Canfor Reports Results for First Quarter of 2014
VANCOUVER, BRITISH COLUMBIA--(Marketwired - Apr 29, 2014) -
Canfor Corporation (TSX:CFP) today reported net income attributable
to shareholders ("shareholder net income") of $45.5 million, or
$0.33 per share, for the first quarter of 2014, compared to $28.0
million, or $0.20 per share, for the fourth quarter of 2013 and
$61.9 million, or $0.43 per share, for the first quarter of
2013.
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
Q1 |
|
Q4 |
|
Q1 |
|
(millions of Canadian dollars, except per share amounts) |
|
2014 |
|
2013 |
|
2013 |
|
Sales |
$ |
741.9 |
$ |
809.5 |
$ |
786.3 |
|
Operating income, as reported |
$ |
84.4 |
$ |
53.8 |
$ |
100.0 |
|
Operating income, adjusted for one-time items |
$ |
84.4 |
$ |
74.9 |
$ |
100.0 |
| Net
income attributable to equity shareholders of the Company |
$ |
45.5 |
$ |
28.0 |
$ |
61.9 |
| Net
income per share attributable to equity shareholders of the
Company, basic and diluted |
$ |
0.33 |
$ |
0.20 |
$ |
0.43 |
|
Adjusted shareholder net income |
$ |
46.4 |
$ |
48.8 |
$ |
70.3 |
|
Adjusted shareholder net income per share, basic and diluted |
$ |
0.34 |
$ |
0.35 |
$ |
0.49 |
After adjusting for items affecting comparability with the prior
periods, the Company's adjusted shareholder net income for the
first quarter of 2014 was $46.4 million, or $0.34 per share,
compared to an adjusted shareholder net income of $48.8 million, or
$0.35 per share, for the fourth quarter of 2013. Canfor's adjusted
shareholder net income for the first quarter of 2013 was $70.3
million, or $0.49 per share.
The Company reported operating income of $84.4 million for the
first quarter of 2014, compared to operating income of $53.8
million for the fourth quarter of 2013. After adjusting for
one-time costs in the previous quarter, most notably costs
associated with the announced closure of the Company's Quesnel
Sawmill, operating income for the current quarter was up $9.5
million. The modest improvement in operating income was largely
attributable to gains in lumber and pulp sales realizations, with
both benefitting from a weaker Canadian dollar. These gains were
partially offset by significantly lower lumber and pulp shipments
resulting from abnormally severe winter weather which limited
railcar supply to Western Canada, and a 28-day truckers' strike at
Canada's largest port in Vancouver, British Columbia.
The harsh winter weather conditions also curtailed home
construction activity across much of North America in the current
quarter. U.S. housing starts averaged 923,000 units SAAR
(seasonally adjusted annual rate), down 8% from the previous
quarter. In Canada, housing starts were down 11% from the fourth
quarter of 2013, to 175,000 units SAAR. Offshore demand was stable
but the truckers' strike at the port in Vancouver materially
impacted lumber shipments.
The Company's lumber sales realizations in North America were up
from the previous quarter, largely due to a 5% weaker Canadian
dollar and, to a lesser extent, the absence of export taxes on U.S.
bound shipments (for the Company's Canadian operations) compared to
the previous quarter. U.S. dollar prices for North American
products saw little change quarter-over-quarter, with a US$3
decrease in the benchmark North American Random Lengths Western
Spruce/Pine/Fir ("SPF") 2X4 #2&Btr price to US$367 per Mfbm,
offset by modest increases in several other grades and dimensions.
Overall sales realizations for Southern Yellow Pine ("SYP")
products saw modest increases compared to the previous quarter,
with a US$12 per Mfbm, or 3%, decrease in the benchmark SYP 2x4 #2
price, more than offset by moderate gains in wider dimension
products. Offshore sales realizations (in US$) saw moderate gains
in the current quarter, for the most part reflecting stable demand
and improved prices, the latter partly reflecting negotiated
monthly or quarterly pricing.
Lumber shipments were down 16% from the previous quarter
reflecting the aforementioned transportation challenges, while
lumber production was up 3%, primarily the result of more operating
hours mainly due to the Christmas period in the previous quarter as
well as additional shifts in the current period at the Company's
southern pine operations. Production in the current quarter
continued to be impacted by capital related downtime and ramp-ups,
as well as the closure of the Company's Quesnel Sawmill in
mid-March. Unit manufacturing costs were higher compared to the
previous quarter, reflecting a modest increase in unit log costs,
principally driven by market-related increases in stumpage, coupled
with higher seasonal and market-related energy costs and continued
dust control efforts, all of which were partly offset by the
favourable impact on unit costs from higher production.
Global softwood pulp markets showed a modest improvement in all
major regions in the first quarter of 2014, while global softwood
pulp producer inventory levels remained balanced over the period
increasing 1 day from the end of December 2013, to 28 days' supply
in March 2014. Average Northern Bleached Softwood Kraft ("NBSK")
pulp list prices saw solid gains in all regions during the first
quarter of 2014, with the North American NBSK pulp list price
increasing US$34, or 3%, from the previous quarter to US$1,017 per
tonne (the highest level in almost three years), while list prices
to China and Europe saw gains of 2%. Current quarter pulp sales
realizations were also buoyed by the weaker Canadian dollar and
proportionately higher shipments to the higher-margin U.S.
market.
Pulp shipments were down 74,000 tonnes, or 22%, from the prior
quarter, largely reflecting the transportation challenges
experienced in the quarter. Pulp production levels were up 4% from
the previous quarter, mainly as a result of an improvement in
operating rates as the quarter progressed and a scheduled
maintenance outage at Canfor Pulp's Prince George Pulp Mill in the
previous quarter. Pulp unit manufacturing costs were up slightly
compared to the previous quarter, with the favourable impact of
increased production more than offset by higher market prices for
sawmill residual chips and higher energy costs, the latter
reflecting both seasonally higher consumption as well as natural
gas price increases.
On March 28, 2014, the Company completed the sale of its Daaquam
Sawmill. Total proceeds related to the disposition of the Daaquam
operation approximated $25 million.
Commenting on the first quarter performance, Canfor's President
and Chief Executive Officer, Don Kayne, said, "Despite the many
challenges presented by weather and transportation related
disruptions, we continued to see progress during the quarter from
the significant capital investments made at our lumber and pulp
facilities in recent years."
Looking ahead, North American lumber consumption is forecast to
rebound in the second quarter of 2014, as warmer weather
contributes to stronger demand in the residential construction
market. Lumber shipments across North America are anticipated to
improve through the second and third quarters of 2014, releasing
the backlog of shipments caused by the shortage of railcars earlier
in 2014. Offshore lumber markets are projected to remain stable,
supported by steady demand from Asia and other emerging markets.
Delayed offshore lumber shipments resulting from the truckers'
strike at the Vancouver Port are forecast to be largely cleared
through the second quarter of 2014. NBSK pulp markets are projected
to face challenges by the middle of the year; a risk of price
weakness remains due in part to the significant new hardwood pulp
capacity forecast to come online through 2014. Canfor Pulp
anticipates that it will clear its transportation-related backlog
of finished inventories by early in the third quarter of 2014.
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and
operating results will be held on Thursday, May 1, 2014 at 8:00 AM
Pacific time. To participate in the call, please dial 416-340-9534
or Toll-Free 800-952-6845. For instant replay access until May 15,
2014, please dial 800-408-3053 and enter participant pass code
6959461#. 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 and Alabama. Canfor produces
primarily softwood lumber and also produces bleached chemi-thermo
mechanical pulp and specialized wood products. Canfor also owns a
50.4% interest in Canfor Pulp Products Inc., which is one of the
largest producers of northern bleached softwood kraft pulp in
Canada 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 2014
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, 2014 relative to the quarters ended December 31, 2013 and March
31, 2013, and the financial position of the Company at March 31,
2014. It should be read in conjunction with Canfor's unaudited
interim consolidated financial statements and accompanying notes
for the quarters ended March 31, 2014 and 2013, as well as the 2013
annual MD&A and the 2013 audited consolidated financial
statements and notes thereto, which are included in Canfor's Annual
Report for the year ended December 31, 2013 (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 which Canfor considers to be a relevant
indicator for measuring trends in the performance of each of its
operating segments and the Company's ability to generate funds to
meet its debt repayment and capital expenditure requirements.
Reference is also made to Adjusted Shareholder Net Income (Loss)
(calculated as Shareholder Net Income (Loss) less specific items
affecting comparability with prior periods - for the full
calculation, see reconciliation included in the section "Analysis
of Specific Material Items Affecting Comparability of Shareholder
Net Income (Loss)") and Adjusted Shareholder Net Income (Loss) per
Share (calculated as Adjusted Shareholder Net Income (Loss) divided
by the weighted average number of shares outstanding during the
period). Operating Income 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 (Loss) and Adjusted Shareholder
Net Income (Loss) to Net Income (Loss) reported in accordance with
IFRS are included in this MD&A.
Factors that could impact future operations are also
discussed. These factors may be influenced by both known and
unknown risks and uncertainties that could cause the actual results
to be materially different from those stated in this discussion.
Factors that could have a material impact on any future oriented
statements made herein include, but are not limited to: general
economic, market and business conditions; product selling prices;
raw material and operating costs; currency exchange rates; interest
rates; changes in law and public policy; the outcome of labour and
trade disputes; and opportunities available to or pursued by
Canfor.
All financial references are in millions of Canadian dollars
unless otherwise noted. The information in this report is as at
April 29, 2014.
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 2014 OVERVIEW
Selected Financial
Information and Statistics
|
|
Q1 |
|
|
Q4 |
|
|
Q1 |
|
| (millions of Canadian dollars, except per share
amounts) |
|
2014 |
|
|
2013 |
|
|
2013 |
|
| Operating income (loss) by segment: |
|
|
|
|
|
|
|
|
|
|
Lumber |
$ |
56.4 |
|
$ |
37.4 |
|
$ |
88.4 |
|
|
Pulp
and Paper |
$ |
36.5 |
|
$ |
23.2 |
|
$ |
18.9 |
|
|
|
Unallocated and Other |
$ |
(8.5 |
) |
$ |
(6.8 |
) |
$ |
(7.3 |
) |
| Total operating income |
$ |
84.4 |
|
$ |
53.8 |
|
$ |
100.0 |
|
| Add: Amortization |
$ |
44.5 |
|
$ |
44.9 |
|
$ |
46.9 |
|
| Total operating income before amortization |
$ |
128.9 |
|
$ |
98.7 |
|
$ |
146.9 |
|
| Add (deduct): |
|
|
|
|
|
|
|
|
|
|
Working capital movements |
$ |
(177.8 |
) |
$ |
(14.5 |
) |
$ |
(94.5 |
) |
|
Defined benefit pension plan contributions |
$ |
(13.5 |
) |
$ |
(14.0 |
) |
$ |
(13.5 |
) |
|
|
Other operating cash flows, net1 |
$ |
12.3 |
|
$ |
28.6 |
|
$ |
17.1 |
|
| Cash from (used in) operating activities |
$ |
(50.1 |
) |
$ |
98.8 |
|
$ |
56.0 |
|
| Add (deduct): |
|
|
|
|
|
|
|
|
|
|
Finance expenses paid |
$ |
(2.8 |
) |
$ |
(5.9 |
) |
$ |
(2.5 |
) |
|
Distributions paid to non-controlling interests |
$ |
(2.1 |
) |
$ |
(2.4 |
) |
$ |
(2.4 |
) |
|
Capital additions, net |
$ |
(53.1 |
) |
$ |
(67.5 |
) |
$ |
(46.4 |
) |
|
Investment in Scotch & Gulf Lumber, LLC |
$ |
- |
|
$ |
(0.5 |
) |
$ |
- |
|
|
Loan
to Scotch & Gulf Lumber, LLC |
$ |
2.6 |
|
$ |
2.1 |
|
$ |
- |
|
|
Repayment of long-term debt, net |
$ |
- |
|
$ |
(66.6 |
) |
$ |
- |
|
|
|
Other, net |
$ |
(2.9 |
) |
$ |
(33.0 |
) |
$ |
5.6 |
|
| Change in cash / operating loans |
$ |
(108.4 |
) |
$ |
(75.0 |
) |
$ |
10.3 |
|
| Quarterly ROIC - Consolidated2 |
|
3.5% |
|
|
2.0% |
|
|
4.8% |
|
| Average exchange rate (US$ per C$1.00)3 |
$ |
0.906 |
|
$ |
0.953 |
|
$ |
0.991 |
|
| 1 Other operating cash flows in the fourth quarter of 2013
include a $20.0 million accounting provision for the closure of the
Company's Quesnel Sawmill. Further information on operating cash
flows can be found in the Company's unaudited interim consolidated
financial statements. |
| 2 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. |
| 3 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 |
|
Q1 |
|
|
Q4 |
|
Q1 |
|
|
(millions of Canadian dollars, except per share amounts) |
|
2014 |
|
|
2013 |
|
2013 |
|
|
Shareholder net income, as reported |
$ |
45.5 |
|
$ |
28.0 |
$ |
61.9 |
|
| (Gain) loss on
derivative financial instruments |
$ |
2.1 |
|
|
0.1 |
|
(2.2 |
) |
| Gain on sale
of Daaquam Sawmill |
$ |
(1.6 |
) |
$ |
- |
$ |
- |
|
|
Foreign exchange loss on long-term debt |
$ |
- |
|
$ |
1.5 |
$ |
2.3 |
|
|
Mill closure provisions |
$ |
- |
|
$ |
14.8 |
$ |
- |
|
|
One-time costs associated with collective agreements for the lumber
business |
$ |
- |
|
$ |
0.8 |
$ |
- |
|
|
Loss on sale of Canfor-LP OSB4 |
$ |
0.4 |
|
$ |
3.6 |
$ |
- |
|
|
Canfor's 50% interest in Canfor-LP OSB's income, net of tax4 |
$ |
- |
|
$ |
- |
$ |
8.3 |
|
|
Net impact of above items |
$ |
0.9 |
|
$ |
20.8 |
$ |
8.4 |
|
|
Adjusted shareholder net income |
$ |
46.4 |
|
$ |
48.8 |
$ |
70.3 |
|
|
Shareholder net income per share (EPS), as reported |
$ |
0.33 |
|
$ |
0.20 |
$ |
0.43 |
|
|
Net impact of above items per share |
$ |
0.01 |
|
$ |
0.15 |
$ |
0.06 |
|
|
Adjusted shareholder net income per share |
$ |
0.34 |
|
$ |
0.35 |
$ |
0.49 |
|
| 4 The Company completed the sale of its 50% share of the
Canfor-LP OSB Limited Partnership ("Canfor-LP OSB") in the second
quarter of 2013 and recorded a gain of $33.4 million (after tax).
As part of the sale, Canfor may receive additional annual
consideration over a 3 year period, starting June 1, 2013, based on
Peace Valley OSB's annual adjusted earnings before interest, tax,
depreciation and amortization. An asset was recorded based on the
fair value of this additional consideration and will be adjusted to
current estimated fair value each reporting period. Based on the
estimated fair value at March 31, 2014, a loss of $0.4 million
(after tax) was recorded in the first quarter of 2014. |
The Company reported operating income of $84.4 million for the
first quarter of 2014, compared to operating income of $53.8
million for the fourth quarter of 2013. After adjusting for
one-time costs in the previous quarter, most notably costs
associated with the announced closure of the Company's Quesnel
Sawmill, operating income for the current quarter was up $9.5
million. The modest improvement in operating income was largely
attributable to gains in lumber and pulp sales realizations, with
both benefitting from a weaker Canadian dollar. These gains were
partially offset by significantly lower lumber and pulp shipments
resulting from abnormally severe winter weather which limited
railcar supply to Western Canada, and a 28-day truckers' strike at
Canada's largest port in Vancouver, British Columbia.
The harsh winter weather conditions also curtailed home
construction activity across much of North America in the current
quarter. U.S. housing starts averaged 923,000 units SAAR
(seasonally adjusted annual rate), down 8% from the previous
quarter. In Canada, housing starts were down 11% from the fourth
quarter of 2013, to 175,000 units SAAR. Offshore demand was stable
but the truckers' strike at the port in Vancouver materially
impacted lumber shipments.
The Company's lumber sales realizations in North America were up
from the previous quarter, largely due to a 5% weaker Canadian
dollar and, to a lesser extent, the absence of export taxes on U.S.
bound shipments (for the Company's Canadian operations) compared to
the previous quarter. U.S. dollar prices for North American
products saw little change quarter-over-quarter, with a US$3
decrease in the benchmark North American Random Lengths Western
Spruce/Pine/Fir ("SPF") 2X4 #2&Btr price to US$367 per Mfbm,
offset by modest increases in several other grades and dimensions.
Overall sales realizations for Southern Yellow Pine ("SYP")
products saw modest increases compared to the previous quarter,
with a US$12 per Mfbm, or 3%, decrease in the benchmark SYP 2x4 #2
price, more than offset by moderate gains in wider dimension
products. Offshore sales realizations (in US$) saw moderate gains
in the current quarter, for the most part reflecting stable demand
and improved prices, the latter partly reflecting negotiated
monthly or quarterly pricing.
Lumber shipments were down 16% from the previous quarter
reflecting the aforementioned transportation challenges, while
lumber production was up 3%, primarily the result of more operating
hours mainly due to the Christmas period in the previous quarter as
well as additional shifts in the current period at the Company's
southern pine operations. Production in the current quarter
continued to be impacted by capital related downtime and ramp-ups,
as well as the closure of the Company's Quesnel Sawmill in
mid-March. Unit manufacturing costs were higher compared to the
previous quarter, reflecting a modest increase in unit log costs,
principally driven by market-related increases in stumpage, coupled
with higher seasonal and market-related energy costs and continued
dust control efforts, all of which were partly offset by the
favourable impact on unit costs from higher production.
Global softwood pulp markets showed a modest improvement in all
major regions in the first quarter of 2014, while global softwood
pulp producer inventory levels remained balanced over the period
increasing 1 day from the end of December 2013, to 28 days' supply
in March 2014. Average Northern Bleached Softwood Kraft ("NBSK")
pulp list prices saw solid gains in all regions during the first
quarter of 2014, with the North American NBSK pulp list price
increasing US$34, or 3%, from the previous quarter to US$1,017 per
tonne (the highest level in almost three years), while list prices
to China and Europe saw gains of 2%. Current quarter pulp sales
realizations were also buoyed by the weaker Canadian dollar and
proportionately higher shipments to the higher-margin U.S.
market.
Pulp shipments were down 74,000 tonnes, or 22%, from the prior
quarter, largely reflecting the transportation challenges
experienced in the quarter. Pulp production levels were up 4% from
the previous quarter, mainly as a result of an improvement in
operating rates as the quarter progressed and a scheduled
maintenance outage at Canfor Pulp's Prince George Pulp Mill in the
previous quarter. Pulp unit manufacturing costs were up slightly
compared to the previous quarter, with the favourable impact of
increased production more than offset by higher market prices for
sawmill residual chips and higher energy costs, the latter
reflecting both seasonally higher consumption as well as natural
gas price increases.
Compared to the
first quarter of 2013, operating income was down $15.6 million,
with operating income down $32.0 million in the lumber segment and
up $17.6 million in the pulp and paper segment. These results
included the impact from reduced sales volumes mainly attributable
to the aforementioned transportation challenges in the current
quarter, offset in part by improved lumber and pulp sales
realizations, primarily reflecting the favourable impact of a 9%
weaker Canadian dollar. Unit manufacturing costs were up in both
segments compared to the same period in 2013, in part reflecting
lower production levels, as a result of capital project ramp-ups,
and increased energy costs as well as higher costs for raw
materials.
OPERATING RESULTS BY
BUSINESS SEGMENT
Lumber
Selected Financial
Information and Statistics - Lumber
|
|
Q1 |
|
Q4 |
|
Q1 |
|
(millions of Canadian dollars unless otherwise noted) |
|
2014 |
|
2013 |
|
2013 |
|
Sales |
$ |
495.7 |
$ |
533.7 |
$ |
542.3 |
|
Operating income before amortization |
$ |
84.3 |
$ |
66.1 |
$ |
115.7 |
|
Operating income |
$ |
56.4 |
$ |
37.4 |
$ |
88.4 |
| Mill
closure provisions |
$ |
- |
$ |
20.0 |
$ |
- |
|
One-time costs associated with collective agreements |
$ |
- |
$ |
1.1 |
$ |
- |
|
Operating income excluding unusual items |
$ |
56.4 |
$ |
58.5 |
$ |
88.4 |
|
Average SPF 2x4 #2&Btr lumber price in US$5 |
$ |
367 |
$ |
370 |
$ |
391 |
|
Average SPF price in Cdn$ |
$ |
405 |
$ |
388 |
$ |
395 |
|
Average SYP 2x4 #2 lumber price in US$6 |
$ |
403 |
$ |
415 |
$ |
452 |
|
Average SYP price in Cdn$ |
$ |
445 |
$ |
436 |
$ |
456 |
|
U.S. housing starts (thousand units SAAR)7 |
|
923 |
|
1,008 |
|
957 |
|
Production - SPF lumber (MMfbm)8 |
|
980.8 |
|
944.8 |
|
1,026.6 |
|
Production - SYP lumber (MMfbm)8 |
|
135.4 |
|
135.3 |
|
131.1 |
|
Shipments - SPF lumber (MMfbm)9 |
|
779.4 |
|
961.1 |
|
963.3 |
|
Shipments - SYP lumber (MMfbm)9 |
|
143.2 |
|
142.4 |
|
122.4 |
|
Shipments - wholesale lumber (MMfbm) |
|
4.8 |
|
5.7 |
|
7.1 |
| 5 Western Spruce/Pine/Fir, per thousand board feet (Source -
Random Lengths Publications, Inc.). |
| 6 Southern Yellow Pine, Eastside, per thousand board feet
(Source - Random Lengths Publications, Inc.). |
| 7 Source - U.S. Census Bureau, seasonally adjusted annual rate
("SAAR"). |
| 8 Excluding production of trim blocks. |
| 9 Canfor-produced lumber, including lumber purchased for
remanufacture and excluding trim blocks. |
Overview
Operating income for the lumber segment was $56.4 million for
the first quarter of 2014, an increase of $19.0 million compared to
operating income of $37.4 million in the previous quarter, and down
$32.0 million from operating income of $88.4 million reported for
the first quarter of 2013. Results in the lumber segment for the
fourth quarter of 2013 were impacted by various unusual items
including an expense of $20.0 million related to the announced
closure of the Quesnel Sawmill and one-time costs of $1.1 million
associated with new five year collective agreements ratified in the
quarter. Excluding the impact of these unusual items, operating
income for the lumber segment was down $2.1 million from the fourth
quarter of 2013.
The decrease in lumber segment earnings compared to the fourth
quarter of 2013 largely reflected a 16% decrease in shipments,
primarily the result of the aforementioned transportation
challenges in the quarter. Mostly offsetting the impact of reduced
shipments were gains in sales realizations, which benefitted from a
5% weaker Canadian dollar and, to a lesser degree, lower export
taxes over the period, with no export taxes on U.S. bound shipments
in the current quarter. Higher unit cash conversion costs,
reflecting increased energy costs and continued dust control
efforts, were offset in part by the favourable unit impact of more
production in the current quarter, resulting mainly from more
operating hours. A modest increase in unit log costs was primarily
driven by market-related increases in stumpage as well as higher
hauling and logging costs.
Compared to the first quarter of 2013, the reduced operating
income was mostly attributable to the transportation disruptions.
The impact of a 15% decrease in sales volumes was lessened by
improved sales realizations which reflected a favourable foreign
exchange impact, offset in part by lower U.S. dollar prices across
most grades. Unit manufacturing costs were up compared to the same
period in 2013, driven principally by increased log costs,
reflecting market-related stumpage increases and higher hauling and
logging costs. Also contributing to the higher unit manufacturing
costs were higher weather-related and market-related energy costs
and lower production volumes, for the most part reflecting capital
ramp-ups and the closure of the Quesnel Sawmill in the current
period.
Markets
During the first quarter of 2014, the lumber market was
significantly hampered by an unusually severe winter. Overall
lumber demand weakened as U.S. housing starts averaged 923,000
units10 SAAR, down 8% from the fourth quarter of 2013 and 4% lower
than the same period in 2013. Single-family starts, which consume a
larger proportion of lumber, also dropped 8% compared to the fourth
quarter of 2013 to 605,000 units10 SAAR. Demand in the repair and
remodeling sector experienced a similar temporary decline due to
the prolonged winter. Furthermore, the weather also limited railcar
supply to Western Canada, resulting in delayed Western SPF lumber
shipments across the North American continent.
In Canada, lumber consumption was lower than the previous
quarter, as Canadian housing starts averaged 175,000 units11 SAAR
for the quarter, down 21,000 units, or 11%, compared to the fourth
quarter of 2013 and in line with the same period in 2013.
Canfor's offshore lumber shipments were down compared to the
previous quarter due to the shortage of railcar supply and the
truckers' strike in March at the port in Vancouver, Canada, which
was resolved at the end of the quarter.
| 10 U.S. Census Bureau |
| 11 CMHC - Canada Mortgage and Housing Corporation |
Sales
Sales for the lumber segment for the first quarter of 2014 were
$495.7 million, compared to $533.7 million in the previous quarter
and $542.3 million in the first quarter of 2013, as higher sales
realizations in the current period were more than offset by lower
shipments. Total shipments in the first quarter of 2014, at 923
million board feet, were down 16% from the previous quarter, and
down 15% from the same period in 2013, largely reflecting the
transportation challenges. Current quarter sales also included
higher residual fibre revenue compared to both periods in 2013 due
primarily to higher residual prices (linked to NBSK sales
realizations).
Solid gains in North American sales realizations compared to the
previous quarter principally reflected the favourable impact of the
5% weaker Canadian dollar (for the Company's Canadian operations)
and to a lesser extent, the absence of export taxes on U.S. bound
shipments in the current quarter. Overall, there was little change
in U.S. dollar prices for North American products, with a US$3 per
Mfbm decrease in the benchmark North American Random Lengths
Western SPF 2X4 #2&Btr price to US$367 per Mfbm, offset by
modest increases in several other grades and dimensions. Offshore
sales realizations (in US$) saw moderate gains in the current
quarter largely due to the nature of pricing, much of which is
negotiated monthly or quarterly in advance. Overall sales
realizations for SYP products were up slightly compared to the
previous quarter, with a US$12 per Mfbm, or 3%, decrease in the
benchmark SYP 2x4 #2 price, more than offset by moderate gains in
the 2x6 #2 price and other wider dimension products.
Compared to the first quarter of 2013, sales realizations showed
a moderate improvement despite a marginal decrease in benchmark
prices, principally reflecting a favourable foreign exchange
impact, as sales realizations for Canadian operations benefited
from a 9 cent, or 9%, weaker Canadian dollar. The benchmark North
American Random Lengths Western SPF 2x4 #2&Btr price was down
US$24 per Mfbm, or 6%, compared to the first quarter of 2013, with
higher decreases seen for several other grades and dimension
products, including 2x6 #2 products. The impact from lower North
American prices were somewhat lessened by a more muted decrease in
quarter-over-quarter offshore sales realizations (in US$). SYP
products saw more marked decreases, with the benchmark SYP 2X4 #2
price down US$49 per Mfbm, or 11%, and larger decreases were seen
in wider dimension products. There were no export taxes on U.S.
bound shipments in either quarter.
Total residual fibre revenue was higher in the current quarter
compared to the fourth quarter of 2013, mainly reflecting
market-driven increases in sawmill residual chip prices and to a
lesser degree, higher shipments. Compared to the first quarter of
2013, total residual fibre revenue was also up, with higher sawmill
residual chip prices more than offsetting slightly lower shipments
of sawmill residual chips.
Operations
Lumber production, at over 1.1 billion board feet, was up 3%
from the previous quarter, reflecting more operating hours largely
due to the Christmas period in the previous quarter as well as
additional shifts at the Company's southern pine operations.
Capital related downtime and ramp-ups impacted both the current
quarter and the fourth quarter of 2013, with the completion of the
Company's Houston planer upgrade in the current quarter and the
ramp-up of its Mackenzie and Darlington major sawmill upgrade
projects through both periods. Compared to the first quarter of
2013, lumber production was down 4%, with productivity and
operating hours impacted by capital projects, offset in part by
continued capital-driven productivity improvements. Production in
the current quarter was also impacted by the closure of the
Company's Quesnel Sawmill in mid-March, while productivity was also
hampered by the particularly harsh winter weather.
Overall, the Company's lumber unit manufacturing costs were
higher than the previous quarter, driven by a modest increase in
unit log costs and a similar increase in unit cash conversion
costs. The increase in unit cash conversion costs in part reflected
increases in energy costs as well as continued dust control efforts
partially mitigated by the favourable impact of higher production
levels on unit costs. Higher log costs were primarily attributable
to market-driven increases in stumpage as well as higher hauling
and logging costs.
Compared to the first quarter of 2013, unit manufacturing costs
were up, principally reflecting the market-related stumpage
increases and upward pressure on hauling and logging costs, in part
due to higher diesel prices. Contributing to the increased unit
manufacturing costs were the lower production volumes reflecting
the capital ramp-ups in the current period, the continuing dust
control efforts and higher energy costs, both severe weather and
market-related, as well as higher labour costs.
Pulp and Paper
Selected Financial
Information and Statistics - Pulp and Paper12
|
|
Q1 |
|
Q4 |
|
Q1 |
|
(millions of Canadian dollars unless otherwise noted) |
|
2014 |
|
2013 |
|
2013 |
|
Sales |
$ |
246.2 |
$ |
275.8 |
$ |
243.5 |
|
Operating income before amortization |
$ |
53.0 |
$ |
39.2 |
$ |
38.3 |
|
Operating income |
$ |
36.5 |
$ |
23.2 |
$ |
18.9 |
|
Average pulp price delivered to U.S. - US$13 |
$ |
1,017 |
$ |
983 |
$ |
897 |
|
Average price in Cdn$ |
$ |
1,122 |
$ |
1,032 |
$ |
905 |
|
Production - pulp (000 mt) |
|
310.4 |
|
299.5 |
|
317.0 |
|
Production - paper (000 mt) |
|
36.7 |
|
30.8 |
|
34.8 |
|
Shipments - pulp (000 mt) |
|
255.9 |
|
329.5 |
|
308.2 |
|
Shipments - paper (000 mt) |
|
31.3 |
|
31.1 |
|
35.0 |
| 12 Includes the Taylor Pulp Mill and 100% of Canfor Pulp
Products Inc., which is consolidated in Canfor's results. Pulp
production and shipment volumes presented are for both NBSK and
bleached chemi-thermo mechanical pulp ("BCTMP"). |
| 13 Per tonne, NBSK pulp list price delivered to U.S. (Resource
Information Systems, Inc.). |
Overview
Operating income for the pulp and paper segment was $36.5
million for the first quarter of 2014, up $13.3 million from the
previous quarter, and up $17.6 million from the first quarter of
2013.
Improved pulp and paper segment results compared to the previous
quarter reflected a moderate increase in pulp sales realizations,
resulting from increases in NBSK pulp list prices and a weakening
of the Canadian dollar, down 5% from the previous quarter.
Offsetting these gains were reduced shipments due to the
aforementioned transportation challenges experienced in the current
quarter. While overall shipments were down, sales realizations
benefitted from reduced volumes to lower-margin regions,
principally China. Unit manufacturing costs were up slightly
compared to the previous quarter, with higher fibre (linked to NBSK
pulp sales realizations) and energy costs largely offset by higher
production volumes, primarily the result of improved operating
rates. The current quarter results also included increased energy
revenue with the start-up of Canfor Pulp's recently upgraded
Northwood Pulp Mill turbines.
Higher operating earnings compared to the first quarter of 2013
principally reflected the improved NBSK pulp markets, with strong
gains in NBSK pulp list prices across all regions coupled with a 9%
weaker Canadian dollar. Partially offsetting these gains were lower
total shipments compared to the same period in 2013 which similarly
reflected the transportation challenges experienced in the current
quarter. Compared to the first quarter of 2013, higher unit
manufacturing costs reflected higher market-based fibre and energy
costs and lower production levels, offset in part by lower chemical
costs.
Markets
Global softwood pulp markets showed a modest improvement in the
first quarter of 2014, with solid increases in list prices across
all regions through the quarter and global softwood pulp producer
inventory levels remaining in the balanced range. Global softwood
pulp producer inventory levels increased 1 day from the end of
December 2013, to 28 days' supply in March 201414, partly
reflecting the aforementioned transportation disruptions. Market
conditions are generally considered balanced when inventories are
in the 27-30 days of supply range.
Global shipments of bleached softwood kraft pulp were down 3% in
the first quarter of 2014 compared to the previous quarter and
relatively flat compared to the same period in 201315. The decrease
in softwood pulp shipments compared to the fourth quarter of 2013
reflected decreases to almost all regions in part due to the
transportation challenges experienced in North America.
| 14 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"). |
| 15 As reported by PPPC statistics. |
Sales
The Company's pulp shipments in the first quarter of 2014 were
256,000 tonnes, a decrease of 74,000 tonnes, or 22%, from the
previous quarter, and down 52,000 tonnes, or 17% from the same
period in 2013, largely reflecting the transportation challenges in
the current quarter. Shipments to China were well down from both
comparative periods, with the decrease relative to the fourth
quarter of 2013 in part reflecting strong buying late in 2013 and
the traditional Chinese Lunar New Year holiday in the current
quarter, offset in part by increased volumes to the U.S. Reduced
shipments compared to the previous quarter also reflected a build
in finished goods inventories to target levels following a
significant drawdown related to the higher Chinese purchasing
activity at the end of 2013.
Global softwood pulp markets saw solid price increases through
the current quarter, with the North American NBSK pulp list price
reaching the highest level in almost three years, increasing US$34
per tonne to US$1,017, an increase of 3% from the fourth quarter of
2013. NBSK pulp list prices to China and Europe experienced similar
solid gains through the quarter, both up 2% from the previous
quarter to US$753 per tonne and US$920 per tonne, respectively.
Current quarter sales realizations further benefitted from the 5%
weaker Canadian dollar as well as increased shipments to the
higher-margin U.S. market. Current quarter sales included higher
energy revenue with the start-up of the Company's upgraded
Northwood Pulp Mill turbines combined with additional operating
days reflecting a planned maintenance outage of the Prince George
Pulp Mill turbine in the fourth quarter of 2013. Bleached
chemi-thermo mechanical pulp ("BCTMP") average sales realizations
showed a solid increase compared to the previous quarter reflecting
the weaker Canadian dollar coupled with a marginal increase in
market prices.
Compared to the first quarter of 2013, pulp sales realizations
saw strong gains as a result of marked improvements in average pulp
list prices in all regions and the 9% weaker Canadian dollar. The
North American NBSK pulp list price increased US$120 per tonne, or
13%. NBSK pulp list prices to Europe and China also experienced
solid increases, both up 11% compared to the first quarter of 2013.
Contributing to the improved NBSK pulp list prices were reduced
volumes to lower-margin regions, principally China, which more than
offset the impact of increased pressure on discounts in North
American markets compared to the same period in 2013. Energy
revenue was also up compared to the same period in 2013,
principally attributable to the upgrades to the Northwood Pulp Mill
turbines. BCTMP sales realizations were well up compared to the
first quarter of 2013, also reflecting higher market pricing and
the weaker Canadian dollar.
Operations
Pulp production in the current quarter was 310,000 tonnes, an
increase of 11,000 tonnes, or 4%, from the previous quarter, and a
decrease of 7,000 tonnes, or 2%, compared to the first quarter of
2013. Increased production compared to the fourth quarter of 2013
reflected an improvement in operating rates as the quarter
progressed. The previous quarter also included a scheduled
maintenance outage at Canfor Pulp's Prince George Pulp Mill which
resulted in reduced market pulp production of 4,000 tonnes.
Compared to the first quarter of 2013, production levels were
impacted by slightly lower operating rates and increased transfers
of slush pulp to the paper segment in the current quarter.
Pulp unit manufacturing costs increased slightly from the
previous quarter, with higher energy costs, reflecting
market-related price increases as well as increased consumption in
part due to the harsh weather in the quarter, as well as a modest
increase in fibre costs offsetting the favourable impact of higher
production levels and reduced chemical and (timing-based)
maintenance spending. Higher fibre costs principally reflected a
market-related increase in prices for sawmill residual chips, where
prices are linked to NBSK pulp sales realizations, mitigated
slightly by seasonal pricing adjustments.
Higher unit manufacturing costs compared to the first quarter of
2013 were primarily driven by increased fibre costs and to a lesser
extent, higher energy costs and the impact of lower production
levels, offset in part by reduced chemical costs. The increase in
energy costs resulted mainly from increased rates and higher gas
usage, in part related to increased electricity generation.
Contributing to the higher fibre costs in the current quarter were
higher prices for sawmill residual chips, reflecting increased
market prices, coupled with higher prices for whole log chips, in
part related to pressure on stumpage rates, offset in part by a
small decrease in the proportion of the higher-cost whole log
chips.
Unallocated and Other Items
Selected Financial
Information
|
|
Q1 |
|
|
Q4 |
|
|
Q1 |
|
|
(millions of Canadian dollars) |
|
2014 |
|
|
2013 |
|
|
2013 |
|
|
Operating loss of Panels operations16 |
$ |
(1.3 |
) |
$ |
(0.5 |
) |
$ |
(0.7 |
) |
|
Corporate costs |
$ |
(7.2 |
) |
$ |
(6.3 |
) |
$ |
(6.6 |
) |
|
Finance expense, net |
$ |
(4.4 |
) |
$ |
(6.4 |
) |
$ |
(8.8 |
) |
|
Foreign exchange loss on long-term debt |
$ |
- |
|
$ |
(3.4 |
) |
$ |
(3.8 |
) |
| Gain
(loss) on derivative financial instruments |
$ |
(3.5 |
) |
$ |
(0.2 |
) |
$ |
3.3 |
|
|
Other income (expense), net |
$ |
3.3 |
|
$ |
(3.1 |
) |
$ |
1.7 |
|
| 16 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 $7.2 million for the first quarter of 2014,
up slightly from both comparative periods in 2013, in part
reflecting higher incentive-based compensation costs.
Net finance expense for the first quarter of 2014 was $4.4
million, down $2.0 million from the fourth quarter of 2013 and down
$4.4 million from the first quarter of 2013. The decrease from both
comparative periods principally reflected lower debt levels in both
Canfor and Canfor Pulp in the current quarter coupled with lower
employee future benefit net interest costs, due in part to the
improved financial position of most of the Company's defined
benefit plans. Finance expense for the first quarter of 2013
included refinancing costs incurred to extend the maturity of the
Company's principal operating loan facility.
The Company uses a variety of derivative financial instruments
as partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs, lumber prices, pulp prices and
interest rates. In the first quarter of 2014, the Company recorded
a net loss of $3.5 million related to its derivative instruments,
principally reflecting unrealized losses on US dollar foreign
exchange collars and forward contracts as a result of the weakening
of the Canadian dollar through the quarter, as well as realized and
unrealized losses on interest rate swap instruments due to lower
interest rates between the respective quarter ends.
The following table summarizes the gains (losses) on derivative
financial instruments for the comparable periods:
|
|
Q1 |
|
|
Q4 |
|
|
Q1 |
|
|
(millions of Canadian dollars) |
|
2014 |
|
|
2013 |
|
|
2013 |
|
|
Foreign exchange collars and forward contracts |
$ |
(2.9 |
) |
$ |
0.3 |
|
$ |
1.4 |
|
|
Energy derivatives |
$ |
0.2 |
|
$ |
0.1 |
|
$ |
0.1 |
|
|
Lumber futures |
$ |
0.1 |
|
$ |
0.2 |
|
$ |
2.2 |
|
| Pulp
futures |
$ |
(0.3 |
) |
$ |
(0.1 |
) |
$ |
- |
|
|
Interest rate swaps |
$ |
(0.6 |
) |
$ |
(0.7 |
) |
$ |
(0.4 |
) |
|
|
$ |
(3.5 |
) |
$ |
(0.2 |
) |
$ |
3.3 |
|
Other income, net of $3.3 million in the first quarter of 2014
included a pre-tax accounting gain of $2.2 million related to the
sale of the Daaquam Sawmill in Quebec (see further discussion in
the "Sale of Daaquam Sawmill" section later in this document). The
Company also recorded a $0.6 million negative fair value adjustment
to the Canfor-LP OSB contingent consideration asset, largely
reflecting weaker forecast OSB prices offset by favourable forecast
foreign exchange rates over the contingent consideration period.
Also included in other income, net in the current quarter were
foreign exchange gains on US dollar denominated working capital of
$3.7 million resulting from the weakening of the Canadian dollar
relative to the US dollar over the course of the quarter.
Other Comprehensive Income (Loss)
The following table summarizes Canfor's Other Comprehensive
Income (Loss) for the comparable periods:
|
|
Q1 |
|
|
Q4 |
|
Q1 |
|
(millions of Canadian dollars) |
|
2014 |
|
|
2013 |
|
2013 |
|
Foreign exchange translation differences for foreign
operations |
$ |
10.6 |
|
$ |
8.0 |
$ |
3.5 |
|
Defined benefit actuarial gains (losses), net of tax |
$ |
(24.3 |
) |
$ |
40.4 |
$ |
5.8 |
|
Other comprehensive income (loss), net of tax |
$ |
(13.7 |
) |
$ |
48.4 |
$ |
9.3 |
In the first quarter of 2014, the Company recorded an after-tax
loss to the Statements of Other Comprehensive Income (Loss) of
$24.3 in relation to changes in the valuation of the Company's
employee future benefit plans. The loss reflects a lower discount
rate used to value the net retirement benefit obligations, offset
in part by a modest return on plan assets. Defined benefit
actuarial gains, net of taxes, were recorded in both the comparable
periods, with an after-tax gain of $40.4 million in the fourth
quarter of 2013 and an after-tax gain of $5.8 million in the first
quarter of 2013.
In addition, the Company recorded a $10.6 million of other
comprehensive gain in the quarter for foreign exchange differences
for foreign operations, reflecting favourable foreign exchange
movements during the quarter. This compared to a foreign exchange
translation gain of $8.0 million in the previous quarter and $3.5
million in the first quarter of 2013.
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) |
|
2014 |
|
|
2013 |
|
|
2013 |
|
| Increase (decrease) in cash and cash equivalents |
$ |
(1.6 |
) |
$ |
(0.4 |
) |
$ |
23.3 |
|
|
Operating activities |
$ |
(50.1 |
) |
$ |
98.8 |
|
$ |
56.0 |
|
|
Financing activities |
$ |
99.9 |
|
$ |
(33.8 |
) |
$ |
8.1 |
|
|
Investing activities |
$ |
(51.4 |
) |
$ |
(65.4 |
) |
$ |
(40.8 |
) |
| Ratio of current assets to current liabilities |
|
1.7 : 1 |
|
|
1.7 : 1 |
|
|
1.5 : 1 |
|
| Net debt to capitalization |
|
13.1% |
|
|
8.0% |
|
|
18.8% |
|
| Quarterly ROIC - Consolidated |
|
3.5% |
|
|
2.0% |
|
|
4.8% |
|
| Quarterly ROCE - Canfor solid wood business17 |
|
2.7% |
|
|
2.4% |
|
|
5.6% |
|
| 17 Return on Capital Employed ("ROCE") for the Canfor solid
wood business represents consolidated ROCE adjusted to remove the
Company's interest in Canfor-LP OSB and pulp and paper operations,
including CPPI and the Taylor Pulp Mill. Consolidated ROCE is equal
to shareholder net income for the period plus finance expense,
after tax, divided by the average capital employed during the
period (which consists of current and long-term debt and operating
loans, and shareholders' equity, less cash and temporary
investments). |
Changes in Financial Position
Cash used in operating activities was $50.1 million in the first
quarter of 2014, compared to cash generated of $98.8 million in the
previous quarter and cash generated of $56.0 million in the same
quarter of 2013. The decrease in operating cash flows from both
comparative periods principally reflected a seasonal log inventory
build coupled with significantly higher finished lumber and pulp
inventory levels due to the transportation challenges experienced
in the current quarter. The increase in non-cash working capital
balances of $177.8 million was partially offset by higher cash
earnings in the first quarter of 2014. In addition, the Company
made income tax payments of $11.8 million in the first quarter of
2014 compared to $0.3 million in the fourth quarter of 2013, and
income taxes recovered of $0.5 million in the first quarter of
2013.
Cash generated from financing activities was $99.9 million in
the current quarter, compared to cash used of $33.8 million in the
previous quarter and cash generated of $8.1 million in the first
quarter of 2013. The previous quarter cash flows included repayment
of CPPI's US$110 million 6.41% interest rate debt and the
completion of CPPI's $50.0 million floating rate term debt
financing. During the current quarter, Canfor purchased 196,400
common shares under its Normal Course Issuer Bid for $5.0 million,
of which $2.0 million was paid during the quarter. This compares to
the purchase of 1,474,600 common shares for $33.4 million, all of
which was paid in the fourth quarter of 2013 (see further
discussion of the shares purchased under the Normal Course Issuer
Bid in the following "Liquidity and Financial Requirements"
section). During the current quarter, the Company paid $2.8 million
in finance costs, down from $5.9 million paid in the previous
quarter that included the final interest payment on CPPI's US$110
million term debt. Compared to the first quarter of 2013, cash used
for financing activities was up $91.8 million principally
reflecting a net draw on the Company's operating loan facility of
$106.8 million compared to a net draw of $13.0 million in the same
quarter of the previous year. At the end of the first quarter,
Canfor had $182.0 million outstanding on its operating loan
facilities.
Cash used for investing activities was $51.4 million in the
current quarter, compared to $65.4 million in the fourth quarter of
2013 and $40.8 million in the first quarter of 2013. Cash used for
capital additions was $53.1 million, down $14.4 million from the
previous quarter and up $6.7 million from same quarter in 2013.
Cash paid for capital in the current quarter included capital
projects at the Company's Mackenzie, Grande Prairie and Houston
operations. In the pulp and paper segment, current quarter capital
expenditures of $10.1 million primarily related to Canfor Pulp's
Northwood and Intercontinental Pulp Mills' turbine upgrades.
Construction of the Northwood Pulp Mill turbines was substantially
completed in 2013 and the facility commenced selling power in the
current quarter. Completion of the upgrade to the Intercontinental
Pulp Mill turbine is targeted for early 2015.
Liquidity and Financial Requirements
At March 31, 2014, the Company on a consolidated basis had cash
of $87.9 million, $182.0 million drawn on its operating loans, and
an additional $26.0 million reserved for several standby letters of
credit. Total available undrawn operating loans were $272.0
million.
Canfor has $100.0 million of floating interest rate term debt,
repayable in February 2017 and CPPI has $50.0 million of floating
interest rate term debt, repayable in November 2018.
The Company and CPPI remained in compliance with the covenants
relating to their operating loans and long-term debt during the
quarter, and expect to remain so for the foreseeable future.
The Company's consolidated net debt to total capitalization at
the end of the first quarter of 2014 was 13.1%. For Canfor,
excluding CPPI, net debt to capitalization at the end of the first
quarter was 12.9%.
On March 5, 2014, the Company renewed its normal course issuer
bid whereby it can purchase for cancellation up to 6,995,228 common
shares or approximately 5% of its issued and outstanding common
shares as of February 28, 2014. The renewed normal course issuer
bid is set to expire on March 4, 2015. During the first quarter of
2014, Canfor purchased 196,400 common shares for $5.0 million, of
which $2.0 million was paid in cash in the period.
Sale of Daaquam Sawmill
On March 28, 2014, the Company completed the sale of its Daaquam
Sawmill. Total proceeds related to the disposition of the Daaquam
operation approximated $25 million, all of which were received
subsequent to period end. A pre-tax gain of $2.2 million was
recorded in the first quarter of 2014 in Other Income.
OUTLOOK
Lumber
For the second quarter of 2014, North American lumber
consumption is forecast to rebound as warmer weather is projected
to result in stronger demand in the residential construction market
and increased home improvement projects. Shipments across North
America are anticipated to improve through the second and third
quarters of 2014, releasing the backlog of shipments caused by the
shortage of railcars earlier in 2014. Offshore markets are
projected to remain stable, supported by steady demand from Asia
and other emerging markets. Delayed offshore shipments resulting
from the truckers' strike at the port in Vancouver are forecast to
be largely cleared through the second quarter of 2014.
Pulp and Paper
NBSK pulp markets are projected to face challenges by the middle
of the year, with the annual spring maintenance downtime providing
some supply side relief in the second quarter of 2014. For the
month of April 2014, the Company announced NBSK pulp list prices of
US$1,030 per tonne in North America, unchanged from March 2014, and
list prices to China and Europe also remained unchanged. A risk of
price weakness remains due in part to the significant new hardwood
pulp capacity forecast to come online through 2014. The Company
anticipates that it will clear its transportation-related backlog
of finished inventories by early in the third quarter of 2014.
OUTSTANDING SHARES
At April 29, 2014, there were 139,572,193 common shares
outstanding.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
International Financial Reporting Standards requires management to
make estimates and assumptions that affect the amounts recorded in
the financial statements. On an ongoing basis, management reviews
its estimates, including those related to useful lives for
amortization, impairment of long-lived assets, certain accounts
receivable, pension and other employee future benefit plans and
asset retirement and deferred reforestation obligations based upon
currently available information. While it is reasonably possible
that circumstances may arise which cause actual results to differ
from these estimates, management does not believe it is likely that
any such differences will materially affect the Company's financial
condition.
ACCOUNTING STANDARDS ISSUED AND NOT APPLIED
In May 2011, the International Accounting Standards Board
("IASB") issued IFRS 9, Financial Instruments. The
required adoption date for IFRS 9 has been deferred from the
original date of January 1, 2015 and is currently under review by
the IASB.
Further details of the new accounting Standard and the potential
impact on Canfor can be found in the Company's Annual Report for
the year ended December 31, 2013.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended March 31, 2014, 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 2013 annual statutory reports which are
available on www.canfor.com or www.sedar.com.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
Q1 2014 |
|
Q4 2013 |
|
Q3 2013 |
|
Q2 2013 |
|
Q1 2013 |
|
Q4 2012 |
|
Q3 2012 |
|
Q2 2012 |
| Sales
and income(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
741.9 |
$ |
809.5 |
$ |
755.9 |
$ |
843.2 |
$ |
786.3 |
$ |
700.3 |
$ |
663.7 |
$ |
685.0 |
|
Operating income |
$ |
84.4 |
$ |
53.8 |
$ |
49.3 |
$ |
128.2 |
$ |
100.0 |
$ |
49.0 |
$ |
18.1 |
$ |
22.6 |
| Net
income |
$ |
58.6 |
$ |
35.1 |
$ |
33.6 |
$ |
114.3 |
$ |
67.5 |
$ |
24.7 |
$ |
18.8 |
$ |
5.0 |
|
Shareholder net income |
$ |
45.5 |
$ |
28.0 |
$ |
28.4 |
$ |
110.3 |
$ |
61.9 |
$ |
21.3 |
$ |
20.5 |
$ |
2.6 |
| Per
common share (Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder net income - basic and diluted |
$ |
0.33 |
$ |
0.20 |
$ |
0.20 |
$ |
0.77 |
$ |
0.43 |
$ |
0.15 |
$ |
0.14 |
$ |
0.02 |
|
Book value 18 |
$ |
10.05 |
$ |
9.82 |
$ |
9.47 |
$ |
9.25 |
$ |
8.29 |
$ |
7.79 |
$ |
7.65 |
$ |
7.64 |
|
Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber shipments (MMfbm) |
|
927 |
|
1,109 |
|
1,172 |
|
1,224 |
|
1,093 |
|
1,110 |
|
1,093 |
|
1,120 |
| Pulp
shipments (000 mt) |
|
256 |
|
330 |
|
268 |
|
308 |
|
308 |
|
298 |
|
269 |
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate - US$/Cdn$ |
$ |
0.906 |
$ |
0.953 |
$ |
0.963 |
$ |
0.977 |
$ |
0.991 |
$ |
1.009 |
$ |
1.005 |
$ |
0.990 |
|
Average Western SPF 2x4 #2&Btr lumber price (US$) |
$ |
367 |
$ |
370 |
$ |
328 |
$ |
335 |
$ |
391 |
$ |
335 |
$ |
300 |
$ |
295 |
|
Average SYP (East) 2x4 #2 lumber price (US$) |
$ |
403 |
$ |
415 |
$ |
393 |
$ |
392 |
$ |
452 |
$ |
386 |
$ |
322 |
$ |
325 |
|
Average NBSK pulp list price delivered to U.S. (US$) |
$ |
1,017 |
$ |
983 |
$ |
947 |
$ |
937 |
$ |
897 |
$ |
863 |
$ |
853 |
$ |
900 |
18 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 period.
In addition to exposure to changes in product prices and foreign
exchange, the Company's financial results are impacted by seasonal
factors such as weather and building activity. Adverse weather
conditions can cause logging curtailments, which can affect the
supply of raw materials to sawmills and pulp mills. Market demand
also varies seasonally to some degree. For example, building
activity and repair and renovation work, which affects demand for
lumber products, is generally stronger in the spring and summer
months. Shipment volumes are affected by these factors as well as
by global supply and demand conditions.
Other material factors that impact the comparability of the
quarters are noted below:
| After-tax impact, net of non-controlling interests |
|
|
|
(millions of Canadian dollars, except for per share amounts) |
|
Q1 2014 |
|
Q4 2013 |
|
Q3 2013 |
|
Q2 2013 |
|
Q1 2013 |
|
Q4 2012 |
|
Q3 2012 |
|
Q2 2012 |
|
Shareholder net income, as reported |
$ |
45.5 |
$ |
28.0 |
$ |
28.4 |
$ |
110.3 |
$ |
61.9 |
$ |
21.3 |
$ |
20.5 |
$ |
2.6 |
|
(Gain) loss on derivative financial instruments |
$ |
2.1 |
$ |
0.1 |
$ |
(2.2) |
$ |
1.0 |
$ |
(2.2) |
$ |
6.5 |
$ |
(4.4) |
$ |
4.2 |
| Gain on sale
of Daaquam Sawmill |
$ |
(1.6) |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
|
(Gain) loss on sale of Canfor-LP OSB |
$ |
0.4 |
$ |
3.6 |
$ |
1.0 |
$ |
(33.4) |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
|
Foreign exchange (gain) loss on long-term debt and investments,
net |
$ |
- |
$ |
1.5 |
$ |
(1.0) |
$ |
1.8 |
$ |
2.3 |
$ |
1.2 |
$ |
(4.0) |
$ |
2.4 |
| Mill
closure provisions |
$ |
- |
$ |
14.8 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
|
One-time costs associated with collective agreements for the lumber
business |
$ |
- |
$ |
0.8 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
|
Canfor's 50% interest in Canfor-LP OSB's income, net of tax |
$ |
- |
$ |
- |
$ |
- |
$ |
3.8 |
$ |
8.3 |
$ |
- |
$ |
- |
$ |
- |
|
Change in substantively enacted tax rate |
$ |
- |
$ |
- |
$ |
- |
$ |
4.2 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
| Net
gain on post retirement and pension plan amendments |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
(8.7) |
$ |
- |
$ |
- |
|
Restructuring charges for management changes |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
1.5 |
$ |
- |
|
Net impact of above items |
$ |
0.9 |
$ |
20.8 |
$ |
(2.2) |
$ |
(22.6) |
$ |
8.4 |
$ |
(1.0) |
$ |
(6.9) |
$ |
6.6 |
|
Adjusted shareholder net income |
$ |
46.4 |
$ |
48.8 |
$ |
26.2 |
$ |
87.7 |
$ |
70.3 |
$ |
20.3 |
$ |
13.6 |
$ |
9.2 |
|
Shareholder net income per share (EPS), as reported |
$ |
0.33 |
$ |
0.20 |
$ |
0.20 |
$ |
0.77 |
$ |
0.43 |
$ |
0.15 |
$ |
0.14 |
$ |
0.02 |
|
Net impact of above items per share |
$ |
0.01 |
$ |
0.15 |
$ |
(0.02) |
$ |
(0.16) |
$ |
0.06 |
$ |
(0.01) |
$ |
(0.05) |
$ |
0.05 |
|
Adjusted net income per share |
$ |
0.34 |
$ |
0.35 |
$ |
0.18 |
$ |
0.61 |
$ |
0.49 |
$ |
0.14 |
$ |
0.09 |
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Canfor Corporation |
| Condensed Consolidated Balance Sheets |
|
| (millions of Canadian dollars, unaudited) |
|
As at March 31, 2014 |
As at December 31, 2013 |
|
|
|
|
|
| ASSETS |
|
|
|
|
| Current assets |
|
|
|
|
| Cash and cash equivalents |
$ |
87.9 |
$ |
89.5 |
| Accounts receivable |
|
|
|
|
|
-
Trade |
|
118.7 |
|
112.6 |
|
-
Other |
|
66.5 |
|
39.3 |
| Inventories (Note 2) |
|
647.6 |
|
471.9 |
| Prepaid expenses and other assets |
|
36.0 |
|
39.1 |
| Total current assets |
|
956.7 |
|
752.4 |
| Property, plant and equipment |
|
1,152.0 |
|
1,151.9 |
| Timber licenses |
|
530.8 |
|
534.6 |
| Goodwill and other intangible assets |
|
99.5 |
|
93.5 |
| Retirement benefit surplus (Note 5) |
|
27.5 |
|
42.2 |
| Long-term investments and other (Note 3) |
|
112.4 |
|
112.5 |
| Deferred income taxes, net |
|
6.2 |
|
6.2 |
| Total assets |
$ |
2,885.1 |
$ |
2,693.3 |
|
|
|
|
|
| LIABILITIES |
|
|
|
|
| Current liabilities |
|
|
|
|
| Operating loans (Note 4) |
$ |
182.0 |
$ |
74.6 |
| Accounts payable and accrued liabilities |
|
347.5 |
|
321.8 |
| Current portion of deferred reforestation
obligations |
|
43.9 |
|
44.1 |
| Total current liabilities |
|
573.4 |
|
440.5 |
| Long-term debt |
|
153.3 |
|
153.1 |
| Retirement benefit obligations (Note 5) |
|
209.4 |
|
200.5 |
| Deferred reforestation obligations |
|
83.4 |
|
69.8 |
| Other long-term liabilities |
|
14.3 |
|
14.9 |
| Deferred income taxes, net |
|
216.1 |
|
217.1 |
| Total liabilities |
$ |
1,249.9 |
$ |
1,095.9 |
|
|
|
|
|
| EQUITY |
|
|
|
|
| Share capital |
$ |
1,102.2 |
$ |
1,103.7 |
| Contributed surplus |
|
31.9 |
|
31.9 |
| Retained earnings |
|
255.3 |
|
234.2 |
| Accumulated foreign exchange translation
differences |
|
15.1 |
|
4.5 |
| Total equity attributable to equity holders of the
Company |
|
1,404.5 |
|
1,374.3 |
| Non-controlling interests |
|
230.7 |
|
223.1 |
| Total equity |
$ |
1,635.2 |
$ |
1,597.4 |
| Total liabilities and equity |
$ |
2,885.1 |
$ |
2,693.3 |
|
|
|
|
|
| The accompanying notes are an integral part of these condensed
consolidated financial statements. |
|
|
|
APPROVED BY THE BOARD |
|
|
"R.S. Smith" |
"M.J. Korenberg" |
|
Director, R.S. Smith |
Director, M.J. Korenberg |
|
|
| Canfor Corporation |
|
| Condensed Consolidated Statements of Income |
|
|
|
|
3 months ended March 31, |
|
| (millions of Canadian dollars, except per share data,
unaudited) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
Sales |
$ |
741.9 |
|
$ |
786.3 |
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Manufacturing and product costs |
|
478.7 |
|
|
492.2 |
|
|
|
Freight and other distribution costs |
|
113.8 |
|
|
129.4 |
|
|
|
Amortization |
|
44.5 |
|
|
46.9 |
|
|
|
Selling and administration costs |
|
18.3 |
|
|
16.3 |
|
|
|
|
Restructuring, mill closure and severance costs |
|
2.2 |
|
|
1.5 |
|
|
|
657.5 |
|
|
686.3 |
|
|
|
|
|
|
|
|
|
Operating income |
|
84.4 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
Finance expense, net |
|
(4.4 |
) |
|
(8.8 |
) |
|
Foreign exchange loss on long-term debt |
|
- |
|
|
(3.8 |
) |
|
Gain (loss) on derivative financial instruments (Note
6) |
|
(3.5 |
) |
|
3.3 |
|
|
|
Other income, net |
|
3.3 |
|
|
1.7 |
|
|
Net income before income taxes |
|
79.8 |
|
|
92.4 |
|
|
|
Income tax expense (Note 7) |
|
(21.2 |
) |
|
(24.9 |
) |
|
|
Net income |
$ |
58.6 |
|
$ |
67.5 |
|
|
|
|
|
|
|
|
|
Net income attributable to: |
|
|
|
|
|
|
|
Equity shareholders of the Company |
$ |
45.5 |
|
$ |
61.9 |
|
|
|
Non-controlling interests |
|
13.1 |
|
|
5.6 |
|
|
|
Net income |
$ |
58.6 |
|
$ |
67.5 |
|
|
|
|
|
|
|
|
|
Net income per common share: (in Canadian dollars) |
|
|
|
|
|
|
|
Attributable to equity shareholders of the Company |
|
|
|
|
|
|
|
|
|
- Basic and diluted (Note 8) |
$ |
0.33 |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of these condensed
consolidated financial statements. |
|
|
| Canfor Corporation |
|
| Condensed Consolidated Statements of Other
Comprehensive Income (Loss) |
|
|
|
|
3 months ended March 31, |
|
|
(millions of Canadian dollars, unaudited) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
| Net
income |
$ |
58.6 |
|
$ |
67.5 |
|
| Other
comprehensive income (loss) |
|
|
|
|
|
|
| Items
that will not be recycled through net income: |
|
|
|
|
|
|
|
Defined benefit plan actuarial gains (losses) (Note 5) |
|
(32.8 |
) |
|
7.7 |
|
|
Income tax recovery (expense) on defined benefit actuarial gains
(losses) (Note 7) |
|
8.5 |
|
|
(1.9 |
) |
|
|
(24.3 |
) |
|
5.8 |
|
| Items
that may be recycled through net income: |
|
|
|
|
|
|
|
Foreign exchange translation differences for foreign
operations |
|
10.6 |
|
|
3.5 |
|
|
Other comprehensive income (loss), net of tax |
|
(13.7 |
) |
|
9.3 |
|
|
Total comprehensive income |
$ |
44.9 |
|
$ |
76.8 |
|
|
|
|
|
|
|
|
| Total
comprehensive income attributable to: |
|
|
|
|
|
|
|
Equity shareholders of the Company |
$ |
35.2 |
|
$ |
71.1 |
|
|
Non-controlling interests |
|
9.7 |
|
|
5.7 |
|
|
Total comprehensive income |
$ |
44.9 |
|
$ |
76.8 |
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of these condensed
consolidated financial statements. |
|
|
| Canfor Corporation |
|
| Condensed Consolidated Statements of Changes in
Equity |
|
|
|
|
3 months ended March 31, |
|
|
(millions of Canadian dollars, unaudited) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
| Share
capital |
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
1,103.7 |
|
$ |
1,126.2 |
|
|
Share purchases (Note 8) |
|
(1.5 |
) |
|
- |
|
|
Balance at end of period |
$ |
1,102.2 |
|
$ |
1,126.2 |
|
|
|
|
|
|
|
|
|
Contributed surplus |
|
|
|
|
|
|
|
Balance at beginning and end of period |
$ |
31.9 |
|
$ |
31.9 |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
234.2 |
|
$ |
(35.1 |
) |
| Net
income attributable to equity shareholders of the Company |
|
45.5 |
|
|
61.9 |
|
|
Defined benefit plan actuarial gains (losses), net of tax |
|
(20.9 |
) |
|
5.7 |
|
|
Share purchases (Note 8) |
|
(3.5 |
) |
|
- |
|
|
Balance at end of period |
$ |
255.3 |
|
$ |
32.5 |
|
|
|
|
|
|
|
|
|
Accumulated foreign exchange translation differences |
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
4.5 |
|
$ |
(10.5 |
) |
|
Foreign exchange translation differences for foreign
operations |
|
10.6 |
|
|
3.5 |
|
|
Balance at end of period |
$ |
15.1 |
|
$ |
(7.0 |
) |
|
|
|
|
|
|
|
|
Total equity attributable to equity holders of the Company |
$ |
1,404.5 |
|
$ |
1,183.6 |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
223.1 |
|
$ |
199.4 |
|
| Net
income attributable to non-controlling interests |
|
13.1 |
|
|
5.6 |
|
|
Defined benefit plan actuarial gains (losses) attributable to
non-controlling interests, net of taxes |
|
(3.4 |
) |
|
0.1 |
|
|
Distributions to non-controlling interests |
|
(2.1 |
) |
|
(2.4 |
) |
|
Balance at end of period |
$ |
230.7 |
|
$ |
202.7 |
|
|
|
|
|
|
|
|
|
Total equity |
$ |
1,635.2 |
|
$ |
1,386.3 |
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of these condensed
consolidated financial statements. |
|
|
| Canfor Corporation |
|
| Condensed Consolidated Statements of Cash Flows |
|
|
|
|
3 months ended March 31, |
|
| (millions of Canadian dollars, unaudited) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
| Cash generated from (used in): |
|
|
|
|
|
|
| Operating activities |
|
|
|
|
|
|
|
Net income |
$ |
58.6 |
|
$ |
67.5 |
|
|
Items not affecting cash: |
|
|
|
|
|
|
|
|
Amortization |
|
44.5 |
|
|
46.9 |
|
|
|
Income tax expense |
|
21.2 |
|
|
24.9 |
|
|
|
Long-term portion of deferred reforestation obligations |
|
13.4 |
|
|
14.1 |
|
|
|
Foreign exchange loss on long-term debt |
|
- |
|
|
3.8 |
|
|
|
Changes in mark-to-market value of derivative financial
instruments |
|
3.4 |
|
|
(5.3 |
) |
|
|
Employee future benefits |
|
3.2 |
|
|
3.5 |
|
|
|
Net
finance expense |
|
4.4 |
|
|
8.8 |
|
|
|
Other, net |
|
4.3 |
|
|
(0.7 |
) |
|
Defined benefit pension plan contributions |
|
(13.5 |
) |
|
(13.5 |
) |
|
|
Income taxes recovered (paid), net |
|
(11.8 |
) |
|
0.5 |
|
|
|
127.7 |
|
|
150.5 |
|
|
|
Net change in non-cash working capital (Note 9) |
|
(177.8 |
) |
|
(94.5 |
) |
|
|
(50.1 |
) |
|
56.0 |
|
| Financing activities |
|
|
|
|
|
|
|
|
Change in operating bank loans |
|
106.8 |
|
|
13.0 |
|
|
|
Finance expenses paid |
|
(2.8 |
) |
|
(2.5 |
) |
|
|
Share
purchases (Note 8) |
|
(2.0 |
) |
|
- |
|
|
|
|
Cash distributions paid to non-controlling interests |
|
(2.1 |
) |
|
(2.4 |
) |
|
|
99.9 |
|
|
8.1 |
|
| Investing activities |
|
|
|
|
|
|
|
Additions to property, plant and equipment and
intangible assets, net |
|
(53.1 |
) |
|
(46.4 |
) |
|
|
Loan
repayment from Scotch & Gulf Lumber, LLC (Note 11) |
|
2.6 |
|
|
- |
|
|
|
Other, net |
|
(0.9 |
) |
|
5.6 |
|
|
|
(51.4 |
) |
|
(40.8 |
) |
| Increase (decrease) in cash and cash equivalents* |
|
(1.6 |
) |
|
23.3 |
|
| Cash and cash equivalents at beginning of period* |
|
89.5 |
|
|
(17.1 |
) |
| Cash and cash equivalents at end of period* |
$ |
87.9 |
|
$ |
6.2 |
|
| * Cash and cash equivalents include cash on hand less
unpresented cheques. |
|
| The accompanying notes are an integral part of these condensed
consolidated financial statements. |
|
|
| Canfor Corporation |
| Notes to the Condensed Consolidated Financial Statements |
| (unaudited, millions of Canadian dollars unless otherwise
noted) |
1. Basis of Preparation
These condensed consolidated interim financial statements (the
"financial statements") have been prepared in accordance with
International Accounting Standard ("IAS") 34 Interim Financial
Reporting, and include the accounts of Canfor Corporation and
its subsidiary entities, hereinafter referred to as "Canfor\" or
"the Company".
These financial statements do not include all of the disclosures
required by International Financial Reporting Standards ("IFRS")
for annual financial statements. Additional disclosures relevant to
the understanding of these financial statements, including the
accounting policies applied, can be found in the Company's Annual
Report for the year ended December 31, 2013, available at
www.canfor.com or www.sedar.com.
Canfor's financial results are impacted by seasonal factors such
as weather and building activity. Adverse weather conditions can
cause logging curtailments, which can affect the supply of raw
materials to sawmills and pulp mills. Market demand also varies
seasonally to some degree. For example, building activity and
repair and renovation work, which affects demand for solid wood
products, are generally stronger in the spring and summer months.
Shipment volumes are affected by these factors as well as by global
supply and demand conditions.
The currency of presentation for these financial statements is
the Canadian dollar.
Accounting Standards Issued and Not Applied
In May 2011, the International Accounting Standards Board
("IASB") issued IFRS 9, Financial Instruments. The
required adoption date for IFRS 9 has been deferred from the
original adoption date of January 1, 2015 and is currently under
review by the IASB.
Further details of the new accounting Standard and potential
impact on Canfor can be found in the Company's Annual Report for
the year ended December 31, 2013.
2. Inventories
|
(millions of Canadian dollars) |
|
As at March 31, 2014 |
|
As at December 31, 2013 |
|
Logs |
$ |
218.0 |
$ |
134.5 |
|
Finished products |
|
319.0 |
|
222.3 |
|
Residual fibre |
|
9.5 |
|
14.9 |
|
Processing materials and supplies |
|
101.1 |
|
100.2 |
|
|
$ |
647.6 |
$ |
471.9 |
3. Long-Term Investments and Other
|
(millions of Canadian dollars) |
|
As at March 31, 2014 |
|
As at December 31, 2013 |
|
Investments |
$ |
53.7 |
$ |
53.8 |
|
Term loan to Scotch & Gulf Lumber, LLC (Note 11) |
|
31.6 |
|
33.0 |
|
Contingent consideration (Note 12) |
|
12.2 |
|
11.4 |
|
Other deposits, loans and advances |
|
14.9 |
|
14.3 |
|
|
$ |
112.4 |
$ |
112.5 |
Included in Long-Term Investments and Other is Canfor's initial
25% interest in Scotch & Gulf Lumber, LLC ("Scotch Gulf") and a
term loan receivable from Scotch Gulf (Note 11). Investments also
include the Company's 33.3% investment in Lakeland Mills Ltd. and
Winton Global Lumber Ltd. The Company does not have significant
influence with respect to this investment.
4. Operating Loans
Available Operating Loans
| (millions of Canadian dollars) |
|
As at March 31, 2014 |
|
|
As at December 31, 2013 |
|
| Canfor (excluding CPPI) |
|
|
|
|
|
|
| Available Operating Loans: |
|
|
|
|
|
|
|
Total
operating loans - Canfor (excluding CPPI) |
$ |
350.0 |
|
$ |
350.0 |
|
|
Drawn |
|
(177.0 |
) |
|
(64.0 |
) |
|
Letters of credit (principally unregistered pension plans) |
|
(13.8 |
) |
|
(14.8 |
) |
| Total available operating loans - Canfor (excluding
CPPI) |
$ |
159.2 |
|
$ |
271.2 |
|
| CPPI |
|
|
|
|
|
|
| Available Operating Loans: |
|
|
|
|
|
|
|
Operating loan facility |
$ |
110.0 |
|
$ |
110.0 |
|
|
Facility for letters of credit related to energy agreements |
|
20.0 |
|
|
20.0 |
|
|
Total
operating loans - CPPI |
|
130.0 |
|
|
130.0 |
|
|
Drawn |
|
(5.0 |
) |
|
(10.6 |
) |
|
Energy letters of credit |
|
(12.2 |
) |
|
(12.2 |
) |
| Total available operating loans - CPPI |
$ |
112.8 |
|
$ |
107.2 |
|
| Consolidated: |
|
|
|
|
|
|
| Total operating loans |
$ |
480.0 |
|
$ |
480.0 |
|
| Total available operating loans |
$ |
272.0 |
|
$ |
378.4 |
|
Canfor's principal operating loans, excluding Canfor Pulp
Products Inc. ("CPPI"), mature on February 28, 2018. Interest is
payable at floating rates based on the lenders' Canadian prime
rate, bankers acceptances, US dollar base rate or US dollar LIBOR
rate, plus a margin that varies with the Company's net debt to
total capitalization ratio.
The terms of CPPI's operating loan facility include interest
payable at floating rates that vary depending on the ratio of net
debt to total capitalization and is based on lenders' Canadian
prime rate, bankers acceptances, US dollar base rate or US dollar
LIBOR rate, plus a margin. The maturity date of this facility is
January 31, 2018.
Both Canfor's and CPPI's operating loan facilities have certain
financial covenants that stipulate maximum net debt to total
capitalization ratios and minimum net worth amounts based on
shareholders' equity.
CPPI has a separate facility with a maturity date of June 30,
2015 to cover energy-related letters of credit. At March 31, 2014,
$9.4 million of energy-related letters of credit were covered under
this facility with the balance of $2.8 million covered under CPPI's
general operating loan facility.
As at March 31, 2014, the Company and CPPI were in compliance
with all covenants relating to their operating loans. Substantially
all borrowings of CPPI (operating loans and long-term debt) are
non-recourse to other entities within the Company.
5. Employee Future Benefits
For the three months ended March 31, 2014, a loss of $32.8
million (before tax) was recognized in other comprehensive income
in relation to changes in the valuation of the Company's employee
future benefit plans. The loss reflects a lower discount rate used
to value the net retirement benefit obligations, offset in part by
a modest return on plan assets. For the three months ended March
31, 2013, a gain of $7.7 million (before tax) was recognized in
other comprehensive income.
For the Company's defined benefit plans, a one percentage point
increase in the discount rate used in calculating the actuarial
estimate of future liabilities would decrease the accrued benefit
obligation by an estimated $78.1 million.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
| Pension Benefit Plans |
|
| Discount rate |
|
|
March
31, 2014 |
4.40% |
|
December 31, 2013 |
4.80% |
|
March
31, 2013 |
4.10% |
|
December 31, 2012 |
4.20% |
| Other Benefit Plans |
|
| Discount rate |
|
|
March
31, 2014 |
4.50% |
|
December 31, 2013 |
4.90% |
|
March
31, 2013 |
4.30% |
|
December 31, 2012 |
4.40% |
6. Financial Instruments
Canfor's cash and cash equivalents, accounts receivable, other
deposits, loans and advances, operating loans, accounts payable and
accrued liabilities, and long-term debt are measured at amortized
cost subsequent to initial measurement. At March 31, 2014, the fair
value of the Company's long-term debt approximates its amortized
cost of $153.3 million (December 31, 2013 - $153.1 million).
Derivative instruments are measured at fair value. IFRS 13,
Fair Value Measurement, requires classification of
financial instruments within a hierarchy that prioritizes the
inputs to fair value measurement.
The three levels of the fair value hierarchy are:
|
Level
1 - Unadjusted quoted prices in active markets for identical assets
or liabilities; |
|
Level 2 - Inputs other than quoted prices
that are observable for the asset or liability, either directly or
indirectly; |
|
Level 3 - Inputs that are not based on
observable market data. |
The following table summarizes Canfor's financial instruments
measured at fair value at March 31, 2014 and December 31, 2013, and
shows the level within the fair value hierarchy in which they have
been classified:
| (millions of Canadian dollars) |
Fair Value Hierarchy Level |
As at March 31, 2014 |
|
As at December 31, 2013 |
| Financial assets measured at fair value |
|
|
|
|
|
|
Derivative financial instruments - held for trading |
Level 2 |
$ |
0.3 |
$ |
0.6 |
|
Royalty receivable - available for sale |
Level 3 |
|
4.7 |
|
5.3 |
|
|
Contingent consideration - available for sale (Note 12) |
Level 3 |
|
12.2 |
|
12.8 |
|
|
$ |
17.2 |
$ |
18.7 |
| Financial liabilities measured at fair value |
|
|
|
|
|
|
|
Derivative financial instruments - held for trading |
Level 2 |
$ |
3.5 |
$ |
0.3 |
|
|
$ |
3.5 |
$ |
0.3 |
|
|
|
|
|
|
The royalty receivable and contingent consideration are measured
at fair value at each reporting period and are presented in Other
Accounts Receivable and Long-Term Investments and Other on the
consolidated balance sheet, depending on their respective
liquidity. The fair value of the royalty receivable is determined
by discounting future expected cash flows based on energy price
assumptions and future sales volume assumptions until the
termination of the royalty agreement in September 2015. The fair
value of the contingent consideration is determined by discounting
future expected cash flows based on forecast oriented strand board
("OSB") prices, sales volumes, foreign exchange rates and margins
for the Peace Valley OSB operation (Note 12).
The Company uses a variety of derivative financial instruments
to reduce its exposure to risks associated with fluctuations in
foreign exchange rates, lumber prices, pulp prices, energy costs,
and floating interest rates on long-term debt.
At March 31, 2014, the fair value of derivative financial
instruments was a net liability of $3.2 million (December 31, 2013
- net asset of $0.3 million). The fair value of these financial
instruments was determined based on prevailing market rates for
instruments with similar characteristics.
The following table summarizes the gain (loss) on derivative
financial instruments for the three month periods ended March 31,
2014 and 2013:
|
3 months ended March 31, |
|
|
(millions of Canadian dollars) |
|
2014 |
|
|
2013 |
|
|
Foreign exchange collars and forward contracts |
$ |
(2.9 |
) |
$ |
1.4 |
|
|
Energy derivatives |
|
0.2 |
|
|
0.1 |
|
|
Lumber futures |
|
0.1 |
|
|
2.2 |
|
| Pulp
futures |
|
(0.3 |
) |
|
- |
|
|
Interest rate swaps |
|
(0.6 |
) |
|
(0.4 |
) |
|
|
$ |
(3.5 |
) |
$ |
3.3 |
|
7. Income Taxes
|
3 months ended March 31, |
|
|
(millions of Canadian dollars) |
|
2014 |
|
|
2013 |
|
|
Current |
$ |
(13.9 |
) |
$ |
(5.2 |
) |
|
Deferred |
|
(7.3 |
) |
|
(19.7 |
) |
|
Income tax expense |
$ |
(21.2 |
) |
$ |
(24.9 |
) |
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) |
|
2014 |
|
|
2013 |
|
| Income tax expense at statutory rate 2014 - 26.0% (2013
- 25.0%) |
$ |
(20.7 |
) |
$ |
(23.1 |
) |
| Add (deduct): |
|
|
|
|
|
|
|
Non-taxable income related to non-controlling interests in limited
partnerships |
|
0.1 |
|
|
- |
|
|
Entities with different income tax rates and other tax
adjustments |
|
(0.4 |
) |
|
(1.3 |
) |
|
Permanent difference from capital gains and losses and other
non-deductible items |
|
(0.2 |
) |
|
(0.5 |
) |
| Income tax expense |
$ |
(21.2 |
) |
$ |
(24.9 |
) |
In addition to the amounts recorded to net income, a tax
recovery of $8.5 million was recorded to other comprehensive income
for the three month period ended March 31, 2014 (three months ended
March 31, 2013 - expense of $1.9 million) in relation to the
actuarial gains (losses) on defined benefit employee compensation
plans.
8. Earnings Per Share and Normal Course Issuer Bid
Basic net income per share is calculated by dividing the net
income available to common shareholders by the weighted average
number of common shares outstanding during the period.
|
3 months ended March 31, |
|
|
2014 |
2013 |
|
Weighted average number of common shares |
139,894,792 |
142,752,431 |
On March 5, 2014, the Company renewed its normal course issuer
bid whereby it can purchase for cancellation up to 6,995,228 common
shares or approximately 5% of its issued and outstanding common
shares as of February 28, 2014. The renewed normal course issuer
bid is set to expire on March 4, 2015. During the first quarter of
2014, Canfor purchased 196,400 common shares for $5.0 million (an
average of $25.46 per common share), of which $2.0 million was paid
in the quarter and the balance paid in April 2014.
9. Net Change in Non-Cash Working Capital
|
3 months ended March 31, |
|
|
(millions of Canadian dollars) |
|
2014 |
|
|
2013 |
|
|
Accounts receivable |
$ |
(13.8 |
) |
$ |
(48.1 |
) |
|
Inventories |
|
(194.9 |
) |
|
(99.5 |
) |
|
Prepaid expenses and other assets |
|
(2.2 |
) |
|
1.5 |
|
|
Accounts payable, accrued liabilities and current portion of
deferred reforestation obligations |
|
33.1 |
|
|
51.6 |
|
|
Net increase in non-cash working capital |
$ |
(177.8 |
) |
$ |
(94.5 |
) |
10. Segment Information
Canfor has two reportable segments (lumber segment and pulp and
paper segment) which offer different products and are managed
separately because they require different production processes and
marketing strategies.
Sales between segments are accounted for at prices that
approximate fair value. These include sales of residual fibre from
the lumber segment to the pulp and paper segment for use in the
pulp production process.
The Company's panels business does not meet the criteria to be
reported fully as a separate segment and is included in Unallocated
& Other below.
|
(millions of Canadian dollars) |
|
Lumber |
Pulp & Paper |
Unallocated & Other |
|
Elimination Adjustment |
|
Consolidated |
| 3
months ended March 31, 2014 |
|
|
|
|
|
|
|
|
|
| Sales
to external customers |
$ |
495.7 |
246.2 |
- |
|
- |
|
$ |
741.9 |
| Sales
to other segments |
$ |
35.5 |
- |
- |
|
(35.5 |
) |
$ |
- |
|
Operating income (loss) |
$ |
56.4 |
36.5 |
(8.5 |
) |
- |
|
$ |
84.4 |
|
Amortization |
$ |
27.9 |
16.5 |
0.1 |
|
- |
|
$ |
44.5 |
|
Capital expenditures1 |
$ |
39.6 |
10.1 |
3.4 |
|
- |
|
$ |
53.1 |
|
Identifiable assets |
$ |
1,920.0 |
782.0 |
183.1 |
|
- |
|
$ |
2,885.1 |
| 3
months ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
| Sales
to external customers |
$ |
542.3 |
243.5 |
0.5 |
|
- |
|
$ |
786.3 |
| Sales
to other segments |
$ |
31.2 |
- |
- |
|
(31.2 |
) |
$ |
- |
|
Operating income (loss) |
$ |
88.4 |
18.9 |
(7.3 |
) |
- |
|
$ |
100.0 |
|
Amortization |
$ |
27.3 |
19.4 |
0.2 |
|
- |
|
$ |
46.9 |
|
Capital expenditures1 |
$ |
38.0 |
7.0 |
1.4 |
|
- |
|
$ |
46.4 |
|
Identifiable assets |
$ |
1,692.6 |
777.3 |
144.7 |
|
- |
|
$ |
2,614.6 |
| 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. Phased Purchase of Scotch & Gulf Lumber, LLC
On August 9, 2013, the Company completed the first phase of the
purchase of Scotch Gulf for $29.5 million, representing an initial
25% interest in Scotch Gulf, plus transaction closing costs and a
proportionate share of working capital. Canfor's initial 25%
interest will increase over a 3 year period to 33% after twelve
months, 50% after eighteen months and 100% at the end of the term.
Scotch Gulf has an option under the purchase agreement to
accelerate the final closing of the phased purchase to a date
earlier than August 2016 under certain conditions. The aggregate
purchase price for Scotch Gulf is US$80.0 million, plus working
capital.
As part of the transaction, Scotch Gulf borrowed $34.0 million
from Canfor in the form of a term loan that will be repaid from the
distribution of cash earnings over the course of the phased
purchase agreement with any net outstanding amount at August 2016
applied against the final phase purchase price payment. The term
loan has an interest rate equal to the floating rate on Canfor's
principal operating loans plus 1.0% and is secured by Scotch Gulf's
operating assets. At March 31, 2014, $31.6 million was outstanding
on the term loan receivable which is included in Long-Term
Investments and Other on the balance sheet (Note 3).
12. Sale of Canfor-LP OSB Joint Venture
On May 31, 2013, the Company completed the sale of its 50% share
in Canfor-LP OSB, which owns the Peace Valley OSB mill, to
Louisiana-Pacific Corporation ("LP") for cash proceeds of $77.9
million including working capital. A pre-tax gain on sale of $38.3
million was recorded in the second quarter of 2013 which included
recognition of Canfor's share of the operating income for the first
half of 2013.
As part of the sale, Canfor may receive additional annual
consideration over a 3 year period, starting June 1, 2013,
contingent on Peace Valley OSB's annual adjusted earnings before
interest, tax, depreciation and amortization. At March 31, 2014,
the fair value of the contingent consideration is $12.2 million,
and is presented in Long-Term Investments and Other (Note 3).
During the first quarter of 2014, Canfor recognized a $0.6 million
negative fair value adjustment on the contingent consideration in
other expense.
13. Sale of Daaquam Sawmill
On March 28, 2014, the Company completed the sale of its Daaquam
Sawmill. Total gross proceeds related to the disposition of the
Daaquam operation approximated $25.0 million, all of which were
received subsequent to period end. A pre-tax gain of $2.2 million
was recorded in the first quarter of 2014 in Other Income.
Media Contact:Christine KennedyVice President, Public Affairs
& Corporate Communications(604)
661-5225Christine.Kennedy@canfor.comInvestor Contact:Pat
ElliottVice President & Treasurer(604)
661-5441Patrick.Elliott@canfor.com
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