VANCOUVER, July 21, 2015 /CNW/ - Canfor Corporation (TSX:
CFP) today reported net income attributable to shareholders
("shareholder net income") of $11.1
million, or $0.08 per share,
for the second quarter of 2015, compared to $29.3 million, or $0.22 per share, for the first quarter of 2015
and $54.3 million, or $0.39 per share, for the second quarter of
2014. For the six months ended June
30, 2015, the Company's shareholder net income was
$40.4 million, or $0.30 per share, compared to shareholder net
income of $99.8 million, or
$0.72 per share, reported for the
first half of 2014.
The following table summarizes selected financial information
for the Company for the comparative periods:
(millions of Canadian dollars, except per share
amounts) |
|
Q2 |
|
Q1 |
|
YTD |
|
Q2 |
|
YTD |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Sales |
$ |
952.4 |
$ |
930.0 |
$ |
1,882.4 |
$ |
907.3 |
$ |
1,649.2 |
Operating income before amortization |
$ |
69.8 |
$ |
133.0 |
$ |
202.8 |
$ |
141.3 |
$ |
270.2 |
Operating income |
$ |
17.6 |
$ |
83.7 |
$ |
101.3 |
$ |
97.3 |
$ |
181.7 |
Net income attributable to equity shareholders of
the Company |
$ |
11.1 |
$ |
29.3 |
$ |
40.4 |
$ |
54.3 |
$ |
99.8 |
Net income per share attributable to equity
shareholders of the Company, basic and
diluted |
$ |
0.08 |
$ |
0.22 |
$ |
0.30 |
$ |
0.39 |
$ |
0.72 |
Adjusted shareholder net income (loss) |
$ |
(2.0) |
$ |
46.5 |
$ |
44.5 |
$ |
56.7 |
$ |
103.1 |
Adjusted shareholder net income (loss) per share,
basic and diluted |
$ |
(0.02) |
$ |
0.35 |
$ |
0.33 |
$ |
0.41 |
$ |
0.74 |
After adjusting for items affecting comparability with the prior
periods, the Company's adjusted shareholder net loss for the second
quarter of 2015 was $2.0 million, or
$0.02 per share, compared to an
adjusted shareholder net income of $46.5
million, or $0.35 per share,
for the first quarter of 2015. Canfor's adjusted shareholder
net income for the second quarter of 2014 was $56.7 million, or $0.41 per share.
The Company reported operating income of $17.6 million for the second quarter of 2015,
down $66.1 million compared to
operating income of $83.7 million for
the first quarter of 2015, with the decline reflecting lower
operating earnings in both the lumber and pulp and paper
segments. Lumber segment results were impacted by a decline
in benchmark lumber prices, an average export tax of 7% on Canadian
lumber shipments to the US and a slightly stronger Canadian
dollar. These factors outweighed an increase in lumber
shipments in the current quarter and the continued positive impact
from the Company's expanded presence in the US South, including the
recent acquisition of Southern Lumber Inc. ("Southern Lumber") on
April 1, 2015. Pulp and paper segment
results were also lower than the previous quarter, principally due
to scheduled maintenance outages in the current quarter and lower
unit sales realizations in all regions.
The decline in Western
Spruce/Pine/Fir ("SPF") lumber prices seen in the first
quarter of the year continued into the second quarter with the
average benchmark Western SPF 2x4 #2&Btr price decreasing by
US$89 per Mfbm, or 26%, from the
beginning of the year through the end of May. In June,
Western SPF prices picked up as North American demand improved and
various production curtailments in the industry took effect.
Southern Yellow Pine ("SYP") East lumber prices have also declined
since the beginning of the year but at a more gradual pace than the
Western SPF benchmark. US housing starts in the current quarter
averaged 1,144,000 units SAAR (seasonally adjusted annual rate), up
17% from the previous quarter, which in part reflected an increase
in construction activity from the first quarter when home building
levels were hampered by challenging weather. In Canada, housing starts averaged 193,000 units
SAAR in the current quarter, up 9% from the previous quarter.
Lumber offshore markets were steady in the current quarter with
prices holding up relatively well compared to North America.
Lower lumber unit sales realizations in the current quarter
compared to the first quarter of 2015 reflected weaker North
American benchmark prices for both Western SPF and SYP dimension
products, and, to a lesser extent, a 1% stronger Canadian
dollar. Lumber price declines were most pronounced for narrow
widths, as evidenced by the quarter-over-quarter decreases of
US$38 per Mfbm, or 12%, and
US$30 per Mfbm, or 7%, for the
Western SPF 2x4 #2&Btr and SYP East 2x4 #2 products,
respectively. Overall wide dimension and most lower grade
lumber products saw more modest price declines compared to the
previous quarter. Unit sales realizations in the US South in
the current quarter benefited from a higher-value sales mix,
resulting from the Company's recent acquisitions. Canfor's
offshore lumber sales realizations held up relatively well compared
to North American sales realizations, in part reflecting a more
diverse product offering to offshore markets as well as the nature
of pricing, much of which is negotiated monthly or quarterly in
advance.
Lumber shipments at just under 1.4 billion board feet were up
17% from the previous quarter reflecting strong shipments offshore
in the current quarter as well as incremental SYP volume from the
Company's recent acquisitions. Lumber production at almost
1.3 billion board feet was up 5% from the previous quarter due
primarily to the Company's recent growth in the US South.
Overall lumber unit manufacturing costs decreased slightly compared
to the previous quarter, reflecting productivity gains and stable
log costs.
Global softwood pulp markets remained relatively
balanced through the second quarter of 2015, supported by solid
global softwood pulp demand and the industry's seasonal spring
maintenance period. The average Northern Bleached Softwood
Kraft ("NBSK") pulp list price to North
America, as published by RISI, was stable through the
quarter, remaining unchanged from March
2015 at US$980 per tonne, and
down US$15 per tonne, or 2%, compared
to the average in the previous quarter. Overall, NBSK pulp
unit sales realizations were down compared to the previous quarter,
reflecting lower pricing in all regions, and, to a lesser extent,
the impact of the slightly stronger Canadian dollar and increased
shipments to lower-margin regions. Bleached Chemi-Thermo
Mechanical Pulp ("BCTMP") markets were challenging in the second
quarter, with the Company seeing a modest decline in unit sales
realizations compared to the first quarter of 2015.
Pulp shipments were slightly higher than the previous quarter
reflecting a marginal increase in NBSK pulp shipments, principally
to China, in part due to the
traditional Chinese Lunar New Year
holiday impacting shipments in the first quarter. Pulp
production levels were down 4% reflecting scheduled maintenance
outages at the Company's Intercontinental and Prince George Pulp
Mills, which reduced market pulp production by approximately 11,000
tonnes. In the current quarter, there was also a scheduled
maintenance outage at the Taylor Pulp Mill, which reduced market
pulp production by approximately 3,000 tonnes. Pulp unit
manufacturing costs in the second quarter of 2015 were up compared
to the first quarter of 2015, largely reflecting these maintenance
outages, offset somewhat by seasonally lower energy prices and
usage.
Commenting on the Company's second quarter results, Canfor's
President and Chief Executive Officer, Don
Kayne, said, "Despite challenging market-related conditions
and continued log cost pressures for our Western SPF operations, we
saw improvements in our overall operational performance and
positive impacts from our expansion in the US South." Kayne also
noted that the Company shipped record lumber volumes to
China in the quarter. Kayne
added, "We continue to be pleased with the solid growth in our
offshore business, particularly in higher-value grades."
The North American lumber market is forecast to continue to
improve at a modest pace through the third quarter of 2015, with
further improvements projected through the fall. Offshore markets
are forecast to be relatively stable in the third quarter of
2015. With reported global softwood pulp inventories at the
high end of the balanced range heading into the seasonally slower
summer period, there is some risk of downward pressure on global
softwood pulp prices in the third quarter of 2015. Both the
lumber and pulp and paper segments are forecast to benefit from a
weakening of the Canadian dollar in the third quarter of
2015.
Additional Information and Conference Call
A conference call to discuss the second quarter's financial and
operating results will be held on Wednesday,
July 22, 2015 at 8:00 AM Pacific
time. To participate in the call, please dial 416-764-8688
or Toll-Free 888-390-0546. For instant replay access until
August 5, 2015, please dial
888-390-0541 and enter participant pass code 494894#. 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 and Mississippi. Canfor produces primarily
softwood lumber and specialized wood products. Canfor also
owns a 51.0% 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 and also produces bleached
chemi-thermo mechanical pulp. Canfor shares are traded on the
Toronto Stock Exchange under the symbol CFP.
Canfor Corporation
Second Quarter 2015
Management's Discussion and Analysis
This interim Management's Discussion and Analysis
("MD&A") provides a review of Canfor Corporation's ("Canfor" or
"the Company") financial performance for the quarter ended
June 30, 2015 relative to the
quarters ended March 31, 2015 and
June 30, 2014, and the financial
position of the Company at June 30,
2015. It should be read in conjunction with Canfor's
unaudited interim consolidated financial statements and
accompanying notes for the quarters ended June 30, 2015 and 2014, as well as the 2014
annual MD&A and the 2014 audited consolidated financial
statements and notes thereto, which are included in Canfor's Annual
Report for the year ended December 31,
2014 (available at www.canfor.com). The
financial information in this interim MD&A has been prepared in
accordance with International Financial Reporting Standards
("IFRS"), which is the required reporting framework for Canadian
publicly accountable enterprises.
Throughout this discussion, reference is made to Operating
Income (Loss) before Amortization which Canfor considers to be a
relevant indicator for measuring trends in the performance of each
of its operating segments and the Company's ability to generate
funds to meet its debt repayment and capital expenditure
requirements. Reference is also made to Adjusted Shareholder
Net Income (Loss) (calculated as Shareholder Net Income (Loss) less
specific items affecting comparability with prior periods - for the
full calculation, see reconciliation included in the section
"Analysis of Specific Material Items Affecting Comparability of
Shareholder Net Income (Loss)") and Adjusted Shareholder Net Income
(Loss) per Share (calculated as Adjusted Shareholder Net Income
(Loss) divided by the weighted average number of shares outstanding
during the period). Operating Income (Loss) before Amortization and
Adjusted Shareholder Net Income (Loss) and Adjusted Shareholder Net
Income (Loss) per Share are not generally accepted earnings
measures and should not be considered as an alternative to net
income or cash flows as determined in accordance with IFRS.
As there is no standardized method of calculating these measures,
Canfor's Operating Income (Loss) before Amortization, Adjusted
Shareholder Net Income (Loss) and Adjusted Shareholder Net Income
(Loss) per Share may not be directly comparable with similarly
titled measures used by other companies. Reconciliations of
Operating Income (Loss) before Amortization to Operating Income
(Loss) and Adjusted Shareholder Net Income (Loss) to Net Income
(Loss) reported in accordance with IFRS are included in this
MD&A.
Factors that could impact future operations are also
discussed. These factors may be influenced by both known and
unknown risks and uncertainties that could cause the actual results
to be materially different from those stated in this
discussion. Factors that could have a material impact on any
future oriented statements made herein include, but are not limited
to: general economic, market and business conditions; product
selling prices; raw material and operating costs; currency exchange
rates; interest rates; changes in law and public policy; the
outcome of labour and trade disputes; and opportunities available
to or pursued by Canfor.
All financial references are in millions of Canadian dollars
unless otherwise noted. The information in this report is as
at July 21, 2015.
Forward Looking Statements
Certain statements in this MD&A constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words
such as "expects", "anticipates", "projects", "intends", "plans",
"will", "believes", "seeks", "estimates", "should", "may", "could",
and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements
are based on management's current expectations and beliefs and
actual events or results may differ materially. There are
many factors that could cause such actual events or results
expressed or implied by such forward-looking statements to differ
materially from any future results expressed or implied by such
statements. Forward-looking statements are based on current
expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as
required by law.
SECOND QUARTER 2015 OVERVIEW
Selected Financial Information and Statistics
(millions of Canadian dollars,
except per share amounts) |
|
Q2 |
|
Q1 |
|
YTD |
|
Q2 |
|
YTD |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Operating income (loss) by
segment: |
|
|
|
|
|
|
|
|
|
|
|
Lumber |
$ |
5.1 |
$ |
48.3 |
$ |
53.4 |
$ |
74.1 |
$ |
130.5 |
|
Pulp and Paper |
$ |
20.9 |
$ |
43.0 |
$ |
63.9 |
$ |
30.9 |
$ |
67.4 |
|
Unallocated and Other |
$ |
(8.4) |
$ |
(7.6) |
$ |
(16.0) |
$ |
(7.7) |
$ |
(16.2) |
Total operating income |
$ |
17.6 |
$ |
83.7 |
$ |
101.3 |
$ |
97.3 |
$ |
181.7 |
Add: Amortization |
$ |
52.2 |
$ |
49.3 |
$ |
101.5 |
$ |
44.0 |
$ |
88.5 |
Total operating
income before amortization1 |
$ |
69.8 |
$ |
133.0 |
$ |
202.8 |
$ |
141.3 |
$ |
270.2 |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
Working capital movements |
$ |
86.3 |
$ |
(101.2) |
$ |
(14.9) |
$ |
92.8 |
$ |
(85.0) |
|
Defined benefit plan
withdrawals (contributions), net |
$ |
(5.5) |
$ |
3.0 |
$ |
(2.5) |
$ |
(5.9) |
$ |
(19.4) |
|
Income taxes paid, net |
$ |
(12.1) |
$ |
(22.0) |
$ |
(34.1) |
$ |
(9.5) |
$ |
(21.3) |
|
Other operating cash flows,
net2 |
$ |
(12.5) |
$ |
29.0 |
$ |
16.5 |
$ |
(12.4) |
$ |
11.7 |
Cash from operating
activities |
$ |
126.0 |
$ |
41.8 |
$ |
167.8 |
$ |
206.3 |
$ |
156.2 |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
Finance expenses paid |
$ |
(3.0) |
$ |
(2.6) |
$ |
(5.6) |
$ |
(2.6) |
$ |
(5.4) |
|
Share purchases |
$ |
(13.2) |
$ |
(26.0) |
$ |
(39.2) |
$ |
(105.7) |
$ |
(107.7) |
|
Distributions paid to non-controlling
interests |
$ |
(6.7) |
$ |
(3.0) |
$ |
(9.7) |
$ |
(2.9) |
$ |
(5.0) |
|
Capital additions, net |
$ |
(49.4) |
$ |
(45.8) |
$ |
(95.2) |
$ |
(63.0) |
$ |
(116.1) |
|
Acquisition of Southern Lumber |
$ |
(65.6) |
$ |
- |
$ |
(65.6) |
$ |
- |
$ |
- |
|
Acquisition of Beadles & Balfour |
$ |
(0.8) |
$ |
(50.8) |
$ |
(51.6) |
$ |
- |
$ |
- |
|
Change in restricted
cash3 |
$ |
- |
$ |
50.2 |
$ |
50.2 |
$ |
- |
$ |
- |
|
Acquisition of Scotch Gulf |
$ |
- |
$ |
(22.3) |
$ |
(22.3) |
$ |
- |
$ |
- |
|
Proceeds from the sale of Daaquam Sawmill |
$ |
- |
$ |
- |
$ |
- |
$ |
22.9 |
$ |
22.9 |
|
Repayment from Scotch Gulf |
$ |
- |
$ |
4.1 |
$ |
4.1 |
$ |
2.1 |
$ |
4.7 |
|
Other, net |
$ |
(16.6) |
$ |
(4.7) |
$ |
(21.3) |
$ |
1.7 |
$ |
0.8 |
Change in cash / operating
loans |
$ |
(29.3) |
$ |
(59.1) |
$ |
(88.4) |
$ |
58.8 |
$ |
(49.6) |
ROIC - Consolidated
period-to-date4 |
|
0.1% |
|
2.8% |
|
2.9% |
|
3.7% |
|
7.2% |
Average exchange
rate (US$ per C$1.00)5 |
$ |
0.813 |
$ |
0.806 |
$ |
0.810 |
$ |
0.917 |
$ |
0.912 |
1 |
Amortization includes amortization of certain capitalized major
maintenance costs. |
2 |
Further information on operating cash flows can be found in the
Company's unaudited interim consolidated financial statements. |
3 |
Change in restricted cash relates to amounts transferred into
an escrow bank account for the first phase of the Beadles &
Balfour acquisition which closed on January 2, 2015. |
|
4Consolidated Return on Invested Capital ("ROIC") is
equal to operating income/loss plus realized gains/losses on
derivatives, equity income/loss from joint venture and other
income/expense, all net of minority interest, divided by the
average invested capital during the period. Invested capital
is equal to capital assets, plus long-term investments and net
non-cash working capital, all excluding minority interest
components. |
5 |
Source - Bank of Canada (average noon rate for the
period). |
|
|
Analysis of Specific Material Items Affecting Comparability of
Shareholder Net Income
After-tax impact, net of non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars,
except per share amounts) |
|
Q2
2015 |
|
Q1
2015 |
|
YTD
2015 |
|
Q2
2014 |
|
YTD
2014 |
Shareholder net income, as reported |
$ |
11.1 |
$ |
29.3 |
$ |
40.4 |
$ |
54.3 |
$ |
99.8 |
(Gain) loss on derivative
financial instruments6 |
$ |
(7.7) |
$ |
17.2 |
$ |
9.5 |
$ |
(2.1) |
$ |
- |
Mark-to-market gain on investment
in Lakeland Mills Ltd. and Winton Global Lumber
Ltd.7 |
$ |
(6.1) |
$ |
- |
$ |
(6.1) |
$ |
- |
$ |
- |
Mark-to-market loss on Taylor Pulp
contingent consideration, net8 |
$ |
0.7 |
$ |
- |
$ |
0.7 |
$ |
- |
$ |
- |
Mark-to-market adjustment to
Canfor-LP OSB sale contingent consideration9 |
$ |
- |
$ |
- |
$ |
- |
$ |
4.5 |
$ |
4.9 |
Gain on sale of Daaquam Sawmill |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
(1.6) |
Net impact of above items |
$ |
(13.1) |
$ |
17.2 |
$ |
4.1 |
$ |
2.4 |
$ |
3.3 |
Adjusted shareholder net income (loss) |
$ |
(2.0) |
$ |
46.5 |
$ |
44.5 |
$ |
56.7 |
$ |
103.1 |
Shareholder net income per share (EPS), as
reported |
$ |
0.08 |
$ |
0.22 |
$ |
0.30 |
$ |
0.39 |
$ |
0.72 |
Net impact of above items per
share10 |
$ |
(0.10) |
$ |
0.13 |
$ |
0.03 |
$ |
0.02 |
$ |
0.02 |
Adjusted shareholder net income
(loss) per share10 |
$ |
(0.02) |
$ |
0.35 |
$ |
0.33 |
$ |
0.41 |
$ |
0.74 |
6 |
In the prior periods, certain amounts have been reclassified
from Other Income to (Gain) Loss on Derivative Financial
Instruments, with no impact to net income or EPS, as reported. |
7 |
On July 1, 2015, Canfor sold its 33.3% interest in Lakeland
Mills Ltd. and Winton Global Lumber Ltd. for $30.0 million.
At June 30, 2015, Canfor's investment was recorded at fair value
and $7.0 million mark-to-market gain (before-tax) was
recognized. |
8 |
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. |
9 |
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 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. The estimated
fair value of the contingent consideration at June 30, 2015 is
nil. |
10 |
The year-to-date net impact of the adjusting items per share
and adjusted shareholder net income per share may not equal the sum
of the quarterly per share amounts due to rounding and the weighted
average common shares outstanding during the applicable
period. |
|
|
The Company reported operating income of $17.6 million for the second quarter of 2015,
down $66.1 million compared to
operating income of $83.7 million for
the first quarter of 2015, with the decline reflecting lower
operating earnings in both the lumber and pulp and paper
segments. Lumber segment results were impacted by a decline
in benchmark lumber prices, an average export tax of 7% on Canadian
lumber shipments to the US and a slightly stronger Canadian
dollar. These factors outweighed an increase in lumber
shipments in the current quarter and the continued positive impact
from the Company's expanded presence in the US South, including the
recent acquisition of Southern Lumber Inc. ("Southern Lumber") on
April 1, 2015. Pulp and paper
segment results were also lower than the previous quarter,
principally due to scheduled maintenance outages in the current
quarter and lower unit sales realizations in all regions.
The decline in Western
Spruce/Pine/Fir ("SPF") lumber prices seen in the first
quarter of the year continued into the second quarter with the
average benchmark Western SPF 2x4 #2&Btr price decreasing by
US$89 per Mfbm, or 26%, from the
beginning of the year through the end of May. In June,
Western SPF prices picked up as North American demand improved and
various production curtailments in the industry took effect.
Southern Yellow Pine ("SYP") East lumber prices have also declined
since the beginning of the year but at a more gradual pace than the
Western SPF benchmark. US housing starts in the current
quarter averaged 1,144,000 units SAAR (seasonally adjusted annual
rate), up 17% from the previous quarter, which in part reflected an
increase in construction activity from the first quarter when home
building levels were hampered by challenging weather. In
Canada, housing starts averaged
193,000 units SAAR in the current quarter, up 9% from the previous
quarter. Lumber offshore markets were steady in the current
quarter with prices holding up relatively well compared to
North America.
Lower lumber unit sales realizations in the current quarter
compared to the first quarter of 2015 reflected weaker North
American benchmark prices for both Western SPF and SYP dimension
products, and, to a lesser extent, a 1% stronger Canadian
dollar. Lumber price declines were most pronounced for narrow
widths, as evidenced by the quarter-over-quarter decreases of
US$38 per Mfbm, or 12%, and
US$30 per Mfbm, or 7%, for the
Western SPF 2x4 #2&Btr and SYP East 2x4 #2 products,
respectively. Overall wide dimension and most lower grade
lumber products saw more modest price declines compared to the
previous quarter. Unit sales realizations in the US South in
the current quarter benefited from a higher-value sales mix,
resulting from the Company's recent acquisitions. Canfor's
offshore lumber sales realizations held up relatively well compared
to North American sales realizations, in part reflecting a more
diverse product offering to offshore markets as well as the nature
of pricing, much of which is negotiated monthly or quarterly in
advance.
Lumber shipments at just under 1.4 billion board feet were up
17% from the previous quarter reflecting strong shipments offshore
in the current quarter as well as incremental SYP volume from the
Company's recent acquisitions. Lumber production at almost
1.3 billion board feet was up 5% from the previous quarter due
primarily to the Company's recent growth in the US South.
Overall lumber unit manufacturing costs decreased slightly compared
to the previous quarter, reflecting productivity gains and stable
log costs.
Global softwood pulp markets remained relatively balanced
through the second quarter of 2015, supported by solid global
softwood pulp demand and the industry's seasonal spring maintenance
period. The average Northern Bleached Softwood Kraft ("NBSK")
pulp list price to North America,
as published by RISI, was stable through the quarter, remaining
unchanged from March 2015 at
US$980 per tonne, and down
US$15 per tonne, or 2%, compared to
the average in the previous quarter. Overall, NBSK pulp unit
sales realizations were down compared to the previous quarter,
reflecting lower pricing in all regions, and, to a lesser extent,
the impact of the slightly stronger Canadian dollar and increased
shipments to lower-margin regions. Bleached Chemi-Thermo
Mechanical Pulp ("BCTMP") markets were challenging in the second
quarter, with the Company seeing a modest decline in unit sales
realizations compared to the first quarter of 2015.
Pulp shipments were slightly higher than the previous quarter
reflecting a marginal increase in NBSK pulp shipments, principally
to China, in part due to the
traditional Chinese Lunar New Year
holiday impacting shipments in the first quarter. Pulp
production levels were down 4% reflecting scheduled maintenance
outages at the Company's Intercontinental and Prince George Pulp
Mills, which reduced market pulp production by approximately 11,000
tonnes. In the current quarter, there was also a scheduled
maintenance outage at the Taylor Pulp Mill, which reduced market
pulp production by approximately 3,000 tonnes. Pulp unit
manufacturing costs in the second quarter of 2015 were up compared
to the first quarter of 2015, largely reflecting these maintenance
outages, offset somewhat by seasonally lower energy prices and
usage.
Compared to the second quarter of 2014, operating income was
down $79.7 million, reflecting a
$69.0 million decrease in the lumber
segment and a $10.0 million decrease
in the pulp and paper segment. In the lumber segment, the
decline in operating earnings largely reflected lower lumber
prices, a 7% average export tax in the current quarter and
market-driven log cost pressures in Western Canada through the back half of 2014
and into 2015 partly offset by a 10
cent, or 11%, weaker Canadian dollar and the additions of
the aforementioned high margin operations in the US South.
Lumber production and shipments were well up from the same quarter
in the prior year reflecting the US South acquisitions and an
increase in lumber productivity, partly resulting from major
capital upgrades completed in recent years. Lower operating
earnings in the pulp and paper segment compared to the second
quarter of 2014 were due largely to lower unit NBSK pulp US dollar
sales realizations and challenging BCTMP markets in the current
period which more than offset the benefit of the weaker Canadian
dollar. Slightly higher unit manufacturing costs in the pulp
and paper segment in the current quarter were in part the result of
market-driven increases in fibre costs coupled with costs
associated with the scheduled maintenance outages in the current
quarter.
OPERATING RESULTS BY BUSINESS SEGMENT
Lumber
Selected Financial Information and Statistics - Lumber
|
|
Q2 |
|
Q1 |
|
YTD |
|
Q2 |
|
YTD |
(millions of Canadian dollars, unless otherwise
noted) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Sales |
$ |
676.0 |
$ |
647.0 |
$ |
1,323.0 |
$ |
614.5 |
$ |
1,110.2 |
Operating income before amortization |
$ |
40.6 |
$ |
80.5 |
$ |
121.1 |
$ |
102.2 |
$ |
186.5 |
Operating income |
$ |
5.1 |
$ |
48.3 |
$ |
53.4 |
$ |
74.1 |
$ |
130.5 |
Average SPF 2x4 #2&Btr lumber price in
US$11 |
$ |
270 |
$ |
308 |
$ |
289 |
$ |
335 |
$ |
351 |
Average SPF price in Cdn$11 |
$ |
332 |
$ |
382 |
$ |
357 |
$ |
365 |
$ |
385 |
Average SYP 2x4 #2 lumber price in
US$12 |
$ |
383 |
$ |
413 |
$ |
398 |
$ |
405 |
$ |
404 |
Average SYP price in Cdn$12 |
$ |
471 |
$ |
513 |
$ |
492 |
$ |
442 |
$ |
443 |
U.S. housing starts (thousand units
SAAR)13 |
|
1,144 |
|
978 |
|
1,061 |
|
984 |
|
953 |
Production - SPF lumber (MMfbm)14 |
|
961.0 |
|
966.0 |
|
1,927.0 |
|
930.2 |
|
1,908.3 |
Production - SYP lumber (MMfbm)14,
15 |
|
304.9 |
|
234.5 |
|
539.4 |
|
151.5 |
|
290.6 |
Shipments - SPF lumber (MMfbm)16 |
|
1,046.1 |
|
930.6 |
|
1,976.7 |
|
1,062.6 |
|
1,842.0 |
Shipments - SYP lumber (MMfbm)15,
16 |
|
315.6 |
|
236.4 |
|
552.0 |
|
168.4 |
|
311.6 |
Shipments - wholesale lumber (MMfbm) |
|
4.8 |
|
5.4 |
|
10.2 |
|
5.4 |
|
10.2 |
11 |
Western Spruce/Pine/Fir, per thousand board feet (Source -
Random Lengths Publications, Inc.); Average price in Cdn$
calculated as average Western Spruce/Pine/Fir price in US$
multiplied by the average exchange rate - C$ per US$1.00 according
to Bank of Canada average noon rate for the period. |
12 |
Southern Yellow Pine, Eastside, per thousand board feet (Source
- Random Lengths Publications, Inc.); Average price in Cdn$
calculated as average Southern Yellow Pine, Eastside price in US$
multiplied by the average exchange rate - C$ per US$1.00 according
to Bank of Canada average noon rate for the period. |
13 |
Source - U.S. Census Bureau, seasonally adjusted annual rate
("SAAR"). |
14 |
Excluding production of trim blocks. Production in prior
periods has been restated from sawmill production to finished
lumber production. |
15 |
Effective January 2, 2015, January 30, 2015 and April 1, 2015,
SYP lumber production and shipment volumes include volume from
Beadles & Balfour, Scotch Gulf and Southern Lumber,
respectively. |
16 |
Canfor-produced lumber, including lumber purchased for
remanufacture and excluding trim blocks. |
|
Overview
Operating income for the lumber segment was $5.1 million for the second quarter of 2015, a
decrease of $43.2 million compared to
operating income of $48.3 million in
the previous quarter, and down $69.0
million compared to operating income of $74.1 million reported in the same quarter of the
prior year. A decline in overall lumber unit sales
realizations principally driven by lower lumber prices, export
taxes of 5% in April, 5% in May and 10% in June on lumber sold to
the US and a slightly stronger Canadian dollar, unfavourably
impacted results compared to the previous quarter. Western
SPF unit lumber sales realizations were down significantly due to
the aforementioned factors; however, SYP and offshore unit lumber
sales realizations fared better quarter-over-quarter. Despite
weak North American lumber markets, lumber production and shipments
were well up from the previous quarter reflecting the Company's
recent acquisitions in the US South, improved lumber productivity
across all regions and strong shipments to offshore markets in the
current quarter. Unit manufacturing costs decreased slightly
compared to the previous quarter with slightly lower conversion
costs and relatively stable log costs in the current quarter.
Compared to the second quarter of 2014, the decline in operating
income in the lumber segment for the most part reflected lower
lumber sales realizations and market-driven log cost pressure in
Western Canada throughout 2014 and
into the beginning of 2015, partly offset by the 11% weaker
Canadian dollar and the Company's growth in the US South.
Total lumber shipments and production were well up from the same
quarter in the prior year due to the recent US South acquisitions,
improved lumber productivity and capital related downtime and
ramp-ups occurring in the second quarter of 2014.
Markets
The decline in Western SPF lumber prices seen in the first
quarter of 2015 continued into the second quarter with the average
North American Random Length Western SPF 2x4 #2&Btr price down
US$38 per Mfbm, or 12%, to
US$270 per Mfbm in the second
quarter, the lowest level since 2012. Western SPF lumber
prices rallied somewhat in June as supply to the North American
lumber market rebalanced with production curtailments announced by
several major producers and increased shipments to key Asian
markets. Total US housing starts averaged 1,144,000
units17 SAAR (seasonally adjusted annual rate) for the
second quarter of 2015, up 17% from the first quarter of 2015 and
up 16% from the same period in 2014. Single-family starts,
which consume a higher proportion of lumber, were up 9% compared to
the first quarter of 2015 to 704,000 units17 SAAR in the
current quarter. The improvement in US housing starts in the
second quarter of 2015 in part reflects a make-up of construction
activity from earlier in the year when home building was hampered
by challenging winter weather.
In Canada, housing starts
averaged 193,000 units18 SAAR, up 9% from the previous
quarter and down 2% from the same period in 2014.
Lumber offshore markets were balanced in the quarter as lower
interest rates and reduced minimum mortgage down payments in
China encouraged home sales.
Lumber shipments to offshore markets during the quarter relieved
supply and downward price pressure in the North American
market.
17 U.S. Census Bureau |
18 CMHC - Canada Mortgage and Housing
Corporation |
Sales
Sales for the lumber segment in the second quarter of 2015 were
$676.0 million, compared to
$647.0 million in the previous
quarter and $614.5 million in the
second quarter of 2014. Higher lumber sales revenues compared
to the first quarter of 2015 reflected strong lumber shipments
offset in part by lower lumber sales realizations as benchmark
lumber prices trended lower during the quarter.
Total lumber shipments in the second quarter of 2015, at almost
1.4 billion board feet, were up 17% from the previous quarter,
largely reflecting strong offshore shipments in the current quarter
as well as incremental SYP volume related to the acquisition of
Southern Lumber on April 1, 2015, a
full quarter of consolidated lumber shipments from Scotch Gulf and
overall improved productivity rates in all regions. The
Company's shipments were bolstered by record lumber sales to
China reflecting solid demand and
a more diverse product offering to the offshore market in the
current quarter while offshore shipments in the previous quarter
were impacted by the US West Coast port strike and, to a lesser
degree, the Chinese Lunar New
Year. Compared to the second quarter of 2014, lumber
shipments were up 11%, again largely reflecting the Company's
growth in the US South, which more than offset lower
quarter-over-quarter Western SPF lumber shipments stemming from a
higher drawdown of inventories in the comparative quarter,
following weather-related transportation challenges and a truckers'
strike at the Vancouver port in
the first quarter of 2014.
Western SPF lumber sales realizations were down significantly
compared to the previous quarter, in large part reflecting lower
North American lumber prices, export taxes of 5% in April, 5% in
May and 10% in June on shipments to the US and, to a lesser degree,
the unfavourable impact of the 1
cent, or 1%, stronger Canadian dollar. The benchmark
North American Random Lengths Western SPF 2x4 #2&Btr price saw
a 12% decline quarter-over-quarter, down US$38 per Mfbm to US$270 per Mfbm, with less pronounced declines in
wide dimensions and lower grade products. The Company's
offshore lumber sales realizations held up relatively well compared
to North America in part due to a
more diverse product offering to the offshore market as well as the
nature of offshore pricing much of which is negotiated monthly or
quarterly in advance.
Despite declines in SYP benchmark prices through the quarter,
overall SYP sales realizations were relatively stable reflecting
less pronounced declines in wide dimension SYP products and the
contribution of a higher value product mix from Southern Lumber and
incremental higher value lumber volume from the other recently
acquired US South operations. The average Random Lengths SYP
2x4 #2 price was down US$30 per Mfbm,
or 7%, from the first quarter of 2015.
Compared to the second quarter of 2014, lumber sales
realizations were moderately lower in large part due to lower
benchmark lumber prices and an average export tax of 7% on
shipments to the US in the current quarter partly offset by the
favourable impact of the 10 cent, or
11%, weaker Canadian dollar and the benefits of a higher value
lumber sales mix as a result of the recent US South
acquisitions. The average benchmark North American Random
Lengths Western SPF 2x4 #2&Btr price was down US$65 per Mfbm, or 19%, to US$270 per Mfbm in the second quarter of 2015
leading to lower North American Western SPF sales realizations
compared to the same quarter in 2014. Offshore sales
realizations, while more stable, also declined modestly from the
same quarter in the prior year. Overall sales realizations
for SYP products were slightly lower compared to the same period in
2014, with the favourable impact of the aforementioned higher value
sales mix from the recently acquired US South operations mostly
offsetting a US$22 per Mfbm, or 5%,
lower average Random Lengths SYP 2x4 #2 price.
Total residual fibre revenue in the current quarter was higher
than both comparable periods largely due to additional chip sales
volume from the recently acquired US South operations.
Current quarter results also reflected seasonally lower log sales
compared to the previous quarter due to reduced timber harvesting
during the spring break-up period in Western Canada.
Operations
Lumber production, at just under 1.3 billion board feet, was up
5% from the previous quarter in large part due to the Company's
recent growth in the US South and quarter-over-quarter productivity
improvements which more than offset fewer operating hours at the
Western SPF operations in the quarter which partly reflected a
rebuild at the Company's Polar sawmill. SYP lumber production
in the second quarter of 2015 included production from Southern
Lumber and represented the first full quarter with consolidated
lumber production from Scotch Gulf. In addition, SYP
production benefited from favourable log size and productivity
improvements at several operations. Western SPF production
was relatively stable compared to the previous quarter as
productivity improvements were offset by fewer operating hours
compared to the previous quarter in part due to the aforementioned
capital upgrade. The severe forest fire season in
Western Canada had minimal impacts
on Canfor's operations in the current quarter; however should the
hot and dry weather continue through the summer months there may be
increased risk to the Company's fibre availability.
Compared to the second quarter of 2014, lumber production was up
17% largely reflecting incremental production from the acquisitions
of Scotch Gulf, Beadles & Balfour and Southern Lumber.
Excluding lumber production related to these acquisitions, lumber
production was up 4%, principally reflecting improved productivity
following several capital upgrades in the second quarter of
2014.
Overall, unit manufacturing costs were slightly lower than the
previous quarter with a small decrease in unit cash conversion
costs and relatively stable log costs in the current quarter.
Lower cash conversion costs principally reflected improved
productivity rates and seasonally lower energy costs compared to
the previous quarter.
Compared to the second quarter of 2014, unit manufacturing costs
were moderately higher primarily due to higher unit log costs in
Western Canada reflecting
market-driven stumpage increases and upward pressure on logging,
hauling and purchased wood costs, which more than offset the
positive impact of productivity gains.
Pulp and Paper
Selected Financial Information and Statistics - Pulp and
Paper19
|
|
Q2 |
|
Q1 |
|
YTD |
|
Q2 |
|
YTD |
(millions of Canadian dollars, unless otherwise
noted) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Sales |
$ |
276.4 |
$ |
283.0 |
$ |
559.4 |
$ |
292.8 |
$ |
539.0 |
Operating income before
amortization20 |
$ |
36.5 |
$ |
58.9 |
$ |
95.4 |
$ |
46.6 |
$ |
99.6 |
Operating income |
$ |
20.9 |
$ |
43.0 |
$ |
63.9 |
$ |
30.9 |
$ |
67.4 |
Average pulp price delivered to U.S. -
US$21 |
$ |
980 |
$ |
995 |
$ |
988 |
$ |
1,030 |
$ |
1,023 |
Average price in Cdn$21 |
$ |
1,205 |
$ |
1,235 |
$ |
1,220 |
$ |
1,123 |
$ |
1,122 |
Production - pulp (000 mt) |
|
294.6 |
|
308.2 |
|
602.8 |
|
288.7 |
|
599.1 |
Production - paper (000 mt) |
|
31.0 |
|
35.4 |
|
66.4 |
|
35.4 |
|
72.1 |
Shipments - pulp (000 mt) |
|
291.9 |
|
287.4 |
|
579.3 |
|
314.4 |
|
570.3 |
Shipments - paper (000 mt) |
|
33.8 |
|
32.1 |
|
65.9 |
|
39.7 |
|
71.0 |
19 |
Includes the Taylor Pulp Mill and 100% of
Canfor Pulp Products Inc., which are consolidated in Canfor's
results. The Taylor Pulp Mill was sold to Canfor Pulp
Products Inc. on January 30, 2015.
Pulp production and shipment volumes presented are for both NBSK
and BCTMP. |
20 |
Amortization includes amortization of certain capitalized major
maintenance costs. |
21 |
Per tonne, NBSK pulp list price delivered to
U.S. (as published by RISI); Average price in Cdn$ calculated as
average pulp price delivered to US - US$ multiplied by the average
exchange rate -
C$ per US$1.00 according to Bank of Canada average noon rate for
the period. |
|
|
Overview
Operating income for the pulp and paper segment was $20.9 million for the second quarter of 2015,
down $22.1 million from the previous
quarter, and down $10.0 million from
the second quarter of 2014.
The current quarter pulp and paper segment results included the
impact of the scheduled maintenance outages at the Intercontinental
and Prince George Pulp Mills and the Taylor Pulp Mill, which
reduced market pulp production by approximately 11,000 tonnes and
3,000 tonnes, respectively. Decreased operating results compared to
the previous quarter largely reflected higher unit manufacturing
costs due to these outages as well as a modest decline in NBSK and
BCTMP pulp sales realizations, driven by lower pricing to all
regions, increased shipments to lower-margin regions and, to a
lesser extent, the 1 cent, or 1%,
stronger Canadian dollar. Operating income at the Company's
paper operation was also lower reflecting the impact of a scheduled
maintenance outage at the Company's paper machine and, to a lesser
extent, a marginal decrease in unit sales realizations.
Compared to the second quarter of 2014, lower pulp and paper
segment results were impacted by lower earnings from the pulp
operations partly offset by increased earnings generated by the
paper operation. The benefit of the 11% weaker Canadian
dollar and higher pulp production volumes were more than offset by
lower US dollar pulp list prices to all regions and higher unit
NBSK pulp manufacturing costs. Higher unit NBSK pulp
manufacturing costs reflected a largely market-driven increase in
fibre costs as well as costs associated with the scheduled
maintenance outages in the current quarter. Results at the
Company's paper operation benefitted from improved unit sales
realizations, which more than offset lower shipments and higher
unit manufacturing costs reflecting the impact of the scheduled
maintenance outage in the current quarter, which was five days
longer than the outage in the same period in 2014.
Markets
Global softwood pulp markets remained relatively balanced
through the second quarter of 2015, with increased shipments to
China offset in part by declines
to North America and Europe. Global softwood pulp producer
inventory levels tightened through the quarter, decreasing 3 days
from the end of March 2015 to 30
days' supply in May 201522
(latest available data), partly reflecting supply constraints due
to seasonal maintenance downtime, as inventory levels ended the
quarter at the high end of the balanced range (market conditions
are generally considered balanced when inventories are in the 27-30
days of supply range).
Global shipments of bleached softwood kraft pulp improved
modestly compared to the previous quarter and were broadly in line
with the same period in 201423. The increase in softwood
pulp shipments compared to the previous quarter in part reflected
increased shipments to Asia.
|
|
22 |
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"). |
23 |
As reported by PPPC statistics. |
|
Sales
The Company's pulp shipments in the second quarter of 2015
totalled 291,900 tonnes, an increase of 4,500 tonnes, or 2%, from
the previous quarter, reflecting a marginal increase in NBSK pulp
shipments with higher volumes shipped to China, in part due to the traditional Chinese
Lunar New Year holiday in the
previous quarter, partially offset by reduced shipments to
North America. Compared to
the same period in 2014, pulp shipments were down 22,500 tonnes, or
7%, due to a reduction in NBSK pulp shipments, with higher NBSK
pulp demand in North America
partially offset by reduced shipments to Asia. Paper shipments in the second
quarter of 2015 were 33,800 tonnes, up 1,700 tonnes, or 5%, from
the previous quarter and down 5,900 tonnes, or 15%, from the same
period of the previous year. The increased shipments compared
to the previous quarter were principally due to higher demand from
North America while demand to most
other regions was relatively stable. Compared to the second
quarter of 2014, the lower paper shipments in part reflected the
drawdown to normal inventory levels in that quarter following the
transportation challenges faced in the first quarter of 2014.
The average North American NBSK pulp list price, as published by
RISI, was down US$15 per tonne, or
2%, compared to the average for the first quarter of 2015.
Overall NBSK pulp sales realizations were down in the second
quarter of 2015, reflecting lower pricing in all regions, and, to a
lesser extent, increased shipments to lower-margin regions,
particularly China. Also
contributing to the reduced sales realizations in the second
quarter of 2015, was the 1 cent, or
1%, stronger Canadian dollar compared to the previous
quarter. Discount levels were consistent with the previous
quarter. BCTMP unit sales realizations reflected moderately
lower market prices, attributable to the challenging BCTMP markets,
coupled with the slightly stronger Canadian dollar in the second
quarter of 2015. The Company's paper operation's current
quarter unit sales realizations saw a marginal decrease from the
first quarter of 2015, reflecting somewhat weaker prices, in part
attributable to lower prices in some markets as European producers
leveraged the relative weakening of the European Euro, coupled with
the 1% stronger Canadian dollar and decreased prime bleached
shipments. Somewhat mitigating these factors were increased
shipments to higher-margin regions
Compared to the second quarter of 2014, NBSK pulp sales
realizations were up slightly, with the 11% weaker Canadian dollar
and increased shipments to North
America offsetting lower NBSK pulp US dollar list prices in
all regions, as published by RISI, and to a lesser extent,
increased discounts in North
America. The average NBSK pulp list price to
North America saw a decrease of
US$50 per tonne, or 5%, while prices
to China saw a similar
decline. Also compared to the same period in 2014, paper unit
sales realizations were well up, benefitting from the weaker
Canadian dollar, and to a lesser extent, higher prices and
increased shipments to higher-margin regions, all of which more
than offset the decline in realizations on sales to Europe due to the strengthening Canadian
dollar compared to the European Euro, and a lower percentage of
prime bleached sales.
Energy revenue was broadly in line with both comparable periods
as the contribution from the recently completed turbine upgrade at
the Intercontinental Pulp Mill, which commenced selling power under
an Electricity Purchase Agreement in the current quarter, was
offset by the impact of the maintenance outages in the current
quarter, coupled with seasonally lower energy prices compared to
the previous quarter.
Operations
Pulp production in the current quarter was 294,600 tonnes, down
13,600 tonnes, or 4%, from the previous quarter, and up 5,900
tonnes, or 2%, from the second quarter of 2014. The Company's NBSK
pulp production decreased modestly compared to the previous quarter
but was up slightly compared to the same period in the prior
year. Production in the current quarter reflected scheduled
maintenance outages at the Intercontinental and Prince George Pulp
Mills, which reduced market pulp production by approximately 11,000
tonnes and a scheduled maintenance outage at the Taylor Pulp Mill,
which reduced market pulp production by approximately 3,000 tonnes.
There were no maintenance outages in the previous quarter, while in
the comparative second quarter of 2014, production levels included
maintenance outages at the Intercontinental and Prince George Pulp
Mills, which reduced market pulp production by approximately 18,000
tonnes.
Paper production in the second quarter of 2015 was 31,000
tonnes, down 4,400 tonnes, or 12%, from both comparable periods.
The current quarter production reflected a scheduled nine day
maintenance outage at the Company's paper machine in April 2015, which reduced paper production by
approximately 3,300 tonnes. In the comparative second quarter
of 2014, production levels included the impact of a four day
maintenance outage at the Company's paper machine, which reduced
paper production by approximately 1,600 tonnes. Production in
the current quarter also reflected lower slush pulp transfers from
the Prince George Pulp Mill due to the aforementioned scheduled
maintenance outage.
Pulp unit manufacturing costs saw an increase from the previous
quarter, largely reflecting the maintenance outages in the quarter,
which resulted in higher costs and lower production volumes, and to
a lesser degree, higher outage-related chemical costs in the
current period, offset somewhat by seasonally lower energy price
and usage. Fibre costs for the NBSK pulp mills were broadly
in line with the previous quarter as lower prices for sawmill
residual chips (linked to lower Canadian dollar NBSK pulp sales
realizations) and a lower proportion of higher-cost whole log chips
offset seasonally higher price adjustments. Fibre costs for
the BCTMP mill was lower than the previous quarter also reflecting
lower prices for sawmill residual chips (linked to lower Canadian
dollar BCTMP pulp sales realizations). Paper unit
manufacturing costs increased modestly from the previous quarter,
with lower slush pulp costs due to lower overall pulp unit sales
realizations in the current quarter more than offset by the impact
of the lower production volumes and higher costs related to the
outage and, to a lesser degree, higher chemical costs in the
current quarter.
Compared to the second quarter of 2014, unit manufacturing costs
were also up, with the favourable impact of the higher production
volumes largely offsetting modestly higher costs associated with
the scheduled maintenance outages in the current quarter and a
marginal increase in NBSK pulp fibre costs. Contributing to
the higher NBSK pulp fibre costs in the current quarter were higher
prices for sawmill residual chips, reflecting increased Canadian
dollar NBSK pulp sales realizations, somewhat mitigated by lower
freight costs. Higher paper unit manufacturing costs
reflected the impact of the longer maintenance outage in the
current quarter, market-driven increases in slush pulp costs and
higher chemical costs.
Unallocated and Other Items
Selected Financial Information
|
|
Q2 |
|
|
Q1 |
|
|
YTD |
|
|
Q2 |
|
|
YTD |
(millions of Canadian dollars) |
|
2015 |
|
|
2015 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
Operating loss of Panels
operations24 |
$ |
(0.6) |
|
$ |
(0.7) |
|
$ |
(1.3) |
|
$ |
(1.1) |
|
$ |
(2.4) |
Corporate costs |
$ |
(7.8) |
|
$ |
(6.9) |
|
$ |
(14.7) |
|
$ |
(6.6) |
|
$ |
(13.8) |
Finance expense, net |
$ |
(5.6) |
|
$ |
(5.3) |
|
$ |
(10.9) |
|
$ |
(4.4) |
|
$ |
(8.8) |
Gain (loss) on derivative financial
instruments25 |
$ |
12.7 |
|
$ |
(28.0) |
|
$ |
(15.3) |
|
$ |
3.1 |
|
$ |
(0.4) |
Other income (expense), net25 |
$ |
3.3 |
|
$ |
10.8 |
|
$ |
14.1 |
|
$ |
(10.8) |
|
$ |
(7.5) |
24 |
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. |
25 |
In the prior periods, certain amounts have been reclassified
from Other Income to (Gain) Loss on Derivative Financial
Instruments, with no impact to net income. |
|
|
Corporate costs were $7.8 million
for the second quarter of 2015, up $0.9
million from the previous quarter and up $1.2 million from second quarter of 2014 in part
reflecting higher share based compensation expense and legal fees
in the current quarter.
Net finance expense at $5.6
million for the second quarter of 2015 was broadly in line
with the previous quarter and up $1.2
million from the same quarter in 2014. The increase
compared to the second quarter of 2014 reflected higher debt levels
as well as higher net interest expense related to the Company's
employee future benefit plans.
The Company uses a variety of derivative financial instruments
as partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs, lumber prices and interest
rates. In the second quarter of 2015, the Company recorded a
net gain of $12.7 million,
principally reflecting unrealized mark-to-market gains on US dollar
foreign exchange collars as a result of the strengthening of the
Canadian dollar at the close of the current quarter relative to the
exchange rate at the close of the first quarter of 2015.
Other income, net of $3.3 million
in the second quarter of 2015, included a $7.0 million mark-to-market gain on the Company's
investment in Lakeland Mills Ltd. and Winton Global Lumber Ltd.,
partly offset by unfavourable movements on US dollar denominated
working capital resulting from the slight strengthening of the
Canadian dollar relative to the US dollar over the course of the
quarter (see further discussion on the mark-to-market adjustment to
the Company's investment in Lakeland Mills Ltd. and Winton Global
Lumber Ltd. in the "Commitments and Subsequent Events"
section).
Other Comprehensive Income (Loss)
The following table summarizes Canfor's Other Comprehensive
Income (Loss) for the comparable periods:
|
|
Q2 |
|
|
Q1 |
|
|
YTD |
|
|
Q2 |
|
|
YTD |
(millions of Canadian dollars) |
|
2015 |
|
|
2015 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
Foreign exchange translation differences for
foreign operations |
$ |
(6.2) |
|
$ |
34.3 |
|
$ |
28.1 |
|
$ |
(10.0) |
|
$ |
0.6 |
Defined benefit actuarial gains (losses), net of
tax |
$ |
16.4 |
|
$ |
(3.2) |
|
$ |
13.2 |
|
$ |
(26.2) |
|
$ |
(50.5) |
Other comprehensive income (loss), net of tax |
$ |
10.2 |
|
$ |
31.1 |
|
$ |
41.3 |
|
$ |
(36.2) |
|
$ |
(49.9) |
In the second quarter of 2015, the Company recorded an after-tax
gain of $16.4 million in relation to
changes in the valuation of the Company's employee future benefit
plans. The gain principally reflected a higher discount rate
used to value the net defined benefit obligation. After-tax
losses of $3.2 million and
$26.2 million were recorded in the
first quarter of 2015 and second quarter of 2014, respectively,
both reflecting lower discount rates, offset in part by returns on
plan assets, while the loss in the second quarter of 2014 also
included actuarial assumption and experience adjustments.
In addition, the Company recorded a $6.2
million other comprehensive loss in the quarter for foreign
exchange translation differences for foreign operations, reflecting
unfavourable foreign exchange movements during the quarter.
This compared to a foreign exchange translation gain of
$34.3 million in the previous quarter
and a foreign translation loss of $10.0
million in the second quarter of 2014.
SUMMARY OF FINANCIAL POSITION
The following table summarizes Canfor's cash
flow and selected ratios for and as at the end of the following
periods:
|
|
Q2 |
|
|
Q1 |
|
|
YTD |
|
|
Q2 |
|
|
YTD |
(millions of Canadian dollars, except
for ratios) |
|
2015 |
|
|
2015 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
Increase (decrease) in cash and cash
equivalents |
$ |
(70.3) |
|
$ |
55.9 |
|
$ |
(14.4) |
|
$ |
19.8 |
|
$ |
18.2 |
|
Operating activities |
$ |
126.0 |
|
$ |
41.8 |
|
$ |
167.8 |
|
$ |
206.3 |
|
$ |
156.2 |
|
Financing activities |
$ |
(71.2) |
|
$ |
81.7 |
|
$ |
10.5 |
|
$ |
(150.2) |
|
$ |
(50.3) |
|
Investing activities |
$ |
(125.1) |
|
$ |
(67.6) |
|
$ |
(192.7) |
|
$ |
(36.3) |
|
$ |
(87.7) |
Ratio of current assets to current
liabilities |
|
|
|
|
|
|
|
1.8:1 |
|
|
|
|
|
1.7:1 |
Net debt to capitalization |
|
|
|
|
|
|
|
12.2% |
|
|
|
|
|
10.8% |
ROIC - Consolidated
period-to-date |
|
0.1% |
|
|
2.8% |
|
|
2.9% |
|
|
3.7% |
|
|
7.2% |
Changes in Financial Position
Cash generated from operating activities was $126.0 million in the second quarter of 2015,
compared to cash generated of $41.8
million in the previous quarter and cash generated of
$206.3 million in the same quarter of
2014. The increase in operating cash flows from the previous
quarter principally reflected a seasonal drawdown of log
inventories during the spring break-up period in Western Canada and a reduction in finished
inventories as sales volumes outpaced production during the quarter
partly offset by lower cash earnings. Compared to the second
quarter of 2014, the decrease in cash generated from operating
activities was primarily attributable to lower cash earnings in the
current quarter.
Cash used in financing activities was $71.2 million in the current quarter, compared to
cash generated of $81.7 million in
the previous quarter and cash used of $150.2
million in the same quarter of 2014. During the second
quarter of 2015, Canfor purchased 410,000 common shares for
$9.9 million, compared to
$26.0 million in the previous quarter
and $105.7 million in the same
quarter of 2014. In addition, Canfor Pulp purchased 137,855
common shares for $2.0 million.
Cash paid for share purchases in the second quarter also included
$3.3 million related to Canfor share
purchases and $5.3 million related to
Canfor Pulp share purchases that occurred at the end of the
previous quarter (see further discussion of the shares purchased
under the Normal Course Issuer Bid in the following "Liquidity and
Financial Requirements" section). During the second quarter
of 2015, the Company repaid $41.0
million against its operating loan facility and had
$142.0 million outstanding on the
facility at the end of the quarter. Financing activities in
the first quarter of 2015 included a $115.0
million draw on the operating loan while the second quarter
of 2014 included a $39.0 million
repayment. During the quarter, the Company paid $6.7 million to non-controlling shareholders, up
from $3.0 million in the previous
quarter and $2.9 million in the same
quarter of 2014, mainly reflecting distributions made to the
non-controlling shareholders of Scotch Gulf and Beadles &
Balfour in the current quarter.
Cash used for investing activities was $125.1 million in the current quarter, compared
to $67.6 million in the previous
quarter and $36.3 million in the same
quarter of 2014. Cash used for capital additions was
$49.4 million, up $3.6 million from the previous quarter and down
$13.6 million from the second quarter
of 2014. Current quarter capital expenditures included
spending on the construction of the Company's pellet plants in
Chetwynd and Fort St. John (see further discussion on the
pellet plants in the following "Commitments and Subsequent Events"
section), the Polar sawmill rebuild as well as smaller capital
projects at both the SYP and Western SPF operations. In the pulp
and paper segment, capital expenditures included final payments
related to the completion of the Intercontinental Pulp Mill's
turbine upgrade at the end of the previous quarter and
maintenance-of-business capital related to the aforementioned
maintenance outages during the quarter. The Intercontinental
Pulp Mill facility commenced selling power under an Electricity
Purchase Agreement in the second quarter of 2015. Investing
activities in the current quarter also included cash consideration
paid of $65.6 million related to the
purchase of the operating assets of Southern Lumber (See further
discussion on the acquisition of Southern Lumber in the following
"Acquisition of Southern Lumber" section).
Liquidity and Financial Requirements
At June 30, 2015, the Company on a
consolidated basis had cash of $143.9
million, $142.0 million drawn
on its operating loans, and an additional $50.4 million reserved for several standby
letters of credit. Total available undrawn operating loans at
period end were $325.1 million.
In early July, the Company made tax installment payments of
$22.6 million and received
$15.0 million for the first payment
related to the sale of the Company's investment in Lakeland Mills
Ltd. and Winton Global Lumber Ltd.
During the second quarter of 2015, CPPI extended the maturity
date on its $30.0 million operating
loan facility, which covers energy-related letters of credit, to
June 30, 2016.
Canfor has $100.0 million of
floating interest rate term debt, repayable in February 2017 and $75.0
million of floating interest term debt, repayable in
November 2019. CPPI has
$50.0 million of floating interest
rate term debt, repayable in November
2018.
The Company and CPPI remained in compliance with the covenants
relating to their operating loans and long-term debt during the
quarter, and expect to remain so for the foreseeable future.
The Company's consolidated net debt to total capitalization at
the end the second quarter of 2015 was 12.2%. For Canfor,
excluding CPPI, net debt to capitalization at the end of the second
quarter of 2015 was 16.2%.
On March 5, 2015, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 6,767,993 common shares or approximately 5% of
its issued and outstanding common shares as of February 28, 2015. The renewed normal course
issuer bid is set to expire on March 4,
2016. During the second quarter of 2015, Canfor
purchased 410,000 common shares for $9.9
million (an average of $24.15
per common share), which was paid in the quarter. In addition,
$3.3 million was paid in the current
quarter for share purchases relating to the previous quarter.
Under a separate normal course issuer bid, CPPI purchased shares
from non-controlling shareholders increasing Canfor's ownership to
51.0% by quarter end. Canfor and CPPI may purchase more
shares through the balance of 2015 subject to the terms of their
normal course issuer bids and certain Board approved criteria.
Acquisition of Southern Lumber
On April 1, 2015, the Company
completed the acquisition of Southern Lumber's Mississippi operating assets for total cash
consideration of $65.6 million. As a
result of the acquisition, Canfor recognized approximately
$4.2 million of working capital,
$14.1 million of long-term tangible
assets and $47.3 million of
goodwill.
Commitments and Subsequent Events
On January 30, 2015, the Company
completed the third phase of the acquisition of Scotch Gulf
increasing its ownership to 50%. On completion of this phase
of the acquisition, Canfor obtained control for accounting purposes
with the consolidation of Scotch Gulf starting on January 30, 2015. The final phase, whereby
the Company will own 100% of Scotch Gulf, is scheduled to close in
August 2016. The aggregate
purchase price for Scotch Gulf is US$80.5
million plus working capital.
On January 2,
2015, the first phase of the acquisition of Beadles &
Balfour closed representing an initial 55% ownership
interest. Canfor obtained control for accounting purposes
with the consolidation of Beadles & Balfour starting on
January 2, 2015. The final
phase whereby Canfor will wholly own Beadles & Balfour is
scheduled to close at the beginning of 2017. The aggregate
purchase price for Beadles & Balfour is US$68.0 million plus working capital.
In September 2014,
the Company announced plans to construct a pellet plant at both the
Chetwynd and Fort St. John Sawmill
sites, in the Northern British
Columbia interior (the "Pellet Plants") in partnership with
Pacific BioEnergy Corporation ("Pacific BioEnergy"). The
total investment cost is estimated to be $58.0 million and production is scheduled to
commence in late 2015. Canfor owns an approximate 95%
interest in the Pellet Plants while Pacific BioEnergy owns the
remaining 5% and has an option to increase its ownership interest
in the Pellet Plants up to a total of 30% over a three year
period.
Subsequent to quarter end, on July 1, 2015, the Company sold its 33.3%
investment in Lakeland Mills Ltd. and Winton Global Lumber Ltd. to
Robert Stewart Holdings Ltd. for cash consideration of $30.0 million. The proceeds will be paid in two
equal installments of $15.0 million
with the first installment received on July
1, 2015 and the second installment scheduled to be received
on July 1, 2017. On
June 30, 2015, the Company's
investment was recorded at fair value of $30.0 million and a gain of $7.0 million was recognized in Other Income.
Also subsequent to quarter end, on July 21, 2015, the CPPI Board of Directors
declared a quarterly dividend of $0.0625 per share and a special dividend of
$1.1250 per share, both payable on
August 10, 2015, to the CPPI
shareholders of record on August 3,
2015. As at July 21, 2015
Canfor owns 51.0% of CPPI.
OUTLOOK
Lumber
The North American lumber market is forecast to continue to
improve at a modest pace through the third quarter of 2015, with
further improvements projected through the fall. Offshore markets
are forecast to be relatively stable in the third quarter of 2015.
A weakening of the Canadian dollar is forecast to benefit the
lumber segment in the third quarter of 2015.
With the low Random Lengths Framing Lumber Composite Price
during the second quarter of 2015, an export duty of 15% will be
paid on exports to the US in July. Improved lumber prices
towards the end of the second quarter and into the beginning of the
third quarter of 2015 will result in a decline in the export tax
rate on US bound shipments to 5% in August.
Pulp and Paper
For the month of July 2015, Canfor
Pulp's NBSK pulp list price is US$980
per tonne in North America,
unchanged from June 2015. With
reported global softwood pulp inventories at the high end of the
balanced range heading into the seasonally slower summer period,
there is some risk of downward pressure on global softwood pulp
prices in the third quarter of 2015. A weakening of the
Canadian dollar should mitigate this price pressure.
A maintenance outage is planned to begin at the Northwood Pulp
Mill in September 2015, with a
projected 25,000 tonnes of reduced NBSK pulp production, 5,000
tonnes of which will fall in the third quarter of 2015 with the
balance in the fourth quarter of 2015.
OUTSTANDING SHARES
At July 21, 2015, there were
133,854,663 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 July 2014, the
International Accounting Standards Board ("IASB") issued IFRS 9,
Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company is in process of assessing the impact, if any, on the
financial statements of this new standard.
In May 2014, the
IASB issued IFRS 15, Revenue from Contracts with Customers,
which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations.
The new standard is effective for annual periods beginning on or
after January 1, 2018. The
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
Further details of the new accounting standards
and potential impact on Canfor can be found in the Company's Annual
Report for the year ended December 31,
2014.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended June 30,
2015, there were no changes in the Company's internal
controls over financial reporting that materially affected, or
would be reasonably likely to materially affect, such controls.
RISKS AND UNCERTAINTIES
A comprehensive discussion of risks and uncertainties is
included in the Company's 2014 annual statutory reports which are
available on www.canfor.com or www.sedar.com.
Softwood Lumber Agreement
Canadian softwood lumber exports to the US are
currently subject to export taxes under the Softwood Lumber
Agreement ("SLA") which has been in place since October 2006. In January 2012, Canada and the US agreed to a two year
extension to the SLA extending the expiry of the agreement to
October 2015. If the agreement
is not renewed or replaced before the October 2015 expiry, the current SLA provides
that no trade actions may be imposed for the importation of
softwood lumber from Canada to the
US for a period of twelve months following the current SLA expiry
date.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2
2015 |
|
Q1
2015 |
|
Q4
2014 |
|
Q3
2014 |
|
Q2
2014 |
|
Q1
2014 |
|
Q4
2013 |
|
Q3
2013 |
Sales and income
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
952.4 |
$ |
930.0 |
$ |
860.4 |
$ |
838.0 |
$ |
907.3 |
$ |
741.9 |
$ |
809.5 |
$ |
755.9 |
Operating income |
$ |
17.6 |
$ |
83.7 |
$ |
62.0 |
$ |
85.6 |
$ |
97.3 |
$ |
84.4 |
$ |
53.8 |
$ |
49.3 |
Net income |
$ |
23.9 |
$ |
47.0 |
$ |
40.5 |
$ |
58.2 |
$ |
64.5 |
$ |
58.6 |
$ |
35.1 |
$ |
33.6 |
Shareholder net income |
$ |
11.1 |
$ |
29.3 |
$ |
29.9 |
$ |
45.5 |
$ |
54.3 |
$ |
45.5 |
$ |
28.0 |
$ |
28.4 |
Per common share (Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder net income - basic and diluted |
$ |
0.08 |
$ |
0.22 |
$ |
0.22 |
$ |
0.34 |
$ |
0.39 |
$ |
0.33 |
$ |
0.20 |
$ |
0.20 |
Book value26 |
$ |
9.86 |
$ |
9.76 |
$ |
10.25 |
$ |
10.24 |
$ |
9.75 |
$ |
10.05 |
$ |
9.82 |
$ |
9.47 |
Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber shipments (MMfbm) |
|
1,367 |
|
1,172 |
|
1,092 |
|
1,124 |
|
1,236 |
|
927 |
|
1,109 |
|
1,172 |
Pulp shipments (000 mt) |
|
292 |
|
287 |
|
314 |
|
291 |
|
314 |
|
256 |
|
330 |
|
268 |
Average exchange rate - US$/Cdn$ |
$ |
0.813 |
$ |
0.806 |
$ |
0.881 |
$ |
0.918 |
$ |
0.917 |
$ |
0.906 |
$ |
0.953 |
$ |
0.963 |
Average Western SPF 2x4 #2&Btr lumber price
(US$) |
$ |
270 |
$ |
308 |
$ |
340 |
$ |
357 |
$ |
335 |
$ |
367 |
$ |
370 |
$ |
328 |
Average SYP (East) 2x4 #2 lumber price (US$) |
$ |
383 |
$ |
413 |
$ |
427 |
$ |
438 |
$ |
405 |
$ |
403 |
$ |
415 |
$ |
393 |
Average NBSK pulp list price delivered to U.S.
(US$) |
$ |
980 |
$ |
995 |
$ |
1,025 |
$ |
1,030 |
$ |
1,030 |
$ |
1,017 |
$ |
983 |
$ |
947 |
26 Book value per common share is equal to
shareholders' equity at the end of the period, divided by the
number of common shares outstanding at the end of the period. |
In addition to exposure to changes in product prices and foreign
exchange, the Company's financial results are impacted by seasonal
factors such as weather and building activity. Adverse
weather conditions can cause logging curtailments, which can affect
the supply of raw materials to sawmills and pulp mills.
Market demand also varies seasonally to some degree. For
example, building activity and repair and renovation work, which
affects demand for lumber products, is generally stronger in the
spring and summer months. Shipment volumes are affected by
these factors as well as by global supply and demand
conditions.
Other material factors that impact the comparability of the
quarters are noted below:
|
|
|
After-tax impact, net of non-controlling
interests |
|
|
(millions of Canadian dollars, except for per
share amounts) |
|
Q2
2015 |
|
Q1
2015 |
|
Q4
2014 |
|
Q3
2014 |
|
Q2
2014 |
|
Q1
2014 |
|
Q4
2013 |
|
Q3
2013 |
Shareholder net income, as reported |
$ |
11.1 |
$ |
29.3 |
$ |
29.9 |
$ |
45.5 |
$ |
54.3 |
$ |
45.5 |
$ |
28.0 |
$ |
28.4 |
(Gain) loss on derivative financial
instruments |
$ |
(7.7) |
$ |
17.2 |
$ |
5.2 |
$ |
0.7 |
$ |
(2.1) |
$ |
2.1 |
$ |
0.1 |
$ |
(2.2) |
Mark-to-market gain on investment in Lakeland
Mills Ltd. and Winton Global Lumber Ltd. |
$ |
(6.1) |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
Mark-to-market adjustment, net to Taylor Pulp Mill
contingent consideration |
$ |
0.7 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
Mark-to-market adjustment to Canfor-LP OSB sale
contingent consideration |
$ |
- |
$ |
- |
$ |
- |
$ |
4.5 |
$ |
4.5 |
$ |
0.4 |
$ |
3.6 |
$ |
1.0 |
Gain on sale of Daaquam operation |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
(1.6) |
$ |
- |
$ |
- |
Foreign exchange (gain) loss on long-term debt and
investments, net |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
1.5 |
$ |
(1.0) |
Mill closure provisions |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
14.8 |
$ |
- |
One-time costs associated with collective
agreements for the lumber business |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
0.8 |
$ |
- |
Net impact of above items |
$ |
(13.1) |
$ |
17.2 |
$ |
5.2 |
$ |
5.2 |
$ |
2.4 |
$ |
0.9 |
$ |
20.8 |
$ |
(2.2) |
Adjusted shareholder net income (loss) |
$ |
(2.0) |
$ |
46.5 |
$ |
35.1 |
$ |
50.7 |
$ |
56.7 |
$ |
46.4 |
$ |
48.8 |
$ |
26.2 |
Shareholder net income per share (EPS), as
reported |
$ |
0.08 |
$ |
0.22 |
$ |
0.22 |
$ |
0.34 |
$ |
0.39 |
$ |
0.33 |
$ |
0.20 |
$ |
0.20 |
Net impact of above items per share |
$ |
(0.10) |
$ |
0.13 |
$ |
0.04 |
$ |
0.04 |
$ |
0.02 |
$ |
0.01 |
$ |
0.15 |
$ |
(0.02) |
Adjusted net income (loss) per share |
$ |
(0.02) |
$ |
0.35 |
$ |
0.26 |
$ |
0.38 |
$ |
0.41 |
$ |
0.34 |
$ |
0.35 |
$ |
0.18 |
Canfor Corporation
Condensed Consolidated Balance Sheets
(millions of Canadian
dollars, unaudited) |
|
As at
June 30,
2015 |
|
|
As at
December 31,
2014 |
ASSETS |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
143.9 |
|
$ |
158.3 |
Restricted cash (Note 13(b)) |
|
- |
|
|
50.2 |
Accounts receivable |
|
|
|
|
|
|
|
- Trade |
|
149.2 |
|
|
91.3 |
|
- Other |
|
65.9 |
|
|
38.8 |
Inventories (Note 2) |
|
534.9 |
|
|
517.7 |
Prepaid expenses and other assets |
|
89.0 |
|
|
46.3 |
Total current assets |
|
982.9 |
|
|
902.6 |
Property, plant and equipment |
|
1,337.8 |
|
|
1,216.1 |
Timber licenses |
|
511.9 |
|
|
519.5 |
Goodwill and other intangible
assets (Note 13(a,b,c)) |
|
181.4 |
|
|
105.0 |
Retirement benefit surplus
(Note 5) |
|
3.8 |
|
|
0.6 |
Long-term investments and other
(Note 3) |
|
40.0 |
|
|
101.3 |
Deferred income taxes, net |
|
0.9 |
|
|
1.7 |
Total assets |
$ |
3,058.7 |
|
$ |
2,846.8 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Operating loans (Note 4) |
$ |
142.0 |
|
$ |
68.0 |
Accounts payable and accrued liabilities |
|
348.7 |
|
|
305.8 |
Current portion of deferred reforestation
obligations |
|
51.9 |
|
|
52.1 |
Total current liabilities |
|
542.6 |
|
|
425.9 |
Long-term debt |
|
228.9 |
|
|
228.6 |
Retirement benefit obligations
(Note 5) |
|
258.5 |
|
|
263.2 |
Deferred reforestation
obligations |
|
62.4 |
|
|
60.0 |
Other long-term
liabilities |
|
21.3 |
|
|
19.6 |
Forward purchase liabilities
(Note 13(a,b)) |
|
106.3 |
|
|
- |
Deferred income taxes, net |
|
200.7 |
|
|
211.9 |
Total liabilities |
$ |
1,420.7 |
|
$ |
1,209.2 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital |
$ |
1,056.0 |
|
$ |
1,068.0 |
Contributed surplus and other
equity |
|
(74.5) |
|
|
31.9 |
Retained earnings |
|
283.1 |
|
|
260.1 |
Accumulated foreign exchange
translation differences |
|
55.3 |
|
|
27.2 |
Total equity attributable to equity
holders of the Company |
|
1,319.9 |
|
|
1,387.2 |
Non-controlling interests |
|
318.1 |
|
|
250.4 |
Total equity |
$ |
1,638.0 |
|
$ |
1,637.6 |
Total liabilities and
equity |
$ |
3,058.7 |
|
$ |
2,846.8 |
Subsequent Events (Note 14)
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 June 30, |
|
6 months ended June
30, |
(millions of Canadian dollars, except per share
data, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
Sales |
$ |
952.4 |
$ |
907.3 |
$ |
1,882.4 |
$ |
1,649.2 |
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
Manufacturing and product costs |
|
690.2 |
|
587.2 |
|
1,316.0 |
|
1,065.9 |
|
Freight and other distribution costs |
|
159.3 |
|
156.4 |
|
305.5 |
|
270.2 |
|
Export taxes |
|
10.5 |
|
- |
|
10.5 |
|
- |
|
Amortization |
|
52.2 |
|
44.0 |
|
101.5 |
|
88.5 |
|
Selling and administration costs |
|
21.7 |
|
20.7 |
|
44.0 |
|
39.0 |
|
Restructuring, mill closure and severance
costs |
|
0.9 |
|
1.7 |
|
3.6 |
|
3.9 |
|
|
934.8 |
|
810.0 |
|
1,781.1 |
|
1,467.5 |
|
|
|
|
|
|
|
|
|
Operating income |
|
17.6 |
|
97.3 |
|
101.3 |
|
181.7 |
|
|
|
|
|
|
|
|
|
Finance expense, net |
|
(5.6) |
|
(4.4) |
|
(10.9) |
|
(8.8) |
Gain (loss) on derivative financial
instruments (Note 6) |
|
12.7 |
|
3.1 |
|
(15.3) |
|
(0.4) |
Other income (expense), net |
|
3.3 |
|
(10.8) |
|
14.1 |
|
(7.5) |
Net income before income taxes |
|
28.0 |
|
85.2 |
|
89.2 |
|
165.0 |
Income tax expense (Note 7) |
|
(4.1) |
|
(20.7) |
|
(18.3) |
|
(41.9) |
Net income |
$ |
23.9 |
$ |
64.5 |
$ |
70.9 |
$ |
123.1 |
|
|
|
|
|
|
|
|
|
Net income attributable
to: |
|
|
|
|
|
|
|
|
Equity shareholders of the
Company |
$ |
11.1 |
$ |
54.3 |
$ |
40.4 |
$ |
99.8 |
Non-controlling interests |
|
12.8 |
|
10.2 |
|
30.5 |
|
23.3 |
Net income |
$ |
23.9 |
$ |
64.5 |
$ |
70.9 |
$ |
123.1 |
|
|
|
|
|
|
|
|
|
Net income per common share:
(in Canadian dollars) |
|
|
|
|
|
|
|
|
Attributable to equity shareholders of
the Company |
|
|
|
|
|
|
|
|
|
- Basic and diluted (Note 8) |
$ |
0.08 |
$ |
0.39 |
$ |
0.30 |
$ |
0.72 |
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 June
30, |
6 months ended June
30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
23.9 |
$ |
64.5 |
$ |
70.9 |
$ |
123.1 |
Other comprehensive income
(loss) |
|
|
|
|
|
|
|
|
Items that will not be recycled
through net income: |
|
|
|
|
|
|
|
|
|
Defined benefit plan actuarial gains (losses)
(Note 5) |
|
22.2 |
|
(35.5) |
|
17.9 |
|
(68.3) |
|
Income tax recovery (expense) on
defined benefit plan actuarial gains (losses) (Note 7) |
|
(5.8) |
|
9.3 |
|
(4.7) |
|
17.8 |
|
|
16.4 |
|
(26.2) |
|
13.2 |
|
(50.5) |
Items that may be recycled through net
income: |
|
|
|
|
|
|
|
|
|
Foreign exchange translation
differences for foreign operations, net of tax |
|
(6.2) |
|
(10.0) |
|
28.1 |
|
0.6 |
Other comprehensive
income (loss), net of tax |
|
10.2 |
|
(36.2) |
|
41.3 |
|
(49.9) |
Total comprehensive income |
$ |
34.1 |
$ |
28.3 |
$ |
112.2 |
$ |
73.2 |
|
|
|
|
|
|
|
|
|
Total comprehensive
income attributable to: |
|
|
|
|
|
|
|
|
Equity shareholders of the
Company |
$ |
19.1 |
$ |
19.0 |
$ |
80.6 |
$ |
54.2 |
Non-controlling interests |
|
15.0 |
|
9.3 |
|
31.6 |
|
19.0 |
Total comprehensive income |
$ |
34.1 |
$ |
28.3 |
$ |
112.2 |
$ |
73.2 |
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 June 30, |
6 months ended June 30, |
(millions of Canadian dollars, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
1,059.3 |
$ |
1,102.2 |
$ |
1,068.0 |
$ |
1,103.7 |
Share purchases (Note 8) |
|
(3.3) |
|
(34.2) |
|
(12.0) |
|
(35.7) |
Balance at end of period |
$ |
1,056.0 |
$ |
1,068.0 |
$ |
1,056.0 |
$ |
1,068.0 |
|
|
|
|
|
|
|
|
|
Contributed surplus and other equity |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
(74.5) |
$ |
31.9 |
$ |
31.9 |
$ |
31.9 |
Forward purchase liability related to acquisitions
(Note 13(a,b)) |
|
- |
|
- |
|
(106.4) |
|
- |
Balance at end of period |
$ |
(74.5) |
$ |
31.9 |
$ |
(74.5) |
$ |
31.9 |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
264.9 |
$ |
255.3 |
$ |
260.1 |
$ |
234.2 |
Net income attributable to equity shareholders of
the Company |
|
11.1 |
|
54.3 |
|
40.4 |
|
99.8 |
Defined benefit plan actuarial gains (losses), net
of tax |
|
14.2 |
|
(25.3) |
|
12.1 |
|
(46.2) |
Share purchases (Note 8) |
|
(6.6) |
|
(69.7) |
|
(27.2) |
|
(73.2) |
Acquisition of non-controlling interests (Note
8) |
|
(0.5) |
|
- |
|
(2.3) |
|
- |
Balance at end of period |
$ |
283.1 |
$ |
214.6 |
$ |
283.1 |
$ |
214.6 |
|
|
|
|
|
|
|
|
|
Accumulated foreign exchange translation
differences |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
61.5 |
$ |
15.1 |
$ |
27.2 |
$ |
4.5 |
Foreign exchange translation differences for
foreign operations, net of tax |
|
(6.2) |
|
(10.0) |
|
28.1 |
|
0.6 |
Balance at end of period |
$ |
55.3 |
$ |
5.1 |
$ |
55.3 |
$ |
5.1 |
|
|
|
|
|
|
|
|
|
Total equity attributable to equity holders of
the Company |
$ |
1,319.9 |
$ |
1,319.6 |
$ |
1,319.9 |
$ |
1,319.6 |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
311.3 |
$ |
230.7 |
$ |
250.4 |
$ |
223.1 |
Net income attributable to non-controlling
interests |
|
12.8 |
|
10.2 |
|
30.5 |
|
23.3 |
Defined benefit plan actuarial gains (losses)
attributable to non-controlling interests, net of taxes |
|
2.2 |
|
(0.9) |
|
1.1 |
|
(4.3) |
Distributions to non-controlling interests |
|
(6.7) |
|
(2.9) |
|
(9.7) |
|
(5.0) |
Acquisition of non-controlling interests (Note
8) |
|
(1.5) |
|
- |
|
(6.7) |
|
- |
Non-controlling interests arising on acquisitions
(Note 13(a,b)) |
|
- |
|
- |
|
52.5 |
|
- |
Balance at end of period |
$ |
318.1 |
$ |
237.1 |
$ |
318.1 |
$ |
237.1 |
|
|
|
|
|
|
|
|
|
Total equity |
$ |
1,638.0 |
$ |
1,556.7 |
$ |
1,638.0 |
$ |
1,556.7 |
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 June
30, |
6 months ended June
30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Cash generated from (used
in): |
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net income |
$ |
23.9 |
$ |
64.5 |
$ |
70.9 |
$ |
123.1 |
|
Items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
Amortization |
|
52.2 |
|
44.0 |
|
101.5 |
|
88.5 |
|
|
Income tax expense |
|
4.1 |
|
20.7 |
|
18.3 |
|
41.9 |
|
|
Long-term portion of deferred reforestation
obligations |
|
(10.4) |
|
(9.2) |
|
2.0 |
|
4.2 |
|
|
Changes in mark-to-market value of
derivative financial instruments |
|
(18.7) |
|
(3.0) |
|
0.4 |
|
0.4 |
|
|
Employee future benefits |
|
3.7 |
|
3.2 |
|
7.4 |
|
6.4 |
|
|
Finance expense, net |
|
5.6 |
|
4.4 |
|
10.9 |
|
8.8 |
|
|
Other, net |
|
(3.1) |
|
4.3 |
|
7.9 |
|
8.6 |
|
Defined benefit plan withdrawals
(contributions), net |
|
(5.5) |
|
(5.9) |
|
(2.5) |
|
(19.4) |
|
Income taxes paid, net |
|
(12.1) |
|
(9.5) |
|
(34.1) |
|
(21.3) |
|
|
39.7 |
|
113.5 |
|
182.7 |
|
241.2 |
|
Net change in non-cash working capital
(Note 9) |
|
86.3 |
|
92.8 |
|
(14.9) |
|
(85.0) |
|
|
126.0 |
|
206.3 |
|
167.8 |
|
156.2 |
Financing activities |
|
|
|
|
|
|
|
|
|
Change in operating bank loans (Note
4) |
|
(41.0) |
|
(39.0) |
|
74.0 |
|
67.8 |
|
Finance expenses paid |
|
(3.0) |
|
(2.6) |
|
(5.6) |
|
(5.4) |
|
Share purchases (Note 8) |
|
(13.2) |
|
(105.7) |
|
(39.2) |
|
(107.7) |
|
Acquisition of non-controlling
interests (Note 8) |
|
(7.3) |
|
- |
|
(9.0) |
- |
- |
|
Cash distributions paid to
non-controlling interests |
|
(6.7) |
|
(2.9) |
|
(9.7) |
|
(5.0) |
|
|
(71.2) |
|
(150.2) |
|
10.5 |
|
(50.3) |
Investing activities |
|
|
|
|
|
|
|
|
|
Additions to property,
plant and equipment and intangible assets, net |
|
(49.4) |
|
(63.0) |
|
(95.2) |
|
(116.1) |
|
Acquisition of Southern Lumber (Note
13(c)) |
|
(65.6) |
|
- |
|
(65.6) |
|
- |
|
Acquisition of Beadles & Balfour
(Note 13(b)) |
|
(0.8) |
|
- |
|
(51.6) |
|
- |
|
Change in restricted cash (Note
13(b)) |
|
- |
|
- |
|
50.2 |
|
- |
|
Acquisition of Scotch Gulf, net of
cash acquired (Note 13(a)) |
|
- |
|
- |
|
(22.3) |
|
- |
|
Loan repayment from Scotch Gulf (Note
13(a)) |
|
- |
|
2.1 |
|
4.1 |
|
4.7 |
|
Proceeds on sale of Daaquam Sawmill
(Note 11) |
|
- |
|
22.9 |
|
- |
|
22.9 |
|
Other, net |
|
(9.3) |
|
1.7 |
|
(12.3) |
|
0.8 |
|
|
(125.1) |
|
(36.3) |
|
(192.7) |
|
(87.7) |
Increase (decrease) in cash and
cash equivalents* |
|
(70.3) |
|
19.8 |
|
(14.4) |
|
18.2 |
Cash and cash equivalents at beginning
of period* |
|
214.2 |
|
87.9 |
|
158.3 |
|
89.5 |
Cash and cash equivalents at end of
period* |
$ |
143.9 |
$ |
107.7 |
$ |
143.9 |
$ |
107.7 |
*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
(unaudited, millions of Canadian dollars unless otherwise
noted)
1. Basis of Preparation
These condensed consolidated interim financial
statements (the "financial statements") have been prepared in
accordance with International Accounting Standard ("IAS") 34
Interim Financial Reporting, and include the accounts of
Canfor Corporation and its subsidiary entities, hereinafter
referred to as "Canfor" or "the Company".
These financial statements do not include all of the disclosures
required by International Financial Reporting Standards ("IFRS")
for annual financial statements. Additional disclosures
relevant to the understanding of these financial statements,
including the accounting policies applied, can be found in the
Company's Annual Report for the year ended December 31, 2014, available at www.canfor.com or
www.sedar.com.
There have been no new estimates or judgments since the 2014
annual financial statements with the exception of those related to
the acquisitions of Scotch & Gulf Lumber, LLC ("Scotch Gulf"),
Beadles Lumber Company & Balfour Lumber Company Inc. ("Beadles
& Balfour"), and Southern Lumber Company Inc. ("Southern
Lumber") (Note 13).
Canfor's financial results are impacted by seasonal factors such
as weather and building activity. Adverse weather conditions can
cause logging curtailments, which can affect the supply of raw
materials to sawmills and pulp mills. Market demand also
varies seasonally to some degree. For example, building
activity and repair and renovation work, which affects demand for
solid wood products, are generally stronger in the spring and
summer months. Shipment volumes are affected by these factors
as well as by global supply and demand conditions.
These financial statements were authorized for issue by the
Company's Board of Directors on July 21,
2015.
Accounting Standards Issued and Not
Applied
In May 2014, the
IASB issued IFRS 15, Revenue from Contracts with Customers,
which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations.
The new standard is effective for annual periods beginning on or
after January 1, 2018. The
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
In July 2014, the
International Accounting Standards Board ("IASB") issued IFRS 9,
Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company is in process of assessing the impact, if any, on the
financial statements of this new standard.
Further details of the new accounting standards
and potential impact on Canfor can be found in the Company's Annual
Report for the year ended December 31,
2014.
2. Inventories
(millions of Canadian dollars,
unaudited) |
|
As at
June 30,
2015 |
|
As at
December 31,
2014 |
Logs |
$ |
99.8 |
$ |
122.6 |
Finished products |
|
318.0 |
|
281.0 |
Residual fibre |
|
9.0 |
|
10.3 |
Processing materials and supplies |
|
108.1 |
|
103.8 |
|
$ |
534.9 |
$ |
517.7 |
At June 30, 2015, the inventory
write-down in order to record inventory at the lower of cost and
net realizable value was $1.0 million
(December 31, 2014 - nil).
3. Long-Term Investments and Other
(millions of Canadian dollars,
unaudited) |
|
As at
June 30,
2015 |
|
As at
December 31,
2014 |
Investments |
$ |
15.4 |
$ |
64.4 |
Term loan Scotch Gulf (Note 13(a)) |
|
- |
|
23.2 |
Other deposits, loans and advances |
|
24.6 |
|
13.7 |
|
$ |
40.0 |
$ |
101.3 |
On January 30, 2015 Canfor was
deemed to have control of Scotch Gulf (Note 13 (a)). The
acquisition method of accounting was applied on the acquisition
date of January 30, 2015 and the
equity investment in Scotch Gulf recorded in Long-Term Investments
and Other was derecognised. The term loan between Canfor and Scotch
Gulf was eliminated on consolidation of Scotch Gulf.
Investments also include the Company's 33.3% investment in
Lakeland Mills Ltd. and Winton Global Lumber Ltd. for which the
Company does not exercise significant influence and records as a
level 3 financial instrument measured at fair value, which is
determined based on the future expected cash flows of the
underlying investments. At December 31,
2014, the fair value of the Company's investment in Lakeland
Mills Ltd. and Winton Global Lumber Ltd. was $23.0 million. During the second quarter of 2015,
a fair market value adjustment of $7.0
million was recognized in Other Income, increasing the total
value of the investment to $30.0
million at June 30, 2015.
Subsequent to quarter end, on July 1,
2015, the Company sold its 33.3% investment in Lakeland
Mills Ltd. and Winton Global Lumber Ltd. for $30.0 million. To reflect the timing of the
consideration payments, $15.0 million
of the financial instrument was reclassified to Other Accounts
Receivable at June 30, 2015. See
further discussion of the subsequent event and fair market value
adjustment in Note 14.
4. Operating Loans
Available Operating Loans
(millions of Canadian
dollars, unaudited) |
|
As at
June 30,
2015 |
|
As at
December 31,
2014 |
Canfor (excluding CPPI) |
|
|
|
|
Available Operating Loans: |
|
|
|
|
|
Operating loan facility - Canfor (excluding
CPPI) |
$ |
350.0 |
$ |
350.0 |
|
Facility for letters of credit - Canfor (excluding
CPPI) |
|
37.5 |
|
37.5 |
|
Total operating loans - Canfor (excluding
CPPI) |
|
387.5 |
|
387.5 |
|
Operating loan drawn |
|
(142.0) |
|
(68.0) |
|
Letters of credit |
|
(38.8) |
|
(13.8) |
Total available operating loans -
Canfor (excluding CPPI) |
$ |
206.7 |
$ |
305.7 |
CPPI |
|
|
|
|
Available Operating Loans: |
|
|
|
|
|
Operating loan facility |
$ |
110.0 |
$ |
110.0 |
|
Facility for letters of credit related to energy
agreements |
|
20.0 |
|
20.0 |
|
Total operating loans - CPPI |
|
130.0 |
|
130.0 |
|
Operating loan drawn |
|
- |
|
- |
|
Energy letters of credit |
|
(11.6) |
|
(12.2) |
Total available operating loans -
CPPI |
$ |
118.4 |
$ |
117.8 |
Consolidated: |
|
|
|
|
Total operating loans |
$ |
517.5 |
$ |
517.5 |
Total available operating
loans |
$ |
325.1 |
$ |
423.5 |
Canfor's principal operating loans, excluding
Canfor Pulp Products Inc. ("CPPI"), mature on February 28, 2019. Interest is payable at
floating rates based on the lenders' Canadian prime rate, bankers
acceptances, US dollar base rate or US dollar LIBOR rate, plus a
margin that varies with the Company's net debt to total
capitalization ratio.
The terms of CPPI's operating loan facility
include interest payable at floating rates that vary depending on
the ratio of net debt to total capitalization and is based on
lenders' Canadian prime rate, bankers acceptances, US dollar base
rate or US dollar LIBOR rate, plus a margin. The maturity
date of this facility is January 31,
2018.
Canfor (excluding CPPI) has a separate facility
to cover letters of credit. At June 30,
2015, $34.3 million of letters
of credit were covered under this facility with the balance of
$4.5 million covered under Canfor's
general operating loan facility.
CPPI has a separate facility to cover energy-related letters of
credit. During the second quarter of 2015, CPPI extended the
maturity on this facility to June 30,
2016. At June 30, 2015,
$9.4 million of energy-related
letters of credit were covered under this facility with the balance
of $2.2 million covered under CPPI's
general operating loan facility.
Both Canfor's and CPPI's operating loan
facilities have certain financial covenants that stipulate maximum
net debt to total capitalization ratios and minimum net worth
amounts based on shareholders' equity.
As at June 30, 2015, the Company
and CPPI were in compliance with all covenants relating to their
operating loans. Substantially all borrowings of CPPI (operating
loans and long-term debt) are non-recourse to other entities within
the Company.
5. Employee Future Benefits
For the three months ended June 30,
2015, defined benefit actuarial gains of $22.2 million (before tax) were recognized in
other comprehensive income. The gains recorded in the second
quarter of 2015 principally reflect a higher discount rate used to
value the net defined benefit obligations. For the six months ended
June 30, 2015, gains of $17.9 million (before tax) were recognized in
other comprehensive income. For the three months ended June 30, 2014, an amount of $35.5 million (before tax) was charged to other
comprehensive income, and for the six months ended June 30, 2014, the losses were $68.3 million (before tax).
For the Company's defined benefit plans, a one percentage point
increase in the discount rate used in calculating the actuarial
estimate of future liabilities would decrease the accrued benefit
obligation by an estimated $113.0
million.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
Other |
|
|
|
Benefit Plans |
|
Benefit Plans |
June 30, 2015 |
|
|
|
3.90% |
|
3.90% |
March 31, 2015 |
|
|
|
3.60% |
|
3.60% |
December 31, 2014 |
|
|
|
3.90% |
|
3.90% |
June 30, 2014 |
|
|
|
4.30% |
|
4.40% |
March 31, 2014 |
|
|
|
4.40% |
|
4.50% |
December 31, 2013 |
|
|
|
4.80% |
|
4.90% |
6. Financial Instruments
Canfor's cash and cash equivalents, accounts
receivable, other deposits, loans and advances, operating loans,
accounts payable and accrued liabilities, and long-term debt are
measured at amortized cost subsequent to initial measurement.
At June 30, 2015, the fair value of
the Company's long-term debt approximates its amortized cost of
$228.9 million (December 31, 2014 - $228.6
million).
Derivative instruments are measured at fair
value. IFRS 13, Fair Value Measurement, requires
classification of financial instruments within a hierarchy that
prioritizes the inputs to fair value measurement.
The three levels of the fair value hierarchy are:
|
|
|
|
|
|
|
|
|
|
|
Level 1 - Unadjusted quoted prices in active markets for
identical assets or liabilities; |
|
|
|
|
|
Level 2 - Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly; |
|
|
|
|
|
Level 3 - Inputs that are not based on observable market
data. |
|
|
|
|
|
|
The following table summarizes Canfor's financial instruments
measured at fair value at June 30,
2015 and December 31, 2014,
and shows the level within the fair value hierarchy in which they
have been classified:
(millions of Canadian
dollars, unaudited) |
|
Fair Value
Hierarchy
Level |
|
As at
June 30,
2015 |
|
As at
December 31,
2014 |
Financial assets measured at fair
value |
|
|
|
|
|
|
|
Derivative financial instruments - held for
trading |
|
Level 2 |
$ |
- |
$ |
0.3 |
|
Royalty receivable - available for sale |
|
Level 3 |
|
1.6 |
|
2.9 |
|
|
|
$ |
1.6 |
$ |
3.2 |
Financial liabilities measured at
fair value |
|
|
|
|
|
|
|
Derivative financial instruments - held for
trading |
|
Level 2 |
$ |
9.2 |
$ |
9.1 |
|
|
|
$ |
9.2 |
$ |
9.1 |
The royalty receivable is measured at fair value at each
reporting period and is presented in Other Accounts Receivable on
the consolidated balance sheet. The fair value of the royalty
receivable is determined by discounting future expected cash flows
based on energy price assumptions and future sales volume
assumptions until the termination of the royalty agreement in
September 2015.
The Company uses a variety of derivative financial instruments
to reduce its exposure to risks associated with fluctuations in
foreign exchange rates, lumber prices, pulp prices, energy costs,
and floating interest rates on long-term debt.
At June 30, 2015, the fair value
of derivative financial instruments was a net liability of
$9.2 million (December 31, 2014 - net liability of $8.8 million). The fair value of these
financial instruments was determined based on prevailing market
rates for instruments with similar characteristics.
The following table summarizes the gains (losses) on derivative
financial instruments for the three and six month periods ended
June 30, 2015 and 2014:
|
3 months ended June
30, |
6 months ended June
30, |
(millions of Canadian dollars, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Foreign exchange collars and forward
contracts |
$ |
9.5 |
$ |
2.5 |
$ |
(12.4) |
$ |
(0.4) |
Energy derivatives |
|
3.0 |
|
0.4 |
|
0.4 |
|
0.6 |
Lumber futures |
|
0.2 |
|
0.7 |
|
(2.1) |
|
0.8 |
Pulp futures |
|
- |
|
(0.4) |
|
- |
|
(0.7) |
Interest rate swaps |
|
- |
|
(0.1) |
|
(1.2) |
|
(0.7) |
Gain (loss) on derivative financial
instruments |
$ |
12.7 |
$ |
3.1 |
$ |
(15.3) |
$ |
(0.4) |
7. Income Taxes
|
3 months ended June 30, |
6 months ended June 30, |
(millions of Canadian dollars, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Current |
$ |
4.8 |
$ |
(9.5) |
$ |
(16.5) |
$ |
(23.4) |
Deferred |
|
(8.9) |
|
(11.2) |
|
(1.8) |
|
(18.5) |
Income tax expense |
$ |
(4.1) |
$ |
(20.7) |
$ |
(18.3) |
$ |
(41.9) |
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months ended June
30, |
6 months ended June
30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Income tax expense at statutory rate |
|
|
|
|
|
|
|
|
|
2015 - 26.0% (2014 - 26.0%) |
$ |
(7.3) |
$ |
(22.2) |
$ |
(23.2) |
$ |
(42.9) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Entities with different income tax rates and other
tax adjustments |
|
1.3 |
|
1.3 |
|
2.2 |
|
0.9 |
|
Non-taxable income related to non-controlling
interests |
|
1.1 |
|
0.2 |
|
2.1 |
|
0.3 |
|
Permanent difference from capital
gains and losses and other non-deductible items |
|
0.8 |
|
- |
|
0.6 |
|
(0.2) |
Income tax expense |
$ |
(4.1) |
$ |
(20.7) |
$ |
(18.3) |
$ |
(41.9) |
In addition to the amounts recorded to net
income, a tax expense of $5.8 million
was recorded to other comprehensive income for the three month
period ended June 30, 2015 (three
months ended June 30, 2014 - recovery
of $9.3 million) in relation to the
actuarial gains (losses) on defined benefit employee compensation
plans. For the six months ended June 30,
2015, the tax expense was $4.7
million (six months ended June 30,
2014 - tax recovery of $17.8
million).
Also included in other comprehensive income for
the three months ended June 30, 2015
was a tax recovery of $0.6 million
related to foreign exchange differences on translation of
investments in foreign operations. For the six months ended
June 30, 2015, the tax expense was
$1.9 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 shareholders by the weighted average
number of common shares outstanding during the period.
|
|
3 months ended June 30, |
|
6 months ended June 30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Weighted average number of common shares |
|
133,973,484 |
|
138,609,515 |
|
134,562,720 |
|
139,252,154 |
On March 5, 2015,
the Company renewed its normal course issuer bid whereby it can
purchase for cancellation up to 6,767,993 common shares or
approximately 5% of its issued and outstanding common shares as of
February 28, 2015. The renewed normal
course issuer bid is set to expire on March
4, 2016. During the second quarter of 2015, Canfor
purchased 410,000 common shares for $9.9
million (an average of $24.15
per common share), which was paid in the quarter. In addition,
$3.3 million was paid in the current
quarter for share purchases relating to the previous quarter. Under
a separate normal course issuer bid, CPPI purchased shares from
non-controlling shareholders increasing Canfor's ownership from
50.5% at December 31, 2014 to 51.0%
at June 30, 2015. As at July 21, 2015, there were 133,854,693 common
shares of the Company outstanding.
9. Net Change in Non-Cash Working
Capital
|
3 months ended June 30, |
6 months ended June 30, |
(millions of Canadian dollars, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Accounts receivable |
$ |
(8.2) |
$ |
(19.6) |
$ |
(47.1) |
$ |
(33.4) |
Inventories |
|
106.2 |
|
164.5 |
|
9.3 |
|
(30.4) |
Prepaid expenses and other assets |
|
(16.8) |
|
(13.7) |
|
(29.6) |
|
(15.9) |
Accounts payable, accrued
liabilities and current portion of
deferred reforestation obligations |
|
5.1 |
|
(38.4) |
|
52.5 |
|
(5.3) |
Net decrease (increase) in non-cash working
capital |
$ |
86.3 |
$ |
92.8 |
$ |
(14.9) |
$ |
(85.0) |
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 June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
$ |
676.0 |
|
276.4 |
|
- |
|
- |
|
$ |
952.4 |
Sales to other segments |
$ |
36.7 |
|
- |
|
- |
|
(36.7) |
|
$ |
- |
Operating income (loss) |
$ |
5.1 |
|
20.9 |
|
(8.4) |
|
- |
|
$ |
17.6 |
Amortization |
$ |
35.5 |
|
15.6 |
|
1.1 |
|
- |
|
$ |
52.2 |
Capital
expenditures1 |
$ |
34.3 |
|
12.7 |
|
2.4 |
|
- |
|
$ |
49.4 |
3 months ended June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
$ |
614.5 |
|
292.8 |
|
- |
|
- |
|
$ |
907.3 |
Sales to other segments |
$ |
34.4 |
|
- |
|
- |
|
(34.4) |
|
$ |
- |
Operating income (loss) |
$ |
74.1 |
|
30.9 |
|
(7.7) |
|
- |
|
$ |
97.3 |
Amortization |
$ |
28.1 |
|
15.7 |
|
0.2 |
|
- |
|
$ |
44.0 |
Capital
expenditures1 |
$ |
39.1 |
|
20.2 |
|
3.7 |
|
- |
|
$ |
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
6 months ended June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
$ |
1,323.0 |
|
559.4 |
|
- |
|
- |
|
$ |
1,882.4 |
Sales to other segments |
$ |
79.2 |
|
- |
|
- |
|
(79.2) |
|
$ |
- |
Operating income (loss) |
$ |
53.4 |
|
63.9 |
|
(16.0) |
|
- |
|
$ |
101.3 |
Amortization |
$ |
67.7 |
|
31.5 |
|
2.3 |
|
- |
|
$ |
101.5 |
Capital
expenditures1 |
$ |
65.1 |
|
26.2 |
|
3.9 |
|
- |
|
$ |
95.2 |
Identifiable assets |
$ |
2,042.9 |
|
784.7 |
|
231.1 |
|
- |
|
$ |
3,058.7 |
6 months ended June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
$ |
1,110.2 |
|
539.0 |
|
- |
|
- |
|
$ |
1,649.2 |
Sales to other segments |
$ |
69.9 |
|
- |
|
- |
|
(69.9) |
|
$ |
- |
Operating income (loss) |
$ |
130.5 |
|
67.4 |
|
(16.2) |
|
- |
|
$ |
181.7 |
Amortization |
$ |
56.0 |
|
32.2 |
|
0.3 |
|
- |
|
$ |
88.5 |
Capital
expenditures1 |
$ |
78.7 |
|
30.3 |
|
7.1 |
|
- |
|
$ |
116.1 |
Identifiable assets |
$ |
1,770.1 |
|
789.9 |
|
172.9 |
|
- |
|
$ |
2,732.9 |
1 |
Capital expenditures represent cash paid for
capital assets during the periods. Pulp & Paper includes
capital expenditures by CPPI that were partially financed by
government grants.
Capital expenditures for the six months ended June 30, 2015 exclude
the assets purchased as part of the acquisitions of Scotch Gulf,
Beadles & Balfour, and Southern Lumber (Note 13 (a,b,c)). |
|
|
11. Sale of Daaquam Operation
On March 28, 2014, the Company
completed the sale of its Daaquam operation. Total gross proceeds
related to the disposition of the Daaquam operation were
$25.0 million. A pre-tax gain
of $2.2 million was recorded in the
first quarter of 2014 in Other Income.
12. Sale of Taylor Pulp Mill
On January 30,
2015, the Company completed the sale of its Bleached
Chemi-Thermo Mechanical Pulp ("BCTMP") Taylor Pulp Mill to CPPI for
cash consideration of $12.6 million
including final working capital. The sale also includes a
long-term fibre supply agreement under which Canfor will supply the
Taylor Pulp Mill with fibre at prices that approximate fair market
value. In addition to the cash consideration paid on the
acquisition date, Canfor may receive additional consideration over
a 3 year period, starting January 31,
2015, contingent on the Taylor Pulp Mill's annual adjusted
operating income before amortization. On the acquisition date, the
fair value of the contingent consideration was $1.8 million. At June 30,
2015, the contingent consideration had a fair value of nil
reflecting a reduction in forecast BCTMP prices over the contingent
consideration period.
13. US South Acquisitions
(a) Phased Purchase of Scotch Gulf
On August 9, 2013, Canfor
completed the first phase of the phased purchase of Scotch Gulf
representing an initial 25% interest. On August 1, 2014, Canfor completed the second phase
of the acquisition for $9.9 million
increasing its ownership to 33.3%. On January 30, 2015, Canfor completed the third
phase of the acquisition for $23.3
million bringing Canfor's interest in Scotch Gulf to
50%. Upon obtaining a 50% interest in Scotch Gulf, Canfor
obtained control for accounting purposes and the acquisition method
of accounting was applied with an acquisition date of January 30, 2015. Canfor was deemed to have
control of Scotch Gulf due to its 50% interest in the company,
various debt arrangements between Canfor and Scotch Gulf and
Canfor's commitment to purchase 100% of the company by August 2016. The acquisition has been
accounted for in accordance with IFRS 3, Business
Combinations.
The acquisition included three sawmills and a treating facility
located in Mobile, Jackson and Fulton,
Alabama with combined annual lumber production capacity of
440 million board feet following capital upgrades and additional
shifts.
The following summarizes the consideration paid for Scotch Gulf
and preliminary recognized amounts of assets acquired and
liabilities assumed and the non-controlling interest at the
acquisition date:
(millions of Canadian dollars,
unaudited) |
|
|
|
Total consideration
|
|
|
|
|
Cash |
|
$ |
23.3 |
|
Fair value of equity interest in Scotch Gulf held
immediately before the business combination |
|
|
46.6 |
Total consideration |
|
$ |
69.9 |
|
|
|
|
(millions of Canadian dollars,
unaudited) |
|
|
|
Recognized amounts of identifiable
assets acquired and liabilities assumed |
|
|
|
|
Cash |
|
$ |
1.0 |
|
Land |
|
|
2.7 |
|
Buildings, equipment and mobile |
|
|
64.5 |
|
Non-cash working capital, net |
|
|
38.5 |
Total net identifiable assets |
|
$ |
106.7 |
|
Non-controlling interest |
|
|
(53.3) |
|
Goodwill |
|
|
5.5 |
|
Deferred tax asset, net |
|
|
11.0 |
Total consideration |
|
$ |
69.9 |
The Company incurred acquisition-related costs of $1.4 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts are recorded
in the Company's consolidated statement of income for the six
months ended June 30, 2015.
Scotch Gulf's results are recorded in the lumber segment.
The goodwill of $5.5 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration transferred, the amount of
non-controlling interests and the fair value of the previously held
equity interest over the fair value of the identifiable assets
acquired and liabilities assumed. The goodwill arising from
the acquisition is attributable to management strength, expected
future income and cash-flow projections, access to new markets in
North America and the ability to
diversify Canfor's product offering. Goodwill calculated for
tax purposes is expected to be tax deductible over 15 years.
As part of the consolidation of Scotch Gulf, a net deferred tax
asset of $11.0 million was recognized
for differences between tax and accounting values of the property,
plant and equipment and goodwill acquired.
Canfor elected to calculate the non-controlling interest related
to Scotch Gulf as 50% of the fair value of the net identifiable
assets at the acquisition date. On the acquisition date, a
forward purchase liability of $69.9
million was recognized related to the Company's commitment
to purchase the remaining 50% of Scotch Gulf by August 2016 and was recorded as a long-term
liability and reduction to other equity.
(b) Phased Purchase of Beadles & Balfour
On January 2,
2015, the Company completed the first phase of the
acquisition of Beadles & Balfour for $51.6 million, plus transaction closing costs
representing an initial 55% interest. The aggregate purchase
price for Beadles & Balfour is US$68.0
million, plus the acquisition of certain capital assets and
working capital. Canfor's initial 55% interest will increase
to 100% after two years.
On completion of the first phase of the
acquisition, Canfor was deemed to have control of Beadles &
Balfour and the acquisition method of accounting was applied with
an acquisition date of January 2,
2015. The acquisition has been accounted for in
accordance with IFRS 3, Business Combinations.
The acquisition included two sawmills located in Thomasville and Moultrie, Georgia with annual production
capacity of 210 million board feet following capital upgrades and
additional shifts.
The following summarizes the consideration paid for Beadles
& Balfour and preliminary recognized amounts of assets acquired
and liabilities assumed and the non-controlling interest at the
acquisition date:
(millions of Canadian dollars,
unaudited) |
|
|
|
Total consideration |
|
|
|
|
Cash consideration paid |
|
$ |
50.8 |
|
Consideration payable |
|
|
0.8 |
Total consideration |
|
$ |
51.6 |
|
|
|
|
(millions of Canadian dollars,
unaudited) |
|
|
|
|
Land |
|
$ |
2.6 |
|
Buildings, equipment and mobile |
|
|
34.1 |
|
Non-cash working capital, net |
|
|
8.3 |
Total net identifiable assets |
|
$ |
45.0 |
|
Non-controlling interest |
|
|
(20.2) |
|
Goodwill |
|
|
17.7 |
|
Deferred tax asset, net |
|
|
9.1 |
Total consideration |
|
$ |
51.6 |
The Company incurred acquisition-related costs of $0.5 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts were recorded
in the Company's consolidated statement of income in 2014 when
incurred. Beadles & Balfour's results are recorded in the
lumber segment.
The goodwill of $17.7 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration transferred and the amount of
non-controlling interests over the fair value of the identifiable
assets acquired and liabilities assumed. The goodwill arising
from the acquisition is attributable to expected synergies with
other Canfor-owned mills located in close proximity, management
strength, expected future income and cash-flow projections, access
to new markets and ability to diversify Canfor's product
offering. Goodwill calculated for tax purposes is expected to
be tax deductible over 15 years. As part of the consolidation
of Beadles & Balfour, a net deferred tax asset of $9.1 million was recognized for differences
between tax and accounting values of the property, plant and
equipment and goodwill acquired.
Canfor elected to calculate the non-controlling interest related
to Beadles & Balfour as 45% of the fair value of the net
identifiable assets at the acquisition date. On the
acquisition date, a forward purchase liability of $36.5 million was recognized related to the
Company's commitment to purchase the remaining 45% of Beadles &
Balfour within two years and was recorded as a long-term liability
and reduction to other equity.
(c) Purchase of Southern Lumber
On April 1, 2015,
the Company completed the acquisition of Southern Lumber's
Mississippi operating assets for
cash consideration of $65.6 million.
As a result of the acquisition, Canfor recognized approximately
$4.2 million of working capital,
$14.1 million of long-term assets
acquired and $47.3 million of
goodwill. The acquisition has been accounted for in accordance with
IFRS 3, Business Combinations.
The acquisition included a sawmill located in Hermanville, Mississippi with annual
production capacity of 90 million board feet following capital
upgrades and additional shifts.
The following summarizes the consideration paid for Southern
Lumber and preliminary recognized amounts of assets acquired and
liabilities assumed at the acquisition date:
(millions of Canadian dollars,
unaudited) |
|
|
|
Total consideration |
|
|
|
|
Cash consideration paid |
|
$ |
65.6 |
Total consideration |
|
$ |
65.6 |
|
|
|
|
(millions of Canadian dollars,
unaudited) |
|
|
|
|
Land |
|
$ |
0.5 |
|
Buildings, equipment and mobile |
|
|
13.6 |
|
Non-cash working capital, net |
|
|
4.2 |
Total net identifiable assets |
|
$ |
18.3 |
|
Goodwill |
|
|
47.3 |
Total consideration |
|
$ |
65.6 |
The Company incurred acquisition-related costs of $0.3 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts were recorded
in the Company's consolidated statement of income in 2014 and 2015.
Southern Lumber's results are recorded in the lumber segment.
The goodwill of $47.3 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration over the fair value of the identifiable
assets acquired and liabilities assumed. The goodwill arising
from the acquisition is attributable to the premium products
produced, management strength, expected future income and cash-flow
projections, access to new markets in North America and the ability to diversify
Canfor's product offering. Goodwill calculated for tax
purposes is expected to be tax deductible over 15 years.
14. Subsequent Events
Subsequent to quarter end, on July 1, 2015, the Company sold its 33.3%
investment in Lakeland Mills Ltd. and Winton Global Lumber Ltd. to
Robert Stewart Holdings Ltd. for cash consideration of $30.0 million. The proceeds will be paid in two
equal installments of $15.0 million
with the first installment received on July
1, 2015 and the second installment scheduled to be received
on July 1, 2017. Canfor accounts for
its investment in Lakeland Mills Ltd. and Winton Global Lumber Ltd.
as a financial instrument measured at fair value. At
June 30, 2015, the investment was
recorded at fair value of $30.0
million with a current portion of $15.0 million recorded as Other Accounts
Receivable and a long-term portion of $15.0
million recorded as Long-Term Investments and Other. A
pre-tax gain of $7.0 million was
recognized in Other Income in the second quarter of 2015.
Also subsequent to quarter end, on July 21, 2015, the CPPI Board of Directors
declared a quarterly dividend of $0.0625 per share and a special dividend of
$1.1250 per share, both payable on
August 10, 2015, to the CPPI
shareholders of record on August 3,
2015. As at July 21, 2015
Canfor owns 51.0% of CPPI.
SOURCE Canfor Corporation
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