Canfor Reports Results for Fourth Quarter of 2015

VANCOUVER, Feb. 17, 2016 /PRNewswire/ - Canfor Corporation (TSX: CFP) today reported net income attributable to shareholders ("shareholder net income") of $1.6 million, or $0.01 per share, for the fourth quarter of 2015, compared to a net loss attributable to shareholders of $17.3 million, or $0.13 per share, for the third quarter of 2015 and shareholder net income of $29.9 million, or $0.22 per share, for the fourth quarter of 2014.  For the twelve months ended December 31, 2015, the Company's shareholder net income was $24.7 million, or $0.18 per share, compared to shareholder net income of $175.2 million, or $1.28 per share, reported for the comparable period of 2014.

The following table summarizes selected financial information for the Company for the comparative periods:

After adjusting for items affecting comparability with the prior periods, the Company's adjusted shareholder net income for the fourth quarter of 2015 was $7.9 million, or $0.06 per share, compared to an adjusted shareholder net income of $6.4 million, or $0.05 per share, for the third quarter of 2015, and an adjusted shareholder net income of $35.1 million, or $0.26 per share for the fourth quarter of 2014.  For 2015, the Company's adjusted shareholder net income was $58.8 million, or $0.43 per share, compared to $188.9 million, or $1.38 per share, for 2014.

The Company reported operating income, after one-time items, of $35.0 million for the fourth quarter of 2015, up $7.1 million from similarly-adjusted operating income of $27.9 million for the third quarter of 2015. Improved lumber segment results reflected an increase in Southern Yellow Pine ("SYP") unit sales realizations, improved lumber productivity, the Company's acquisition of Anthony Forest Products Company ("Anthony" or "Anthony Forest Products"), which completed on October 30, 2015, as well as the benefits of a weaker Canadian dollar. Pulp and paper segment results reflected increased pulp production and shipment volumes as well as higher energy revenues, which largely offset slightly lower Northern Bleached Softwood Kraft ("NBSK") pulp sales realizations and costs associated with the scheduled maintenance outage at the Company's Northwood pulp mill in October.

North American lumber demand remained relatively stable during the fourth quarter of 2015, with builders capitalizing on mild weather in many parts of the US and Canada. US housing starts were down 2% from the previous quarter, averaging 1,133,000 units on a seasonally adjusted basis, while Canadian housing starts reflected a modest seasonal slowdown, declining 7% at an average of 196,000 units on a seasonally adjusted basis.  The lumber market in China improved somewhat through the fourth quarter of 2015, with inventory levels ending the year well down from the previous quarter. Lumber demand in other offshore markets, such as Japan and Korea, remained solid.

The average benchmark North American Random Lengths Western Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price was US$263 per Mfbm in the fourth quarter of 2015, down US$6 per Mfbm compared to the previous quarter. Western SPF sales realizations were in line with the third quarter as the benefit of a 2 cent, or 2%, weaker Canadian dollar and reduced export tax on US bound shipments, following the expiry of the Softwood Lumber Agreement ("SLA"), offset the slightly lower US-dollar benchmark lumber prices. SYP sales realizations in the fourth quarter of 2015 were up from the third quarter of 2015, reflecting for the most part a solid increase in the 2x4 #2 price, smaller increases in the prices for 2x6 and 2x8 and a modest price decline for 2x10 and 2x12 dimensions.

Lumber shipments were in line with the previous quarter while lumber production was up approximately 6%, largely reflecting productivity improvements, particularly at the Company's Western Canadian operations, additional operating days in the quarter and the addition of Anthony Forest Products, all of which more than offset the impact of the Canal Flats sawmill permanent closure in November. Unit manufacturing costs in the fourth quarter of 2015 were in line with the previous quarter as improved productivity offset increased energy costs due to seasonally higher energy usage.

Global softwood pulp markets weakened somewhat through most of the fourth quarter of 2015, before stabilizing towards the end of the year, reflecting to some extent recent increases in hardwood pulp supply, particularly in China. The average NBSK pulp list price to North America, as published by RISI, was down US$22 per tonne, or 2%, to US$945 per tonne while more pronounced declines were seen in average US-dollar NBSK pulp list prices to China and Europe.  Overall, however, NBSK pulp unit sales realizations were down only slightly from the third quarter of 2015 as the continued weakening of the Canadian dollar mitigated the impact of lower prices.  Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") markets remained under pressure in the fourth quarter of 2015, with unit sales realizations down slightly compared to the previous quarter.  In December, the Company temporarily curtailed operations at the Taylor pulp mill for eight days in response to challenging BCTMP market conditions.      

Pulp shipments were up 16% from the previous quarter reflecting solid demand for the Company's NBSK premium reinforcing pulp products.  Pulp production was up approximately 4%, as improved operating rates and additional operating days more than offset the impact of the Northwood pulp mill scheduled maintenance outage which reduced market pulp production by 20,000 tonnes in the current quarter (compared to 6,000 tonnes in the third quarter).  Pulp unit manufacturing costs were up slightly from the previous quarter, for the most part reflecting costs associated with the Northwood pulp mill maintenance outage and seasonally higher energy costs, which more than offset lower fibre costs and improved productivity. Higher energy revenues generated at the NBSK pulp mills in the fourth quarter of 2015 reflected a combination of additional operating days and seasonally higher energy prices in the current quarter.

Commenting on the Company's fourth quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "Our lumber business continued to see solid progress at our Western Canadian and US South operations, and the integration of our most recent acquisition, Anthony Forest Products, has gone very well.  In 2015 we invested over $500 million in our lumber, pulp and paper businesses, including $263 million in strategic acquisitions and $240 million in capital expenditures."  Kayne added, "Canfor Pulp had another quarter of strong operating results, which reflected relatively stable Canadian-dollar sales realizations, a strong production performance as well as a solid contribution from our recent energy-related investments."

Looking ahead, the Company is projected to benefit from the weaker Canadian dollar and its recent growth in the US South. North American lumber demand is forecast to improve with steady demand in both residential construction and the repair and remodeling sectors.  Offshore lumber shipments are projected to be stable with relatively steady volume forecast to both China and Japan in the first quarter of 2016. For the month of January 2016, NBSK pulp list prices were unchanged in North America at US$940 per tonne, while prices to China decreased US$5 to US$590 per tonne. For the month of March 2016, the Company has announced a list price of US$960 per tonne in North America. In the next twelve months, the Company will complete its phased acquisitions of Scotch Gulf and Beadles & Balfour as well as its acquisition of Wynndel Box & Lumber Ltd. 

Refer to the Company's Annual Management's Discussion and Analysis for further discussion on the Company's results for the fourth quarter of 2015.

Additional Information and Conference Call 
A conference call to discuss the fourth quarter's financial and operating results will be held on Thursday, February 18, 2016 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 March 3, 2016, please dial 888-390-0541 and enter participant pass code 947930#.  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, Ontario, North and South Carolina, Alabama, Georgia, Mississippi and Arkansas.  Canfor produces primarily softwood lumber and also owns a 51.9% interest in Canfor Pulp Products Inc., which is one of the largest global producers of market northern bleached softwood kraft pulp and a leading producer of high performance kraft paper.  Canfor shares are traded on The Toronto Stock Exchange under the symbol CFP.

^*Cash and cash equivalents include cash on hand less unpresented cheques.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Canfor Corporation
Notes to the Condensed Consolidated Financial Statements
Three months and years ended December 31, 2015 and 2014
(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, 2015, available at www.canfor.com or www.sedar.com.

Canfor's financial results are impacted by seasonal factors such as weather and building activity.  Adverse weather conditions can cause logging curtailments, which can affect the supply of raw materials to sawmills and pulp mills.  Market demand also varies seasonally to some degree.  For example, building activity and repair and renovation work, which affects demand for solid wood products, are generally stronger in the spring and summer months.  Shipment volumes are affected by these factors as well as by global supply and demand conditions.

These financial statements were authorized for issue by the Company's Board of Directors on February 17, 2016.

Accounting Standards Issued and Not Applied

In May 2014, the International Accounting Standards Board ("IASB") issued IFRS 15, Revenue from Contracts with Customers, which will supersede IAS 18, Revenue, IAS 11, Construction Contracts and related interpretations.  The new standard is effective for annual periods beginning on or after January 1, 2018.  The Company is in the process of assessing the impact, if any, on the financial statements of this new standard.

In July 2014, the IASB issued IFRS 9, Financial Instruments.  The required adoption date for IFRS 9 is January 1, 2018 and the Company is in the process of assessing the impact, if any, on the financial statements of this new standard.

In January 2016, the IASB issued IFRS 16, Leases, which will supersede IAS 17, Leases and related interpretations. The required adoption date for IFRS 16 is January 1, 2019 and the Company is in the process of assessing the impact, if any, on the financial statements of this new standard.

2. Income Taxes

The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:

In addition to the amounts recorded to net income, a tax recovery of $0.8 million was recorded to other comprehensive income for the three month period ended December 31, 2015 (three months ended December 31, 2014 - tax recovery of $16.8 million) in relation to the actuarial losses on defined benefit employee compensation plans. For the twelve months ended December 31, 2015, the tax expense was $7.3 million (twelve months ended December 31, 2014 - tax recovery of $30.5 million).

Also included in other comprehensive income for the three months ended December 31, 2015 was a tax expense of $1.4 million related to foreign exchange differences on translation of investments in foreign operations (three months ended December 31, 2014 - tax expense of $0.8 million). For the twelve months ended December 31, 2015, the tax expense was $6.0 million (twelve months ended December 31, 2014 - tax expense of $2.4 million).

3. 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.

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 fourth quarter of 2015, Canfor purchased 1,050,120 common shares for $20.0 million (an average of $19.05 per common share). Under a separate normal course issuer bid, CPPI purchased common shares from non-controlling shareholders during 2015 increasing Canfor's ownership from 50.5% at December 31, 2014 to 51.9% at December 31, 2015. As at December 31, 2015 and February 17, 2016, there were 132,804,543 common shares of the Company outstanding.

4. Net Change in Non-Cash Working Capital

5. 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.

6. Purchase of Anthony Forest Products Company

On October 30, 2015, the Company completed the acquisition of Anthony for $126.8 million, including working capital. As a result of the acquisition, Canfor recognized $19.5 million of working capital and $69.8 million of identifiable long-term assets acquired net of liabilities assumed. The acquisition has been accounted for in accordance with IFRS 3, Business Combinations. 

The acquisition included a sawmill located in Urbana, Arkansas, laminating facilities in El Dorado, Arkansas and Washington, Georgia and chip mills in Louisiana and Texas. A 50% interest in Anthony EACOM Inc., a joint venture with EACOM Timber Corporation, was also acquired as part of the acquisition. Anthony EACOM Inc. manufactures I-joists in in Sault Ste. Marie, Ontario.

The following summarizes the consideration paid for Anthony and recognized amounts of assets acquired and liabilities assumed at the acquisition date:

The Company incurred acquisition-related costs of $1.8 million, principally relating to external legal fees and due diligence costs, which have been included in selling and administration costs. Anthony's results are recorded in the lumber segment.

The goodwill of $37.5 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 premium products produced, expected future income and cash-flow projections, the ability to diversify Canfor's product offering and synergies between Anthony and the Company's other US operations. Goodwill calculated for tax purposes is expected to be tax deductible over 15 years.

7. Subsequent Event

Subsequent to year end, on January 21, 2016, Canfor agreed to purchase the assets of Wynndel Box and Lumber Ltd. located in the Creston Valley of British Columbia for an aggregate purchase price, excluding working capital, of $30.0 million. The acquisition is projected to be completed in the second quarter of 2016 and is subject to customary closing conditions. 

SOURCE Canfor Corporation

Related Links

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