VANCOUVER, April 25, 2017 /CNW/ - Canfor Corporation
(TSX: CFP) today reported net income attributable to shareholders
("shareholder net income") of $66.1
million, or $0.50 per share,
for the first quarter of 2017, compared to shareholder net income
of $38.0 million, or $0.29 per share, for the fourth quarter of 2016
and a net income attributable to shareholders of $26.0 million, or $0.20 per share, for the first quarter of
2016.
The following table summarizes selected financial information
for the Company for the comparative periods:
(millions of Canadian
dollars, except per share amounts)
|
|
Q1
|
|
Q4
|
|
Q1
|
|
2017
|
|
2016
|
|
2016
|
Sales
|
$
|
1,126.2
|
$
|
1,043.5
|
$
|
1,067.9
|
Operating income
before amortization1
|
$
|
169.1
|
$
|
135.6
|
$
|
125.7
|
Operating
income1
|
$
|
106.8
|
$
|
72.0
|
$
|
65.1
|
Net income
attributable to equity shareholders of the Company
|
$
|
66.1
|
$
|
38.0
|
$
|
26.0
|
Net income per share
attributable to equity shareholders of the Company,
basic and
diluted
|
$
|
0.50
|
$
|
0.29
|
$
|
0.20
|
Adjusted shareholder
net income
|
$
|
59.3
|
$
|
37.7
|
$
|
20.9
|
Adjusted shareholder
net income per share, basic and diluted
|
$
|
0.45
|
$
|
0.29
|
$
|
0.16
|
|
1 Adjusted
for a recovery of $2.0 million related to lower estimated Canal
Flats closure costs recorded in the fourth quarter of
2016.
|
The Company's adjusted shareholder net income for the first
quarter of 2017 was $59.3 million, or
$0.45 per share, compared to an
adjusted shareholder net income of $37.7
million, or $0.29 per share,
for the fourth quarter of 2016, and adjusted shareholder net income
of $20.9 million, or $0.16 per share for the first quarter of
2016.
The Company reported operating income of $106.8 million for the first quarter of 2017, up
$34.8 million from adjusted operating
income of $72.0 million for the
fourth quarter of 2016. Higher earnings in the first quarter of
2017 reflected improved operating income in both the lumber and
pulp and paper segments. Lumber segment results primarily reflected
higher Western Spruce/Pine/Fir
("SPF") and Southern Yellow Pine ("SYP") sales realizations, offset
in part by higher market-based stumpage and increased
log costs resulting from extreme weather conditions in
Western Canada towards the end of
2016 and into early 2017. Pulp and paper segment results were
mostly attributable to higher pulp shipment volumes during the
current quarter.
North American lumber demand was solid in the first quarter of
2017, with US housing starts in line with the previous quarter,
averaging 1,253,000 units on a seasonally adjusted basis. Canadian
housing construction activity was strong in the first quarter of
2017, up 13% compared to the previous quarter, at an average of
225,000 units on a seasonally adjusted basis. Offshore lumber
demand from China, Japan and other regions also improved through
the first quarter, particularly for the Company's higher-value
lumber products.
Western SPF lumber unit sales realizations increased compared to
the previous quarter reflecting higher average Western SPF lumber
prices, offset in part by a 1% stronger Canadian dollar. The
average benchmark North American Random Lengths Western SPF 2x4
#2&Btr price was up US$33 per
Mfbm, or 10%, compared to the fourth quarter of 2016, with more
pronounced price increases in the Western SPF 2x6 #2&Btr price,
and more modest price increases across wider-width dimensions. The
improving benchmark prices were supported by strong underlying
North American and offshore demand, in addition to uncertainty
surrounding possible countervailing duties being imposed on
Canadian lumber shipments destined to the US. SYP unit sales
realizations also showed a modest improvement compared to the prior
quarter as improved benchmark SYP lumber prices were supported by
seasonally stronger demand and concerns around the effects of
potential duties on Western SPF supply.
Total lumber production, at 1.3 billion board feet, was up 5%
compared to the prior quarter, largely reflecting improved
productivity and additional operating days in the current quarter.
Total lumber shipments were in line with the previous quarter, as a
tightening supply of railcars and trucks in North America, largely due to challenging
weather conditions, placed constraints on shipments from
Western Canada. Lumber unit
manufacturing costs in the first quarter of 2017 were in line with
the previous quarter as gains in productivity were offset by higher
market-based stumpage and increased log costs resulting from the
challenging weather conditions.
Northern Bleached Softwood Kraft ("NBSK") pulp average list
prices to China, as published by
RISI, moved up by US$50 per tonne as
a result of successive price increases implemented through the
first quarter, however, the Company's overall NBSK pulp unit sales
realizations were relatively unchanged from the previous quarter,
reflecting shipments of a higher proportion of orders taken in late
2016 and early in 2017, as well as further pressure on customer
discounts and a stronger Canadian dollar. Higher Bleached
Chemi-Thermo Mechanical Pulp ("BCTMP") unit sales realizations in
the first quarter of 2017 reflected a continued improvement in
BCTMP demand and prices in the current quarter. Energy revenues
were up in the current quarter reflecting slightly higher energy
prices combined with seasonally higher power generation.
Pulp shipment and production volumes were up 22% and 4%,
respectively, from the previous quarter, with the increase in the
former primarily reflecting increased shipments to China and North
America, combined with the impact of the delayed vessel to
Asia over the year end, and, to a
lesser extent, improved productivity. Pulp unit manufacturing
costs saw a modest decrease in the current quarter, largely
reflecting improved productivity, offset in part by seasonally
higher energy consumption.
Commenting on the Company's first quarter results, Canfor's
President and Chief Executive Officer, Don
Kayne, said, "Despite the weather-related challenges in
Western Canada, our lumber and
pulp businesses recorded solid financial and operating
performances in the first quarter of 2017, with operating income
for both segments well up from the last quarter of 2016."
On November 25, 2016, a petition
was filed by the US Lumber Coalition to the US Department of
Commerce ("DOC") and the US International Trade Commission ("ITC")
alleging certain subsidies and administered fees below the fair
market value of timber that favour Canadian lumber producers, an
assertion the Canadian industry and Provincial and Federal
Governments strongly deny and have successfully disproven in
international courts in the past. Canfor was selected by the DOC as
a "mandatory respondent" to the countervailing and anti-dumping
investigations and is subject to company specific countervailing
and anti-dumping duties. On April 24,
2017, the DOC announced its preliminary countervailing duty
of 20.26% specific to Canfor, and an industry average of 19.88%, to
be posted by cash deposits or bonds on the exports of softwood
lumber to the US on or after approximately May 1, 2017 for a period of 120 days, in
accordance with US law.
The DOC is expected to announce its preliminary anti-dumping
duty determination on June 23, 2017.
The final countervailing and anti-dumping duty determinations will
be aligned for DOC administrative purposes. This alignment
could result in the suspension of preliminary countervailing duty
cash deposit requirements after the initial four month period has
expired and until an aligned final determination decision is
established. Canfor continues to cooperate with the Provincial and
Federal Governments of Canada who
have indicated they will vigorously defend the interests of the
industry.
Looking ahead, the US housing market is forecast to continue its
gradual recovery through the balance of 2017. North American lumber
consumption is forecast to improve reflecting steady demand in the
residential construction market and continued strength from the
repair and remodelling sector. Wide-width SYP and speciality lumber
prices are anticipated to improve through the second and third
quarter of 2017 reflecting stronger seasonal demand.
Absent a new Softwood Lumber Agreement, there remains a risk of
material anti-dumping duties being imposed on Canadian lumber
shipments destined to the US in addition to the preliminary
countervailing duty rate. The Company anticipates marketplace
volatility as investigations progress and determinations are
made.
For the Company's key offshore lumber markets, demand is
anticipated to show a solid improvement through the second quarter
of 2017. In the pulp and paper segment, global softwood markets are
projected to remain relatively strong during the second quarter.
Reduced capacity over the traditional spring maintenance period may
support further price increases in the second quarter of 2017. With
the commissioning of new pulp capacity in the latter part of 2017
and into 2018, there is risk of downward pressure on pricing in the
second half of this year. For the month of April 2017, CPPI announced an increase of
US$20 per tonne for NBSK pulp list
price to China and North America.
Results in the second quarter of 2017 will reflect the positive
impact of recent price gains, particularly in Asia, and scheduled maintenance outages at
CPPI's Northwood and Taylor pulp mills, with a projected 33,000
tonnes of reduced NBSK pulp and 4,000 tonnes of reduced BCTMP
production, respectively, as well as higher associated
maintenance costs and lower projected shipment volumes. For
the third quarter of 2017, CPPI's Intercontinental pulp mill has a
maintenance outage scheduled, with a projected 8,000 tonnes of
reduced NBSK pulp production.
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and
operating results will be held on Thursday,
April 27, 2017 at 7:30 AM Pacific
time. To participate in the call, please dial Toll-Free
888-390-0546. For instant replay access until May 11, 2017, please dial 888-390-0541 and enter
participant pass code 426530#. 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, Mississippi and Arkansas. Canfor produces
primarily softwood lumber and also owns a 53.9% 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. Canfor shares are traded on The
Toronto Stock Exchange under the symbol
CFP.
Canfor Corporation
First Quarter
2017
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, 2017 relative to the
quarters ended December 31, 2016 and
March 31, 2016, and the financial
position of the Company at March 31,
2017. It should be read in conjunction with Canfor's
unaudited interim consolidated financial statements and
accompanying notes for the quarters ended March 31, 2017 and 2016, as well as the 2016
annual MD&A and the 2016 audited consolidated financial
statements and notes thereto, which are included in Canfor's Annual
Report for the year ended December 31,
2016 (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 before Amortization and Adjusted Operating Income 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 the reconciliation included in the section
"Analysis of Specific Material Items Affecting Comparability of Net
Income" 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 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 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
before Amortization to Operating Income and Adjusted Shareholder
Net Income (Loss) to Net Income (Loss) reported in accordance with
IFRS are included in this MD&A. Throughout this discussion,
reference is made to the current quarter, which refers to the
results for the first quarter of 2017.
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 25, 2017.
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 2017 OVERVIEW
Selected Financial Information and Statistics
(millions of Canadian
dollars, except per share amounts)
|
|
Q1
|
|
Q4
|
|
Q1
|
2017
|
|
2016
|
|
2016
|
Operating income
(loss) by segment:
|
|
|
|
|
|
|
|
Lumber
|
$
|
83.7
|
$
|
57.4
|
$
|
33.4
|
|
Pulp and
Paper
|
$
|
35.2
|
$
|
22.9
|
$
|
39.1
|
|
Unallocated and
Other1
|
$
|
(12.1)
|
$
|
(6.3)
|
$
|
(7.4)
|
Total operating
income
|
$
|
106.8
|
$
|
74.0
|
$
|
65.1
|
Add:
Amortization2
|
$
|
62.3
|
$
|
63.6
|
$
|
60.6
|
Total operating
income before amortization
|
$
|
169.1
|
$
|
137.6
|
$
|
125.7
|
Add
(deduct):
|
|
|
|
|
|
|
|
Working capital
movements
|
$
|
(105.2)
|
$
|
28.1
|
$
|
(58.0)
|
|
Defined benefit plan
contributions, net
|
$
|
(6.0)
|
$
|
(7.7)
|
$
|
(5.2)
|
|
Income taxes received
(paid), net
|
$
|
1.2
|
$
|
0.2
|
$
|
(13.6)
|
|
Gain on sale of
Anthony EACOM Inc.3
|
$
|
(4.0)
|
$
|
-
|
$
|
-
|
|
Other operating cash
flows, net 4
|
$
|
17.7
|
$
|
2.8
|
$
|
2.0
|
Cash from
operating activities
|
$
|
72.8
|
$
|
161.0
|
$
|
50.9
|
Add
(deduct):
|
|
|
|
|
|
|
|
Proceeds received
from sale of Anthony EACOM Inc. 3
|
$
|
5.4
|
$
|
-
|
$
|
-
|
|
Proceeds from
long-term debt
|
$
|
1.7
|
$
|
-
|
$
|
-
|
|
Finance expenses
paid
|
$
|
(3.2)
|
$
|
(7.5)
|
$
|
(4.1)
|
|
Distributions paid to
non-controlling interests
|
$
|
(3.8)
|
$
|
(5.4)
|
$
|
(4.2)
|
|
Capital additions,
net
|
$
|
(38.9)
|
$
|
(63.4)
|
$
|
(47.1)
|
|
Acquisition of
Beadles Lumber Company and Balfour Lumber Company
|
$
|
(41.8)
|
$
|
-
|
$
|
-
|
|
Advances to Licella
Fibre Fuel Pty Ltd.
|
$
|
-
|
$
|
(3.5)
|
$
|
-
|
|
Foreign exchange gain
(loss) on cash and cash equivalents
|
$
|
(0.1)
|
$
|
1.8
|
$
|
(3.9)
|
|
Other, net
|
$
|
3.5
|
$
|
(0.2)
|
$
|
(3.4)
|
Change in cash /
operating loans
|
$
|
(4.4)
|
$
|
(82.8)
|
$
|
(11.8)
|
ROIC – Consolidated
period-to-date5
|
|
4.0%
|
|
2.6%
|
|
1.3%
|
Average exchange
rate (US$ per C$1.00)6
|
$
|
0.756
|
$
|
0.750
|
$
|
0.728
|
|
1 Increase
in Unallocated and Other in the first quarter of 2017 largely
attributable to higher legal costs related to the expiry of the
Softwood Lumber Agreement.
|
2 Amortization includes amortization
of certain capitalized major maintenance costs.
|
3 On March
31, 2017, Canfor sold its 50% interest in Anthony EACOM Inc. for
net proceeds of $21.4 million and recognized a $4.0 million gain.
Cash proceeds of $5.4 million was received in the first quarter of
2017, with the balance payable in equal installments over a three
year period.
|
4 Further
information on operating cash flows can be found in the Company's
unaudited interim consolidated financial statements.
|
5
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.
|
6 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
2017
|
|
Q4
2016
|
|
Q1 2016
|
Shareholder net
income, as reported
|
$
|
66.1
|
$
|
38.0
|
$
|
26.0
|
Foreign exchange
(gain) loss on long-term debt
|
$
|
(1.0)
|
$
|
2.7
|
$
|
(6.9)
|
(Gain) loss on
derivative financial instruments
|
$
|
(2.4)
|
$
|
(1.5)
|
$
|
1.8
|
Gain on sale of
Anthony EACOM Inc.
|
$
|
(3.4)
|
$
|
-
|
$
|
-
|
Mill closure
provision recovery
|
$
|
-
|
$
|
(1.5)
|
$
|
-
|
Net impact of above
items
|
$
|
(6.8)
|
$
|
(0.3)
|
$
|
(5.1)
|
Adjusted
shareholder net income
|
$
|
59.3
|
$
|
37.7
|
$
|
20.9
|
Shareholder net
income per share (EPS), as reported
|
$
|
0.50
|
$
|
0.29
|
$
|
0.20
|
Net impact of above
items per share
|
$
|
(0.05)
|
$
|
-
|
$
|
(0.04)
|
Adjusted
shareholder net income per share
|
$
|
0.45
|
$
|
0.29
|
$
|
0.16
|
The Company reported operating income of $106.8 million for the first quarter of 2017, up
$34.8 million from adjusted operating
income of $72.0 million for the
fourth quarter of 2016. Higher earnings in the first quarter of
2017 reflected improved operating income in both the lumber and
pulp and paper segments. Lumber segment results primarily reflected
higher Western Spruce/Pine/Fir
("SPF") and Southern Yellow Pine ("SYP") unit sales realizations,
offset in part by higher market-based stumpage and increased log
costs resulting from extreme weather conditions in Western Canada towards the end of 2016 and
into early 2017. Pulp and paper segment results were mostly
attributable to higher pulp shipment volumes during the current
quarter.
The current quarter's operating income was up $41.7 million from operating income of
$65.1 million reported for the first
quarter of 2016, reflecting a $50.3
million increase in lumber segment earnings partly offset by
a $3.9 million decrease in earnings
for the pulp and paper segment. The increase in lumber segment
earnings primarily reflected higher lumber unit sales realizations
as a result of significantly higher US-dollar benchmark lumber
prices, offset in part by a 3 cent,
or 4%, strong Canadian dollar, market driven increases in log costs
and the effects of the aforementioned challenging weather
conditions in Western Canada in
the current period. Pulp and paper segment results reflected
increased pulp and paper unit manufacturing costs, for the most
part again reflecting the difficult weather conditions, which more
than offset increased pulp shipment volumes and higher energy
revenue. Average NBSK pulp unit sales realizations were
broadly in line with the same quarter of 2016, reflecting the
impact of the stronger Canadian dollar, the timing of
shipments (versus orders), and increased customer discounts, all of
which offset higher US-dollar list prices to China.
OPERATING RESULTS BY BUSINESS SEGMENT
Lumber
Selected Financial Information and Statistics
– Lumber
|
|
Q1
|
|
Q4
|
|
Q1
|
(millions of Canadian
dollars, unless otherwise noted)
|
|
2017
|
|
2016
|
|
2016
|
Sales
|
$
|
817.1
|
$
|
785.7
|
$
|
772.6
|
Operating income
before amortization7
|
$
|
127.2
|
$
|
99.0
|
$
|
74.2
|
Operating
income7
|
$
|
83.7
|
$
|
55.4
|
$
|
33.4
|
Average SPF 2x4
#2&Btr lumber price in US$8
|
$
|
348
|
$
|
315
|
$
|
272
|
Average SPF price in
Cdn$8
|
$
|
460
|
$
|
420
|
$
|
374
|
Average SYP East 2x4
#2 lumber price in US$9
|
$
|
482
|
$
|
445
|
$
|
407
|
US housing starts
(thousand units SAAR)10
|
|
1,253
|
|
1,248
|
|
1,151
|
Production – SPF
lumber (MMfbm)11
|
|
936.4
|
|
912.2
|
|
966.5
|
Production – SYP
lumber (MMfbm)11
|
|
361.8
|
|
323.9
|
|
336.0
|
Shipments – SPF
lumber (MMfbm)12
|
|
925.0
|
|
939.7
|
|
1,006.3
|
Shipments – SYP
lumber (MMfbm)12
|
|
345.9
|
|
332.1
|
|
348.9
|
|
7 Q4 2016
results adjusted for a recovery of $2.0 million related to lower
estimated Canal Flats closure costs originally recorded in the
third quarter of 2015.
|
8 Western
Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths
Publications, Inc.).
|
9 Southern
Yellow Pine, Eastside, per thousand board feet (Source – Random
Lengths Publications, Inc.).
|
10 Source
– US Census Bureau, seasonally adjusted annual rate
("SAAR").
|
11
Excluding production of trim blocks.
|
12
Canfor-produced lumber, including lumber purchased for
remanufacture, excluding trim blocks and wholesale
shipments.
|
Overview
Operating income for the lumber segment was $83.7 million for the first quarter of 2017, an
increase of $28.3 million compared to
adjusted operating income of $55.4
million in the previous quarter, and up $50.3 million compared to an operating income of
$33.4 million in the same quarter of
2016.
Compared to the fourth quarter of 2016, the increase in
operating income principally reflected higher Western SPF and SYP
unit sales realizations, offset in part by higher market-based
stumpage and higher log and transportation costs mostly stemming
from the challenging winter weather conditions in Western Canada. Compared to the first
quarter of 2016, the increase in operating income in the current
quarter reflected higher lumber unit sales realizations as a result
of significantly higher US-dollar benchmark lumber prices, offset
in part by market driven increases on log costs and weather-related
factors in Western Canada in the
current quarter.
Markets
During the first quarter of 2017, increased consumption and
solid demand across all sectors contributed to improved Western SPF
and SYP lumber prices. Total US housing starts averaged 1,253,000
units SAAR, in line with the previous quarter while lumber demand
in Canada was strong, with
Canadian housing starts up 13% compared to the previous quarter,
averaging 225,000 units on a seasonally adjusted basis. In addition
to strong underlying demand, uncertainty surrounding possible
countervailing duties being imposed on Canadian lumber shipments
destined to the US further bolstered benchmark lumber pricing
during the quarter. Offshore lumber demand continued to improve
through the first quarter, with steady shipment volumes to
China and Japan.
Sales
Sales for the lumber segment for the first quarter of 2017 were
$817.1 million, compared to
$785.7 million in the previous
quarter and $772.6 million for the
first quarter of 2016. The 4% increase in sales revenue
compared to the prior quarter largely reflected higher average
Western SPF and SYP unit sales realizations. Relative to the first
quarter of 2016, the 6% increase in sales revenue principally
reflected higher Western SPF and SYP lumber unit sales
realizations.
Total lumber shipments in the first quarter of 2017, at 1.3
billion board feet, were in line with the previous quarter, and
down modestly compared to the first quarter of 2016, reflecting in
part a tightening supply of railcars and trucks in North America as a result of the challenging
weather conditions.
Western SPF lumber unit sales realizations showed a moderate
improvement compared to the previous quarter reflecting higher
average Western SPF lumber prices, offset in part by a 1% stronger
Canadian dollar. The average benchmark North American Random
Lengths Western SPF 2x4 #2&Btr price was up US$33 per Mfbm, or 10%, compared to the fourth
quarter of 2016, with more pronounced price increases in the
Western SPF 2x6 #2&Btr price, and more modest price increases
across wider-width dimensions. SYP unit sales realizations showed a
modest improvement compared to the prior quarter with the SYP East
2x4 #2 price up US$37 per Mfbm, or
8%, to US$482 per Mfbm, with similar
increases seen for wide-width SYP products. The SYP East 2x6 #2
price was in line with the prior quarter. SYP lumber prices were
supported by improving demand and, in part, higher Western SPF
lumber prices.
Compared to the first quarter of 2016, lumber unit sales
realizations increased significantly as higher US-dollar Western
SPF and SYP benchmark lumber prices significantly outweighed the
impact of the 4% stronger Canadian dollar. The average North
American Random Lengths Western SPF 2x4 #2&Btr price was up
US$76 per Mfbm, or 28%, while the SYP
East 2x4 #2 price was up US$75 per
Mfbm, or 18%.
Total residual fibre revenue in the current quarter was slightly
higher than the prior quarter as increased chip sales volumes were
offset by seasonal pricing adjustments and, in part, market-driven
decreases in sawmill residual chip prices, largely in the US South.
Residual fibre revenue decreased compared to the first quarter of
2016, reflecting a decline in chip prices primarily due to the
adverse weather in the current quarter. Pellet sales revenues were
slightly lower than the previous quarter reflecting timing of
shipments, and moderately higher compared to the first quarter of
2016 reflecting the ramp-up of the Fort
St. John and Chetwynd
pellet plants in the first half of 2016.
Operations
Total lumber production, at 1.3 billion board feet, was up 5%
compared to the prior quarter reflecting improved productivity as
well as additional operating days as a result of fewer statutory
holidays in the current quarter. Total lumber production was in
line with the first quarter of 2016.
Unit manufacturing costs in the first quarter of 2017 were in
line with the previous quarter as the positive impact of
productivity gains and stable log costs in the US South were offset
by higher market-based stumpage, and higher hauling and purchased
wood costs, as the Company responded to the challenges presented by
the challenging winter weather conditions. Compared to the first
quarter of 2016, unit manufacturing costs were moderately higher,
reflecting higher market-driven increases in purchase wood costs
and stumpage, and increased haul costs.
Pulp and Paper
Selected Financial Information and Statistics – Pulp and
Paper13
|
|
Q1
|
|
Q4
|
|
Q1
|
(millions of Canadian
dollars, unless otherwise noted)
|
|
2017
|
|
2016
|
|
2016
|
Sales
|
$
|
309.1
|
$
|
257.8
|
$
|
295.3
|
Operating income
before amortization14
|
$
|
54.0
|
$
|
42.1
|
$
|
57.8
|
Operating
income
|
$
|
35.2
|
$
|
22.9
|
$
|
39.1
|
Average NBSK pulp
price delivered to China – US$15
|
$
|
645
|
$
|
595
|
$
|
590
|
Average NBSK pulp
price delivered to China - Cdn$15
|
$
|
853
|
$
|
794
|
$
|
810
|
Production – pulp
(000 mt)
|
|
317.1
|
|
304.0
|
|
321.8
|
Production – paper
(000 mt)
|
|
34.6
|
|
36.0
|
|
35.3
|
Shipments – pulp (000
mt)
|
|
337.1
|
|
275.4
|
|
319.1
|
Shipments – paper
(000 mt)
|
|
33.7
|
|
33.6
|
|
34.9
|
|
13
Includes 100% of Canfor Pulp Products Inc., which is consolidated
in Canfor's operating results. Pulp production and shipment volumes
presented are for both NBSK and BCTMP.
|
14
Amortization includes amortization of certain capitalized major
maintenance costs.
|
15 Per
tonne, NBSK pulp list price delivered to China (Resource
Information Systems, Inc.).
|
Overview
Operating income for the pulp and paper segment was $35.2 million for the first quarter, up
$12.3 million from the fourth quarter
of 2016 and down $3.9 million from
the same quarter in 2016.
The improvement in pulp and paper segment operating income from
the fourth quarter of 2016 primarily reflected a significant
increase in pulp shipments driven by the strengthening China and North American markets combined with
the impact of the vessel slippage from December 2016 into January 2017. Also
contributing to improved results in the first quarter of 2017, were
improvements in NBSK pulp productivity, higher energy revenues
combined with moderately lower fibre costs. In addition,
certain Scientific Research and Experimental Development
("SR&ED") tax credits were recognized in the current
quarter. As highlighted above, average NBSK pulp unit sales
realizations remained broadly in line with the previous
quarter.
Compared to the first quarter of 2016, the decrease in pulp and
paper segment results reflected a 4% stronger Canadian dollar, an
increase in customer discounts and the impact of the timing of
shipments (versus orders) on average NBSK pulp sales realizations
in the current quarter, partially offset by moderately higher
shipments, primarily to China. Energy revenues were up
quarter-over-quarter and pulp production was broadly in line with
the first quarter of 2016. Pulp unit manufacturing costs were
moderately higher when compared to the first quarter of 2016,
primarily due to increases in energy costs, as a result of the
aforementioned extreme weather conditions early in the quarter,
which more than offset the benefits of lower fibre costs.
Markets
Global softwood pulp markets strengthened through the first
quarter of 2017 reflecting higher demand, primarily from
China, North America and other Asian countries.
Pulp softwood inventories as at the end of February 2017 were in the balanced range at 30
days of supply, a decrease of 2 days from December 201616, and in line with
inventory levels from March 2016. Market conditions are
generally considered balanced when inventories are in the 27-30
days of supply range. Global kraft paper markets were relatively
strong through the first quarter of 2017. Global shipments of
bleached softwood pulp increased by 7.3% for the first two months
of 2017 when compared to the first two months of 2016, driven
primarily by increased shipments to China and other Asian
countries17.
16 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").
|
17 As
reported by PPPC statistics.
|
Sales
Total pulp shipments in the first quarter of 2017 were 337,100
tonnes, up 61,700 tonnes, or 22%, from the previous quarter and up
18,000 tonnes, or 6%, from the first quarter of 2016. When
compared to the previous quarter, higher NBSK pulp shipments
reflected increased shipments to China and North
America, combined with the impact of the slippage of a
14,000 tonne vessel shipment to Asia from December
2016 into January 2017. Compared to the first quarter
of 2016, the moderate increase in NBSK pulp shipments was mostly
attributable to the vessel slippage into the current quarter.
The average China US-dollar NBSK pulp list price of US$645 per tonne, as published by RISI, was up
US$50 per tonne, or 8%, from the
fourth quarter of 2016, as a result of successive price increases
throughout the quarter. Average NBSK pulp unit sales
realizations were broadly in line with the previous quarter,
reflecting the impact of a higher proportion of shipments in the
period relating to orders taken late in 2016 and early 2017, which
included 14,000 tonnes related to the aforementioned vessel
slippage into January. This was combined with further
pressure on customer discounts and a 1
cent or 1% stronger Canadian dollar. BCTMP markets
continued to improve in the first quarter of 2017 when compared to
the fourth quarter of 2016, positively impacting average BCTMP unit
sales realizations.
Compared to the first quarter of 2016, the average China
US-dollar NBSK pulp list price was up US$55 per tonne, or 9%. As highlighted
above, average NBSK pulp unit sales realizations were broadly in
line with the first quarter of 2016, reflecting a 3 cent or 4% strengthening of the Canadian dollar
combined with the impact of the timing of shipments (versus orders)
and increases in customer discounts, all of which offset the higher
market prices to China. BCTMP unit sales realizations
significantly increased when compared to the first quarter of 2016
reflecting the growth in BCTMP market demands when compared to the
same period of 2016.
Energy revenues were up in the first quarter of 2017 when
compared to the previous quarter, reflecting slightly higher energy
prices combined with higher power generation. Compared to the
first quarter of 2016, energy revenues were also up, principally
due to increased power generation in the current quarter.
Paper unit sales realizations in the first quarter of 2017 were
down slightly from the previous quarter reflecting a higher value
regional mix, which was more than offset by the 1% stronger
Canadian dollar. Compared to the same quarter of 2016, paper
unit sales realizations were moderately lower, as the change in the
sales mix was more than offset by the 4% stronger Canadian
dollar.
Operations
Pulp production in the first quarter of 2017 at 317,100 tonnes
was up 13,100 tonnes, or 4%, from the fourth quarter of 2016 and
broadly in line with the first quarter of 2016. The modest
increase in pulp production when compared to the previous quarter,
was principally as a result of improved operating rates for NBSK
pulp. BCTMP production made up approximately 18% of total
pulp production in the first quarter of 2017, which was consistent
with the fourth quarter of 2016.
Pulp unit manufacturing costs saw a modest decrease when
compared to the previous quarter, largely reflecting improved
productivity and lower fibre costs which were offset in part by
higher energy costs, driven by increased consumption during the
current quarter. Fibre costs were moderately lower compared
to the previous quarter, reflecting seasonal pricing adjustments
combined with lower delivered freight costs and lower whole log
chip costs, despite the increase in the proportion of whole log
chips purchased in the current quarter.
Pulp unit manufacturing costs saw a moderate increase when
compared with the first quarter of 2016 as lower fibre costs were
more than offset by substantially higher energy costs, driven by
market-related energy price increases combined with weather-related
increased consumption levels during the current quarter, as well
as, higher chemical prices and usage (the latter largely weather
related), and increased maintenance spend when compared to the
first quarter of 2016. Fibre costs were moderately down
compared to the first quarter of 2016, reflecting a decline in chip
prices resulting from the adverse weather early in the current
quarter. Paper production for the first quarter of 2017 at 34,600
tonnes was relatively consistent with both comparative periods.
Paper unit manufacturing costs saw modest increases when
compared to the fourth quarter of 2016, primarily driven by the
timing of spend on maintenance and higher operating expenses in the
current quarter. Compared to the first quarter of 2016, paper
unit manufacturing costs were slightly higher, principally
reflecting the timing of spend on maintenance in the current
quarter.
Unallocated and Other Items
Selected Financial Information
|
|
Q1
|
|
Q4
|
|
Q1
|
(millions of Canadian
dollars)
|
|
2017
|
|
2016
|
|
2016
|
Operating loss of
Panels operations18
|
$
|
(0.7)
|
$
|
(0.6)
|
$
|
(0.7)
|
Corporate
costs
|
$
|
(11.4)
|
$
|
(5.7)
|
$
|
(6.7)
|
Finance expense,
net
|
$
|
(8.0)
|
$
|
(8.0)
|
$
|
(8.2)
|
Foreign exchange gain
(loss) on long-term debt
|
$
|
1.1
|
$
|
(3.1)
|
$
|
7.9
|
Gain (loss) on
derivative financial instruments
|
$
|
3.2
|
$
|
2.1
|
$
|
(2.4)
|
Other income
(expense), net
|
$
|
2.2
|
$
|
(4.1)
|
$
|
(10.1)
|
|
18 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 $11.4 million
for the first quarter of 2017, $5.7
million higher than the previous quarter and $4.7 million higher than the first quarter of
2016 largely as a result of increased legal costs related to the
expiry of the Softwood Lumber Agreement.
Net finance expense at $8.0
million for the first quarter of 2017 was in line with the
previous quarter and down slightly from the first quarter of 2016.
In the first quarter of 2017, the Company recognized a foreign
exchange gain on its US-dollar term debt held by Canadian entities
due to the stronger Canadian dollar at the end of the quarter (see
further discussion on the term debt financing in the "Liquidity and
Financial Requirements" section).
The Company uses a variety of derivative financial instruments
at times as partial economic hedges against unfavourable changes in
foreign exchange rates, energy costs, lumber prices, and interest
rates. In the first quarter of 2017, the Company recorded a
net gain of $3.2 million related to
its derivatives instruments, reflecting realized gains on lumber
future contracts settled during the quarter.
Other income, net of $2.2 million
in the first quarter of 2017 included a $4.0
million gain related to the Company's sale of its 50%
interest in Anthony EACOM Inc. on March 31,
2017, offset in part by foreign exchange movements on
US-dollar denominated cash, receivables and payables. Other
expense of $4.1 million in the fourth
quarter of 2016 principally reflected favourable foreign exchange
movements on US-dollar denominated cash, receivables and payables,
which were more than offset by the write-down of research and
development related advances to Licella. Other expense, net for the
first quarter of 2016 principally reflected unfavourable foreign
exchange movements on US-dollar denominated cash, receivables and
payables.
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)
|
|
2017
|
|
2016
|
|
2016
|
Foreign exchange
translation differences for foreign operations, net of
tax
|
$
|
(3.2)
|
$
|
10.4
|
$
|
(24.5)
|
Defined benefit
actuarial gains (losses), net of tax
|
$
|
2.4
|
$
|
15.0
|
$
|
(17.6)
|
Change in fair value
of available-for-sale financial assets, net of tax
|
$
|
-
|
$
|
(0.2)
|
$
|
-
|
Other comprehensive
income (loss), net of tax
|
$
|
(0.8)
|
$
|
25.2
|
$
|
(42.1)
|
In the first quarter of 2017, the Company recorded an after-tax
gain of $2.4 million in relation to
changes in the valuation of the Company's employee future benefit
plans, largely reflecting the return generated on plan assets and,
in part, membership experience gains. This compared to an after-tax
gain of $15.0 million in the previous
quarter and an after-tax loss of $17.6
million in the first quarter of 2016, largely reflecting
changes in the discount rate used to value the employee future
benefit plans. During the fourth quarter of 2016, the Company
purchased $216.1 million of annuities
through its defined benefit plans in order to mitigate its exposure
to the future volatility fluctuations in the related pension
obligations. At purchase of these annuities, transaction costs of
$19.5 million were recognized in
Other Comprehensive Income principally reflecting the difference in
the annuity rate (which is comparable to solvency rates) as
compared to the discount rate used to value the pension obligations
on a going concern basis. A further $90.5
million of annuities were purchased April 13, 2017, taking total annuities purchased
by the Company to $377.1 million
representing approximately 47% of defined benefit pension plan
liabilities.
In addition, the Company recorded a loss of $3.2 million in the first quarter of 2017 related
to foreign exchange differences for foreign operations, resulting
from the strengthening of the Canadian dollar relative to the US
dollar in the quarter. This compared to a gain of $10.4 million in the previous quarter and a loss
of $24.5 million in the first quarter
of 2016.
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)
|
|
2017
|
|
2016
|
|
2016
|
Increase in cash and
cash equivalents19
|
$
|
7.7
|
$
|
13.0
|
$
|
39.1
|
|
Operating
activities
|
$
|
72.8
|
$
|
161.0
|
$
|
50.9
|
|
Financing
activities
|
$
|
3.9
|
$
|
(80.9)
|
$
|
33.7
|
|
Investing
activities
|
$
|
(69.0)
|
$
|
(67.1)
|
$
|
(45.5)
|
Ratio of current
assets to current liabilities
|
|
2.1 :
1
|
|
2.0 : 1
|
|
1.5 : 1
|
Net debt to
capitalization
|
|
15.2%
|
|
15.5%
|
|
24.0%
|
|
19
Increase in cash and cash equivalents shown before foreign exchange
translation on cash and cash equivalents.
|
Changes in Financial Position
Cash generated from operating activities was $72.8 million in the first quarter of 2017,
compared to $161.0 million in the
previous quarter and $50.9 million in
the first quarter of 2016. The decrease in operating cash
flows from the previous quarter primarily reflected higher non-cash
working capital balances due to the seasonal log inventory build in
Western Canada, mitigated in part
by increased cash earnings in the current quarter. Compared to the
first quarter of 2016, the increase in operating cash flows was
primarily attributable to higher cash earnings, offset in part by
higher non-cash working capital balances, largely a result of
increased lumber inventories due in part to the aforementioned
transportation constraints in the current quarter.
Cash generated in financing activities was $3.9 million in the current quarter, compared to
cash used of $80.9 million in the
previous quarter and cash generated of $33.7
million in the same quarter of 2016. During the current
quarter, the Company made cash distributions of $3.8 million to non-controlling shareholders,
down $1.6 million from the previous
quarter and down $0.4 million from
the same quarter in 2016. Financing activities in the first quarter
of 2017 also included proceeds of $1.7
million related to the issuance of a term debt financing
(see "Liquidity and Financial Requirements" section for more
details). In the first quarter of 2017, CPPI purchased 264,203
common shares under its Normal Course Issuer Bid for $2.8 million, while Canfor did not purchase any
common shares under its Normal Course Issuer Bid (see "Liquidity
and Financial Requirements" section for more details). The Company
had $40.0 million outstanding on its
Canadian operating loan facility at the end of the first quarter of
2017, an increase of $12.0 million
from the prior quarter and down $165.0
million from the end of the first quarter of 2016.
Cash used for investing activities was $69.0 million in the current quarter, compared to
$67.1 million in the previous quarter
and $45.5 million in the same quarter
of 2016. Capital additions were $38.9
million, down $24.5 million
from the previous quarter and down $8.2
million from the first quarter of 2016. Current quarter
capital expenditures included various smaller high-returning
capital projects aimed at increasing drying capacity and
productivity, with an increasing proportion of capital expenditures
for 2017 planned for the US South. In the pulp and paper segment,
capital expenditures primarily related to capital expenditures
associated with various energy, maintenance of business and capital
improvement projects. On January 2,
2017, the Company completed the final phase of the
acquisition of Beadles Lumber Company and Balfour Lumber Company
("Beadles & Balfour") for cash consideration of $41.8 million. This increased the Company's
ownership interest in Beadles & Balfour from 55% to 100%. On
March 31, 2017 the Company sold its
50% interest in Anthony EACOM Inc., for net proceeds of
$21.4 million, of which $5.4 million was received in the first quarter,
with the balance payable in equal installments over a three year
period.
Liquidity and Financial Requirements
At March 31, 2017, the Company on
a consolidated basis had cash of $164.2
million, $40.0 million drawn
on its operating loans, and an additional $50.5 million reserved for several standby
letters of credit. During the quarter, the Company drew an
additional $12.0 million of its
operating loan, and at period end had total available undrawn
operating loans of $419.5
million.
Excluding CPPI, the Company's bank operating loans at
March 31, 2017 totaled $350.0 million, of which $40.0 million was drawn, and an additional
$41.5 million reserved for several
standby letters of credit, the majority of which related to
unregistered pension plans. Interest is payable on the operating
loans 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 debt to total
capitalization ratio.
At March 31, 2017, CPPI had an
undrawn $110.0 million bank operating
loan facility and $9.0 million in
letters of credit outstanding under the operating loan facility.
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 2017 was 15.2%. For Canfor,
excluding CPPI, net debt to capitalization at the end of the first
quarter of 2017 was 18.2%.
On March 7, 2017, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 6,640,227 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2017. The renewed normal course issuer
bid is set to expire on March 6,
2018. During the first quarter of 2017, Canfor did not
purchase any common shares. As at April 25,
2017, there were 132,804,543 common shares of the Company
outstanding. Under a separate normal course issuer bid, CPPI
purchased 264,203 common shares in the first quarter of 2017 for
$3.0 million (an average of
$11.35 per common share), of which
$2.8 million was paid in the period,
with the balance paid in early April. Canfor and CPPI may purchase
more shares through the balance of 2017 subject to the terms of
their normal course issuer bids.
As a result of CPPI's share repurchases in the current quarter,
Canfor's ownership interest in CPPI increased to 53.9%, up 0.3%
from the end of the prior quarter.
Final Phase of Acquisition of Beadles & Balfour
On January 2, 2017, Canfor
completed the final phase of the acquisition of Beadles &
Balfour for $41.8 million bringing
Canfor's interest to 100%. Upon completion of the final phase of
the acquisition, the forward purchase liability of $41.8 million and non-controlling interest of
$19.9 million were derecognized, and
$16.6 million was charged to retained
earnings, principally reflecting Canfor's election to calculate the
non-controlling interest related to Beadles & Balfour as the
non-controlling share of the fair value of the net identifiable
assets at the acquisition date.
Licella Pulp Joint Venture
In March 2017, the Canadian
Federal Government, through its Sustainable Development Technology
Canada program, announced funding over several years of
approximately $13.2 million,
contingent on future spending, to allow the Licella Pulp Joint
Venture to further develop and demonstrate a technology that will
economically convert biomass into biofuels and
biochemicals.
Commitments and Subsequent Events
On April 15, 2016, the Company
completed the acquisition of the assets of Wynndel Box and Lumber Ltd. for $31.6 million, excluding working capital. At the
acquisition date, the Company paid $19.7
million, and a working capital true-up payment of
$2.6 million was paid in July 2016. On April 5,
2017, a further $14.4 million
was paid, with the final payment of $3.6
million scheduled to be paid on October 15, 2017.
On November 25, 2016, a petition
was filed by the US Lumber Coalition to the US Department of
Commerce ("DOC") and the US International Trade Commission ("ITC")
alleging certain subsidies and administered fees below the fair
market value of timber that favour Canadian lumber producers, an
assertion the Canadian industry and Provincial and Federal
Governments strongly deny and have successfully disproven in
international courts in the past. Canfor was selected by the DOC as
a "mandatory respondent" to the countervailing and anti-dumping
investigations and is subject to company specific countervailing
and anti-dumping duties. On April 24,
2017, the DOC announced its preliminary countervailing duty
of 20.26% specific to Canfor, and an industry average of 19.88%, to
be posted by cash deposits or bonds on the exports of softwood
lumber to the US on or after approximately May 1, 2017 for a period of 120 days, in
accordance with US law.
The DOC is expected to announce its preliminary anti-dumping
duty determination on June 23, 2017.
The final countervailing and anti-dumping duty determinations will
be aligned for DOC administrative purposes. This alignment
could result in the suspension of preliminary countervailing duty
cash deposit requirements after the initial four month period has
expired and until an aligned final determination decision is
established. Canfor continues to cooperate with the Provincial and
Federal Governments of Canada who
have indicated they will vigorously defend the interests of the
industry.
OUTLOOK
Lumber
Looking ahead, the US housing market is forecast to continue its
gradual recovery through the balance of 2017. North American lumber
consumption is forecast to improve reflecting steady demand in the
residential construction market and continued strength from the
repair and remodelling sector. Wide width SYP and speciality lumber
prices are anticipated to improve through the second and third
quarter of 2017 reflecting stronger seasonal demand.
Absent a new Softwood Lumber Agreement, there remains a risk of
material anti-dumping duties being imposed on Canadian lumber
shipments destined to the US in addition to the preliminary
countervailing duty rate. The Company anticipates marketplace
volatility as investigations progress and determinations are
made.
For the Company's key offshore lumber markets, demand is
anticipated to show a modest improvement through the second quarter
of 2017.
Pulp and Paper
Global softwood markets are projected to remain relatively
strong during the second quarter. Reduced capacity over the
traditional spring maintenance period may support further price
increases in the second quarter of 2017. With the commissioning of
new pulp capacity in the latter part of 2017 and into 2018, there
is risk of downward pressure on pricing in the second half of this
year. For the month of April
2017, CPPI announced an increase of US$20 per tonne for NBSK pulp list price to
China and North
America.
Results in the second quarter of 2017 will reflect the positive
impact of recent price gains, particularly in Asia, and by scheduled maintenance outages at
CPPI's Northwood and Taylor pulp mills, with a projected 33,000
tonnes of reduced NBSK pulp and 4,000 tonnes of reduced BCTMP
production, respectively, as well as higher associated
maintenance costs and lower projected shipment volumes. For
the third quarter of 2017, CPPI's Intercontinental pulp mill has a
maintenance outage scheduled, with a projected 8,000 tonnes of
reduced NBSK pulp production.
OUTSTANDING SHARES
At April 25, 2017, there were
132,804,543 common shares of the Company 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 May 2014, the International
Accounting Standards Board ("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,
2018. The Company has performed a preliminary assessment of
the impact of the new standard, and currently anticipates no
significant impact on its financial statements, with the assessment
to be finalized in the second half of 2017.
In July 2014, the IASB issued IFRS
9, Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company does not anticipate the new standard to have a significant
impact on its financial statements.
In January 2016, the IASB issued
IFRS 16, Leases, which will supersede IAS 17, Leases
and related interpretations. The required adoption date for IFRS 16
is January 1, 2019 and the Company is
in the process of assessing the impact on the financial statements
of this new standard.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended March 31,
2017, 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 2016 annual statutory reports which
are available on www.canfor.com or www.sedar.com.
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. Net income is also impacted by fluctuations in
Canadian dollar exchange rates, the revaluation to the period end
rate of US dollar denominated working capital balances, US dollar
denominated debt and revaluation of outstanding derivative
financial instruments.
See the "Commitments and Subsequent Events" for discussion
regarding the expiry of the Softwood Lumber Agreement.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
2017
|
|
Q4
2016
|
|
Q3
2016
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
Sales and
income
(millions of
Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,126.2
|
$
|
1,043.5
|
$
|
1,101.2
|
$
|
1,022.3
|
$
|
1,067.9
|
$
|
1,053.0
|
$
|
989.9
|
$
|
952.4
|
Operating
income
|
$
|
106.8
|
$
|
74.0
|
$
|
97.4
|
$
|
69.6
|
$
|
65.1
|
$
|
31.8
|
$
|
8.5
|
$
|
17.6
|
Net income
|
$
|
77.5
|
$
|
44.2
|
$
|
66.4
|
$
|
51.0
|
$
|
42.3
|
$
|
19.6
|
$
|
1.4
|
$
|
23.9
|
Shareholder net
income (loss)
|
$
|
66.1
|
$
|
38.0
|
$
|
50.9
|
$
|
36.0
|
$
|
26.0
|
$
|
1.6
|
$
|
(17.3)
|
$
|
11.1
|
Per common
share (Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder net
income (loss) – basic and diluted
|
$
|
0.50
|
$
|
0.29
|
$
|
0.38
|
$
|
0.27
|
$
|
0.20
|
$
|
0.01
|
$
|
(0.13)
|
$
|
0.08
|
Book
value20
|
$
|
11.81
|
$
|
11.17
|
$
|
10.70
|
$
|
9.92
|
$
|
9.91
|
$
|
10.02
|
$
|
10.00
|
$
|
9.86
|
Common Share
Repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share volume
repurchased (000 shares)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,050
|
|
-
|
|
410
|
Shares repurchased
(millions of Canadian dollars)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
20.0
|
$
|
-
|
$
|
9.9
|
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber shipments
(MMfbm) 21
|
|
1,271
|
|
1,272
|
|
1,340
|
|
1,344
|
|
1,355
|
|
1,347
|
|
1,337
|
|
1,362
|
Pulp shipments (000
mt)
|
|
337
|
|
275
|
|
320
|
|
287
|
|
319
|
|
356
|
|
307
|
|
292
|
Average exchange rate
– US$/Cdn$
|
$
|
0.756
|
$
|
0.750
|
$
|
0.766
|
$
|
0.776
|
$
|
0.728
|
$
|
0.749
|
$
|
0.764
|
$
|
0.813
|
Average Western SPF
2x4 #2&Btr lumber price (US$)
|
$
|
348
|
$
|
315
|
$
|
322
|
$
|
311
|
$
|
272
|
$
|
263
|
$
|
269
|
$
|
270
|
Average SYP (East)
2x4 #2 lumber price (US$)
|
$
|
482
|
$
|
445
|
$
|
414
|
$
|
437
|
$
|
407
|
$
|
400
|
$
|
331
|
$
|
383
|
Average NBSK pulp
list price delivered to China (US$)
|
$
|
645
|
$
|
595
|
$
|
595
|
$
|
617
|
$
|
590
|
$
|
600
|
$
|
638
|
$
|
675
|
|
20 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.
|
21
Canfor-produced lumber, including lumber purchased for
remanufacture and excluding trim blocks and shipments of wholesale
lumber.
|
Other material factors that impact the comparability of the
quarters are noted below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax impact, net of non-controlling
interests
(millions of Canadian
dollars, except for per share amounts)
|
|
Q1
2017
|
|
Q4
2016
|
|
Q3
2016
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
Shareholder net
income (loss), as reported
|
$
|
66.1
|
$
|
38.0
|
$
|
50.9
|
$
|
36.0
|
$
|
26.0
|
$
|
1.6
|
$
|
(17.3)
|
$
|
11.1
|
Foreign exchange
(gain) loss on long-term debt
|
$
|
(1.0)
|
$
|
2.7
|
$
|
0.9
|
$
|
(0.3)
|
$
|
(6.9)
|
$
|
5.1
|
$
|
-
|
$
|
-
|
(Gain) loss on
derivative financial instruments
|
$
|
(2.4)
|
$
|
(1.5)
|
$
|
(0.1)
|
$
|
(2.3)
|
$
|
1.8
|
$
|
(1.2)
|
$
|
9.3
|
$
|
(7.7)
|
Gain on sale of
Anthony EACOM Inc.22
|
$
|
(3.4)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Mill closure
provisions23
|
$
|
-
|
$
|
(1.5)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
14.4
|
$
|
-
|
Gain on legal
settlement, net24
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(6.9)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Costs associated with
pension plan legislation changes
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
2.4
|
$
|
-
|
$
|
-
|
Gain on investment in
Lakeland Mills Ltd. and Winton Global Lumber
Ltd.25
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(6.1)
|
Mark-to-market loss
on Taylor pulp mill contingent consideration,
net26
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
0.7
|
Net impact of above
items
|
$
|
(6.8)
|
$
|
(0.3)
|
$
|
0.8
|
$
|
(9.5)
|
$
|
(5.1)
|
$
|
6.3
|
$
|
23.7
|
$
|
(13.1)
|
Adjusted
shareholder net income (loss)
|
$
|
59.3
|
$
|
37.7
|
$
|
51.7
|
$
|
26.5
|
$
|
20.9
|
$
|
7.9
|
$
|
6.4
|
$
|
(2.0)
|
Shareholder net
income (loss) per share (EPS), as reported
|
$
|
0.50
|
$
|
0.29
|
$
|
0.38
|
$
|
0.27
|
$
|
0.20
|
$
|
0.01
|
$
|
(0.13)
|
$
|
0.08
|
Net impact of above
items per share27
|
$
|
(0.05)
|
$
|
-
|
$
|
0.01
|
$
|
(0.07)
|
$
|
(0.04)
|
$
|
0.05
|
$
|
0.18
|
$
|
(0.10)
|
Adjusted net
income (loss) per share27
|
$
|
0.45
|
$
|
0.29
|
$
|
0.39
|
$
|
0.20
|
$
|
0.16
|
$
|
0.06
|
$
|
0.05
|
$
|
(0.02)
|
|
22 On
March 31, 2017, Canfor sold its 50% interest in Anthony EACOM Inc.
for net proceeds of $21.4 million and recognized a $4.0 million
gain (before-tax).
|
23 During
the third quarter of 2015, the Company recorded costs of $19.4
million (before-tax) associated with the announced closure of the
Canal Flats sawmill. In the fourth quarter of 2016, $2.0 million
(before-tax) of the closure provision was reversed as a result of
lower estimated demolition costs.
|
24 During
the second quarter of 2016, the Company recorded a gain of $15.5
million related to a settlement of a legal claim with respect to
logistics services net of non-controlling interest and related
impairment.
|
25 On July
1, 2015, Canfor sold its 33.3% interest in Lakeland Mills Ltd. and
Winton Global Lumber Ltd. for $30.0 million and recognized a $7.0
million gain (before-tax).
|
26 As part
of the sale of the BCTMP Taylor pulp mill to CPPI on January 30,
2015, Canfor could receive contingent consideration based on the
Taylor pulp mill's future earnings over a three year period. On the
acquisition date, the contingent consideration was valued at $1.8
million (before-tax) and Canfor recorded an asset and CPPI recorded
an offsetting liability for this amount. During the second quarter
of 2015, the contingent consideration asset and liability were
revalued to nil. The adjustment above reflects the impact to Canfor
EPS net of non-controlling interest.
|
27 The
year-to-date net impact of the adjusting items per share and
adjusted net income (loss) per share may not equal the sum of the
quarterly per share amounts due to rounding.
|
Canfor Corporation
Condensed Consolidated Balance
Sheets
(millions of Canadian
dollars, unaudited)
|
As
at March
31, 2017
|
As at
December 31,
2016
|
ASSETS
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
$
|
164.2
|
$
|
156.6
|
Accounts
receivable
|
-
Trade
|
|
226.7
|
|
164.2
|
|
- Other
|
|
67.1
|
|
66.5
|
Inventories (Note
2)
|
|
658.0
|
|
549.0
|
Prepaid expenses and
other
|
|
59.7
|
|
50.6
|
Total current
assets
|
|
1,175.7
|
|
986.9
|
Property, plant
and equipment
|
|
1,427.5
|
|
1,460.8
|
Timber
licenses
|
|
528.8
|
|
532.7
|
Goodwill and other
intangible assets
|
|
237.5
|
|
238.8
|
Long-term
investments and other (Note 3)
|
|
39.7
|
|
50.7
|
Retirement benefit
surplus (Note 5)
|
|
8.2
|
|
5.9
|
Deferred income
taxes, net
|
|
2.9
|
|
1.3
|
Total
assets
|
$
|
3,420.3
|
$
|
3,277.1
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Operating loans (Note
4(a))
|
$
|
40.0
|
$
|
28.0
|
Accounts payable and
accrued liabilities
|
|
469.0
|
|
384.1
|
Current portion of
deferred reforestation obligations
|
|
48.5
|
|
48.5
|
Forward purchase
liability (Note 11(a))
|
|
-
|
|
41.7
|
Current portion of
long-term debt (Note 4(b))
|
|
0.3
|
|
-
|
Total current
liabilities
|
|
557.8
|
|
502.3
|
Long-term debt
(Note 4(b))
|
|
447.2
|
|
448.0
|
Retirement benefit
obligations (Note 5)
|
|
301.1
|
|
302.2
|
Deferred
reforestation obligations
|
|
73.2
|
|
56.9
|
Other long-term
liabilities
|
|
20.8
|
|
23.7
|
Deferred income
taxes, net
|
|
210.2
|
|
205.5
|
Total
liabilities
|
$
|
1,610.3
|
$
|
1,538.6
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Share
capital
|
$
|
1,047.7
|
$
|
1,047.7
|
Contributed surplus
and other equity
|
|
31.9
|
|
(4.6)
|
Retained
earnings
|
|
403.0
|
|
351.7
|
Accumulated other
comprehensive income
|
|
85.7
|
|
88.9
|
Total equity
attributable to equity shareholders of the Company
|
|
1,568.3
|
|
1,483.7
|
Non-controlling
interests
|
|
241.7
|
|
254.8
|
Total
equity
|
$
|
1,810.0
|
$
|
1,738.5
|
Total liabilities
and equity
|
$
|
3,420.3
|
$
|
3,277.1
|
Subsequent Events (Note 5, Note 11(b), Note 12)
The accompanying notes are an integral part of these condensed
consolidated interim 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)
|
|
2017
|
|
2016
|
Sales
|
$
|
1,126.2
|
$
|
1,067.9
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
Manufacturing and
product costs
|
|
766.8
|
|
750.0
|
|
Freight and other
distribution costs
|
|
161.0
|
|
167.9
|
|
Amortization
|
|
62.3
|
|
60.6
|
|
Selling and
administration costs
|
|
28.3
|
|
24.4
|
|
Restructuring, mill
closure and severance costs
|
|
1.6
|
|
1.0
|
|
$
|
1,020.0
|
$
|
1,003.9
|
Equity income (Note
3)
|
|
0.6
|
|
1.1
|
Operating
income
|
|
106.8
|
|
65.1
|
|
|
|
|
|
Finance expense,
net
|
|
(8.0)
|
|
(8.2)
|
Foreign exchange gain
on long-term debt
|
|
1.1
|
|
7.9
|
Gain (loss) on
derivative financial instruments (Note 6)
|
|
3.2
|
|
(2.4)
|
Other income
(expense), net
|
|
2.2
|
|
(10.1)
|
Net income before
income taxes
|
|
105.3
|
|
52.3
|
Income tax expense
(Note 7)
|
|
(27.8)
|
|
(10.0)
|
Net
income
|
$
|
77.5
|
$
|
42.3
|
|
|
|
|
|
Net income
attributable to:
|
|
|
|
|
Equity shareholders
of the Company
|
$
|
66.1
|
$
|
26.0
|
Non-controlling
interests
|
|
11.4
|
|
16.3
|
Net
income
|
$
|
77.5
|
$
|
42.3
|
|
|
|
|
|
Net income per
common share: (in Canadian dollars)
|
|
|
|
|
Attributable to
equity shareholders of the Company
|
|
|
|
|
- Basic and diluted (Note
8)
|
$
|
0.50
|
$
|
0.20
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Condensed Consolidated
Statements of Other Comprehensive Income (Loss)
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
|
|
|
|
Net
income
|
$
|
77.5
|
$
|
42.3
|
Other
comprehensive income (loss)
|
|
|
|
|
Items that will not
be recycled through net income:
|
|
|
|
|
|
Defined benefit plan
actuarial gain (loss) (Note 5)
|
|
3.3
|
|
(23.8)
|
|
Income tax recovery
(expense) on defined benefit plan actuarial gains (losses) (Note
7)
|
|
(0.9)
|
|
6.2
|
|
|
2.4
|
|
(17.6)
|
Items that may be
recycled through net income:
|
|
|
|
|
|
Foreign exchange
translation of foreign operations, net of tax
|
|
(3.2)
|
|
(24.5)
|
Other comprehensive
loss, net of tax
|
|
(0.8)
|
|
(42.1)
|
Total
comprehensive income
|
$
|
76.7
|
$
|
0.2
|
|
|
|
|
|
Total
comprehensive income (loss) attributable to:
|
|
|
|
|
Equity shareholders
of the Company
|
$
|
65.3
|
$
|
(14.4)
|
Non-controlling
interests
|
|
11.4
|
|
14.6
|
Total
comprehensive income
|
$
|
76.7
|
$
|
0.2
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Condensed Consolidated Statements of Changes in
Equity
|
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
Share
capital
|
|
|
|
|
Balance at beginning
and end of period
|
$
|
1,047.7
|
$
|
1,047.7
|
|
|
|
|
|
Contributed
surplus and other equity
|
|
|
|
|
Balance at beginning
of period
|
$
|
(4.6)
|
$
|
(74.5)
|
Forward purchase
liability related to acquisition of Beadles & Balfour (Note
11(a))
|
$
|
36.5
|
|
-
|
Balance at end of
period
|
$
|
31.9
|
$
|
(74.5)
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
Balance at beginning
of period
|
$
|
351.7
|
$
|
257.7
|
Net income
attributable to equity shareholders of the Company
|
|
66.1
|
|
26.0
|
Defined benefit plan
actuarial gains (losses), net of tax
|
|
2.4
|
|
(15.9)
|
Elimination of
non-controlling interests (Note 11(a))
|
|
(16.6)
|
|
-
|
Acquisition of
non-controlling interests (Note 8)
|
|
(0.6)
|
|
(1.0)
|
Balance at end of
period
|
$
|
403.0
|
$
|
266.8
|
|
|
|
|
|
Accumulated other
comprehensive income
|
|
|
|
|
Balance at beginning
of period
|
$
|
88.9
|
$
|
100.0
|
Foreign exchange
translation of foreign operations, net of tax
|
|
(3.2)
|
|
(24.5)
|
Balance at end of
period
|
$
|
85.7
|
$
|
75.5
|
|
|
|
|
|
Total equity
attributable to equity shareholders of the
Company
|
$
|
1,568.3
|
$
|
1,315.5
|
|
|
|
|
|
Non-controlling
interests
|
|
|
|
|
Balance at beginning
of period
|
$
|
254.8
|
$
|
296.8
|
Net income
attributable to non-controlling interests
|
|
11.4
|
|
16.3
|
Defined benefit plan
actuarial gains (losses) attributable to non-controlling interests,
net of tax
|
|
-
|
|
(1.7)
|
Distributions to
non-controlling interests
|
|
(2.2)
|
|
(4.2)
|
Acquisition of
non-controlling interests (Note 8)
|
|
(2.4)
|
|
(3.9)
|
Elimination of
non-controlling interests (Note 11(a))
|
|
(19.9)
|
|
-
|
Balance at end of
period
|
$
|
241.7
|
$
|
303.3
|
|
|
|
|
|
Total
equity
|
$
|
1,810.0
|
$
|
1,618.8
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Condensed Consolidated
Statements of Cash Flows
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
Cash generated
from (used in):
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net income
|
$
|
77.5
|
$
|
42.3
|
|
Items not affecting
cash:
|
|
|
|
|
|
|
Amortization
|
|
62.3
|
|
60.6
|
|
|
Income tax
expense
|
|
27.8
|
|
10.0
|
|
|
Long-term portion of
deferred reforestation obligations
|
|
16.1
|
|
11.8
|
|
|
Foreign exchange gain
on long-term debt
|
|
(1.1)
|
|
(7.9)
|
|
|
Changes in
mark-to-market value of derivative financial instruments
|
|
-
|
|
0.2
|
|
|
Employee future
benefits
|
|
3.2
|
|
3.2
|
|
|
Finance expense,
net
|
|
8.0
|
|
8.2
|
|
|
Gain on sale of
Anthony EACOM Inc. (Note 3)
|
|
(4.0)
|
|
-
|
|
|
Equity
income
|
|
(0.6)
|
|
(1.1)
|
|
|
Other, net
|
|
(6.4)
|
|
0.4
|
|
Defined benefit plan
contributions, net
|
|
(6.0)
|
|
(5.2)
|
|
Income taxes received
(paid), net
|
|
1.2
|
|
(13.6)
|
|
|
178.0
|
|
108.9
|
|
Net change in
non-cash working capital (Note 9)
|
|
(105.2)
|
|
(58.0)
|
|
|
72.8
|
|
50.9
|
Financing
activities
|
|
|
|
|
|
Change in operating
bank loans (Note 4(a))
|
|
12.0
|
|
47.0
|
|
Proceeds from
long-term debt
|
|
1.7
|
|
-
|
|
Finance expenses
paid
|
|
(3.2)
|
|
(4.1)
|
|
Acquisition of
non-controlling interests (Note 8)
|
|
(2.8)
|
|
(5.0)
|
|
Cash distributions
paid to non-controlling interests
|
|
(3.8)
|
|
(4.2)
|
|
|
3.9
|
|
33.7
|
Investing
activities
|
|
|
|
|
|
Additions to
property, plant and equipment, timber and intangible assets,
net
|
|
(38.9)
|
|
(47.1)
|
|
Proceeds on sale of
Anthony EACOM Inc., net (Note 3)
|
|
5.4
|
|
-
|
|
Proceeds on disposal
of property, plant and equipment
|
|
6.4
|
|
-
|
|
Acquisition of
Beadles & Balfour (Note 11(a))
|
|
(41.8)
|
|
-
|
|
Other, net
|
|
(0.1)
|
|
1.6
|
|
|
(69.0)
|
|
(45.5)
|
Foreign exchange loss
on cash and cash equivalents
|
|
(0.1)
|
|
(3.9)
|
Increase in cash
and cash equivalents*
|
|
7.6
|
|
35.2
|
Cash and cash
equivalents at beginning of period*
|
|
156.6
|
|
97.5
|
Cash and cash
equivalents at end of period*
|
$
|
164.2
|
$
|
132.7
|
*Cash and cash equivalents include cash on hand less unpresented
cheques.
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Notes to the Condensed
Consolidated Financial Statements
Three months ended
March 31, 2017 and 2016
(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, including Canfor Pulp Products Inc.
("CPPI"), 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,
2016, available at www.canfor.com or www.sedar.com.
Effective January 1, 2017, the
Company has adopted the amendment to IAS 7 Statement of Cash
Flows, which clarified disclosure requirements associated with
cash and non-cash changes in liabilities from financing
activities. The adoption of this amendment has had no impact
on the Company's disclosures in the financial statements.
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 affect 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.
Certain comparative amounts for the prior year have been
reclassified to conform to the current year's presentation.
These financial statements were authorized for issue by the
Company's Board of Directors on April 25,
2017.
Accounting Standards Issued and Not Applied
In May 2014, the International
Accounting Standards Board ("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,
2018. The Company has performed a preliminary assessment of
the impact of the new standard, and currently anticipates no
significant impact on its financial statements, with the assessment
to be finalized in the second half of 2017.
In July 2014, the IASB issued IFRS
9, Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company does not anticipate the new standard to have a significant
impact on its financial statements.
In January 2016, the IASB issued
IFRS 16, Leases, which will supersede IAS 17, Leases
and related interpretations. The required adoption date for IFRS 16
is January 1, 2019 and the Company is
in the process of assessing the impact, if any, on the financial
statements of this new standard.
2. Inventories
(millions of Canadian
dollars, unaudited)
|
As
at
March
31, 2017
|
|
As at
December 31,
2016
|
Logs
|
$
|
197.4
|
$
|
107.3
|
Finished
products
|
|
327.2
|
|
310.6
|
Residual
fibre
|
|
14.0
|
|
13.8
|
Materials and
supplies
|
|
119.4
|
|
117.3
|
|
$
|
658.0
|
$
|
549.0
|
Inventory balances are stated after inventory write-downs from
cost to net realizable value. There were no inventory write-downs
at March 31, 2017 or December 31, 2016.
3. Long-Term Investments and Other
(millions of Canadian
dollars, unaudited)
|
As
at
March
31,
2017
|
|
As at
December 31,
2016
|
Investments
|
$
|
14.9
|
$
|
14.7
|
Equity investment in
Anthony EACOM Inc.
|
|
-
|
|
16.8
|
Other deposits, loans
and advances
|
|
24.8
|
|
19.2
|
|
$
|
39.7
|
$
|
50.7
|
On March 31, 2017, the Company
sold its 50% investment in Anthony EACOM Inc. to EACOM Timber
Corporation for net proceeds of $21.4
million and recorded a gain of $4.0
million in Other Income. The first instalment of
$5.4 million was received on
March 31, 2017, with the remaining
$16.1 million payable in equal
instalments over a three year period. As part of the agreement,
EACOM Timber Corporation issued a three-year secured note payable
to Canfor in the amount of $16.1
million, of which $5.4 million
is recorded under Accounts Receivable – Other and $10.7 million is recorded as a receivable under
Long-Term Investments and Other.
Prior to the sale, the Company's interest in Anthony EACOM Inc.
was classified as a joint venture and accounted for using the
equity method of accounting. For the three months ended
March 31, 2017, the Company's share
of the joint venture's sales was $6.2
million and net income was $0.6
million.
4. Operating Loans and Long-Term Debt
(a) Available Operating Loans
(millions of Canadian
dollars, unaudited)
|
|
As
at
March
31,
2017
|
|
As at
December 31,
2016
|
Canfor (excluding
CPPI)
|
|
|
|
|
Available operating
loans:
|
|
|
|
|
|
Operating loan
facility
|
$
|
350.0
|
$
|
350.0
|
|
Facility for letters
of credit
|
|
50.0
|
|
50.0
|
|
Total operating loan
facility
|
|
400.0
|
|
400.0
|
|
Operating loan
drawn
|
|
(40.0)
|
|
(28.0)
|
|
Letters of
credit
|
|
(41.5)
|
|
(41.6)
|
Total available
operating loan facility - Canfor
|
$
|
318.5
|
$
|
330.4
|
CPPI
|
|
|
|
|
Available operating
loans:
|
|
|
|
|
|
Operating loan
facility
|
$
|
110.0
|
$
|
110.0
|
|
Letters of
credit
|
|
(9.0)
|
|
(9.3)
|
Total available
operating loan facility - CPPI
|
$
|
101.0
|
$
|
100.7
|
Consolidated:
|
|
|
|
|
Total operating
loan facilities
|
$
|
510.0
|
$
|
510.0
|
Total available
operating loan facilities
|
$
|
419.5
|
$
|
431.1
|
Interest is payable on Canfor's operating loans 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 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 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.
Both Canfor's and CPPI's operating loan facilities have certain
financial covenants, including maximum debt to total capitalization
ratios.
Canfor (excluding CPPI) has a separate facility to cover letters
of credit. At March 31, 2017,
$38.9 million of letters of credit
outstanding are covered under this facility with the balance of
$2.6 million covered under Canfor's
general operating loan facility.
At March 31, 2017, $9.0 million of letters of credit outstanding are
covered under the CPPI general operating loan facility. As at
March 31, 2017, the Company and CPPI
are in compliance with all covenants relating to their operating
loans. Substantially all borrowings of CPPI are non-recourse to
other entities within the Company.
(b) Long-Term Debt
On January 30, 2017, the Company
entered into a new five-year floating interest rate term loan for
US$1.3 million. The debt is repayable
in monthly instalments with the balance due January 30, 2022. Interest payable is based on
LIBOR plus a margin.
All borrowings of the Company feature similar financial
covenants, including a maximum debt to total capitalization
ratio.
As at March 31, 2017, the Company
and CPPI are in compliance with all covenants relating to their
long-term debt.
Fair value of total long-term debt
At March 31, 2017, the fair value
of the Company's long-term debt is $449.7
million (December 31, 2016 -
$447.2 million). The fair value was
determined based on prevailing market rates for long-term debt with
similar characteristics and risk profile.
5. Employee Future Benefits
For the three months ended March 31,
2017, defined benefit pension plan actuarial gains of
$3.3 million (before tax) were
recognized in other comprehensive income. The gains recorded
in the first quarter of 2017 principally reflect the return
generated on plan assets and membership experience gains. For the
three months ended March 31, 2016,
the Company recognized before tax actuarial losses in other
comprehensive income of $23.8
million, principally reflecting a lower return on plan
assets and a lower discount rate used to value the net defined
benefit obligations.
For the Company's defined benefit pension plans, a one
percentage point increase in the discount rate used in calculating
the actuarial estimate of future liabilities and related plan
assets would decrease the accrued benefit obligation by an
estimated $112.7 million, and
decrease defined benefit pension plan annuity assets by an
estimated $23.5 million, before
taking into account the impact of hedging.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
|
|
|
|
Defined
Benefit Pension Plans
|
Other Benefit
Plans
|
March 31,
2017
|
3.9%
|
3.9%
|
December 31,
2016
|
3.9%
|
3.9%
|
March 31,
2016
|
4.0%
|
4.0%
|
December 31,
2015
|
4.1%
|
4.1%
|
Subsequent to quarter end, on April 13,
2017, the Company purchased $90.5
million of buy-in annuities through its defined benefit
pension plans, increasing total annuities purchased to $377.1 million.
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.
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,
2017 and December 31, 2016,
and shows the level within the fair value hierarchy in which the
financial instruments have been classified:
(millions of Canadian
dollars, unaudited)
|
Fair Value
Hierarchy
Level
|
As
at March
31,
2017
|
|
As at
December 31,
2016
|
Financial assets
measured at fair value
|
|
|
|
|
|
|
Investments - held
for trading
|
Level 1
|
$
|
14.3
|
$
|
14.3
|
|
Derivative financial
instruments - held for trading
|
Level 2
|
|
0.1
|
|
0.2
|
|
|
$
|
14.3
|
$
|
14.5
|
Financial
liabilities measured at fair value
|
|
|
|
|
|
|
Derivative financial
instruments - held for trading
|
Level 2
|
$
|
-
|
$
|
0.1
|
|
|
$
|
0.1
|
$
|
0.1
|
Canfor invests in equity and debt securities, which are traded
in an active market and valued using closing prices on the
measurement date with gains or losses recognized through
comprehensive income.
The Company uses a variety of derivative financial instruments,
which are included in Level 2 of the fair value hierarchy, to
reduce its exposure to risks associated with fluctuations in
foreign exchange rates, lumber prices, energy costs, and floating
interest rates on long-term debt.
At March 31, 2017, the fair value
of derivative financial instruments is a net asset of $0.1 million (December 31,
2016 - net asset of $0.1
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 period ended March 31, 2017 and 2016:
|
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
Lumber
futures
|
$
|
3.2
|
$
|
(1.0)
|
Interest rate
swaps
|
|
-
|
|
0.1
|
Energy
derivatives
|
|
-
|
|
(1.5)
|
Gain (loss) on
derivative financial instruments
|
$
|
3.2
|
$
|
(2.4)
|
7. Income Taxes
3 months ended
March 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
Current
|
$
|
(25.1)
|
$
|
(14.1)
|
Deferred
|
|
(2.7)
|
|
4.1
|
Income tax
expense
|
$
|
(27.8)
|
$
|
(10.0)
|
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, unaudited)
|
|
2017
|
|
2016
|
Income tax expense at
statutory rate – 26.0%
|
$
|
(27.4)
|
$
|
(13.6)
|
Add
(deduct):
|
|
|
|
|
|
Non-taxable income
related to non-controlling interests
|
|
0.1
|
|
1.3
|
|
Entities with
different income tax rates and other tax adjustments
|
|
(1.2)
|
|
1.1
|
|
Permanent difference
from capital gains and losses and other non-deductible
items
|
|
0.7
|
|
1.2
|
Income tax
expense
|
$
|
(27.8)
|
$
|
(10.0)
|
In addition to the amounts recorded to net income, a tax expense
of $0.9 million was recorded in other
comprehensive income for the three months ended March 31, 2017 in relation to the actuarial gains
on the defined benefit plans (three months ended March 31, 2016 - recovery of $6.2 million on actuarial losses).
Also included in other comprehensive income for the three months
ended March 31, 2017 was a tax
recovery of $0.3 million related to
foreign exchange differences on translation of investments in
foreign operations (three months ended March
31, 2016 – recovery of $2.2
million).
8. Earnings Per Share and Normal Course Issuer Bid
Basic net income per share is calculated by dividing the net
income attributable to common equity shareholders by the weighted
average number of common shares outstanding during the period.
3 months ended March
31,
|
|
2017
|
2016
|
Weighted average
number of common shares
|
132,804,543
|
132,804,543
|
On March 7, 2017, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 6,640,227 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2017. The renewed normal course issuer
bid is set to expire on March 6,
2018. During the first quarter of 2017, Canfor did not
purchase any common shares. As at April 25,
2017 there were 132,804,543 common shares of the Company
outstanding.
Under a separate normal course issuer bid, CPPI purchased
264,203 common shares for $3.0
million (an average of $11.35
per common share) from non-controlling shareholders, of which
$2.8 million was paid in the period,
with the balance paid in early April. At April 25, 2017, Canfor's ownership interest in
CPPI was 53.9%.
9. Net Change in Non-Cash Working Capital
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
Accounts
receivable
|
$
|
(63.1)
|
$
|
(17.3)
|
Inventories
|
|
(109.9)
|
|
(60.8)
|
Prepaid
expenses
|
|
(6.7)
|
|
(5.0)
|
Accounts payable,
accrued liabilities and current portion of deferred reforestation
obligations
|
|
74.5
|
|
25.1
|
Net increase in
non-cash working capital
|
$
|
(105.2)
|
$
|
(58.0)
|
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, unaudited)
|
|
Lumber
|
|
Pulp &
Paper
|
|
Unallocated
& Other
|
|
Elimination
Adjustment
|
Consolidated
|
3 months ended
March, 2017
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
817.1
|
$
|
309.1
|
$
|
-
|
$
|
-
|
$
|
1,126.2
|
Sales to other
segments
|
|
40.9
|
|
0.1
|
|
-
|
|
(41.0)
|
|
-
|
Operating income
(loss)
|
|
83.7
|
|
35.2
|
|
(12.1)
|
|
-
|
|
106.8
|
Amortization
|
|
43.5
|
|
18.8
|
|
-
|
|
-
|
|
62.3
|
Capital
expenditures1
|
|
19.3
|
|
16.8
|
|
2.8
|
|
-
|
|
38.9
|
Identifiable
assets
|
|
2,374.5
|
|
788.3
|
|
257.5
|
|
-
|
|
3,420.3
|
3 months ended March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
772.6
|
$
|
295.3
|
$
|
-
|
$
|
-
|
$
|
1,067.9
|
Sales to other
segments
|
|
44.2
|
|
-
|
|
-
|
|
(44.2)
|
|
-
|
Operating income
(loss)
|
|
33.4
|
|
39.1
|
|
(7.4)
|
|
-
|
|
65.1
|
Amortization
|
|
40.8
|
|
18.7
|
|
1.1
|
|
-
|
|
60.6
|
Capital
expenditures1
|
|
33.2
|
|
13.1
|
|
0.8
|
|
-
|
|
47.1
|
Identifiable
assets
|
|
2,322.5
|
|
820.3
|
|
215.2
|
|
-
|
|
3,358.0
|
|
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.
|
11. Acquisitions
(a) US South
On January 2, 2015, the Company
completed the first phase of the acquisition of Beadles Lumber
Company & Balfour Lumber Company Inc. ("Beadles & Balfour")
for total consideration of $51.6
million (US$44.0 million),
representing an initial 55% interest.
On January 2, 2017, the Company
completed the final phase of the acquisition of Beadles &
Balfour for $41.8 million
(US$31.1 million) bringing Canfor's
interest in Beadles & Balfour to 100%. Upon completion of the
final phase of the acquisition, the forward purchase liability of
$41.8 million and non-controlling
interest of $19.9 million were
derecognized, and $36.5 million was
recorded in other equity. In addition, $16.6
million was charged to retained earnings reflecting Canfor's
election to account for the non-controlling interest related to
Beadles & Balfour as the non-controlling share of the fair
value of the net identifiable assets at the acquisition date.
(b) Wynndel Box and Lumber
Ltd.
On April 15, 2016, the Company
completed the acquisition of the assets of Wynndel Box and Lumber Ltd. ("Wynndel") for
total consideration of $40.3 million.
The acquisition has been accounted for in accordance with IFRS 3,
Business Combinations.
The acquisition of Wynndel included a sawmill located in the
Creston Valley of British
Columbia, which produces premium boards and customized
specialty wood products with an annual production capacity of 80
million board feet. Canfor acquired the assets of Wynndel,
including approximately 65,000 cubic meters of annual harvesting
rights in the Kootenay Lake Timber Supply Area.
At the acquisition date, the Company paid $19.7 million, and a working capital true-up
payment of $2.6 million was paid in
early July. Subsequent to quarter end, on April 5, 2017, the Company paid an instalment of
$14.4 million, with a final
instalment of $3.6 million scheduled
to be paid on October 15,
2017.
12. Subsequent Event
On November 25, 2016, a petition
was filed by the US Lumber Coalition to the US Department of
Commerce ("DOC") and the US International Trade Commission ("ITC")
alleging certain subsidies and administered fees below the fair
market value of timber that favour Canadian lumber producers, an
assertion the Canadian industry and Provincial and Federal
Governments strongly deny and have successfully disproven in
international courts in the past. Canfor was selected by the DOC as
a "mandatory respondent" to the countervailing and anti-dumping
investigations and is subject to company specific countervailing
and anti-dumping duties. On April 24,
2017, the DOC announced its preliminary countervailing duty
of 20.26% specific to Canfor, and an industry average of 19.88%, to
be posted by cash deposits or bonds on the exports of softwood
lumber to the US on or after approximately May 1, 2017 for a period of 120 days, in
accordance with US law.
The DOC is expected to announce its preliminary anti-dumping
duty determination on June 23, 2017.
The final countervailing and anti-dumping duty determinations will
be aligned for DOC administrative purposes. This alignment could
result in the suspension of preliminary countervailing duty cash
deposit requirements after the initial four month period has
expired and until an aligned final determination decision is
established. Canfor continues to cooperate with the Provincial and
Federal Governments of Canada who
have indicated they will vigorously defend the interests of the
industry.
SOURCE Canfor Corporation