_43440.jpg