VANCOUVER, April 25, 2017 /CNW/ - Canfor Pulp Products Inc.
("CPPI") (TSX: CFX) today reported net income of $24.1 million, or $0.36 per share, for the first quarter of 2017,
compared to $10.1 million, or
$0.15 per share, for the fourth
quarter of 2016 and $23.1 million, or
$0.34 per share, for the first
quarter of 2016.
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q1
|
(millions of Canadian
dollars, except per share amounts)
|
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
Sales
|
|
|
|
|
$
|
309.2
|
$
|
257.8
|
$
|
295.3
|
Operating income
before amortization
|
|
|
|
|
$
|
54.0
|
$
|
42.1
|
$
|
57.8
|
Operating
income
|
|
|
|
|
$
|
35.2
|
$
|
22.9
|
$
|
39.1
|
Net income
|
|
|
|
|
$
|
24.1
|
$
|
10.1
|
$
|
23.1
|
Net income per share,
basic and diluted
|
|
|
|
|
$
|
0.36
|
$
|
0.15
|
$
|
0.34
|
The Company reported operating income of $35.2 million for the first quarter of 2017, up
$12.3 million from $22.9 million reported for the fourth quarter of
2016. The improvement in the Company's operating results was
primarily attributable to higher pulp shipments during the current
quarter, which reflected the strengthening of the global softwood
pulp markets, and stronger-than-anticipated customer demand,
particularly from Asia.
Northern Bleached Softwood Kraft ("NBSK") pulp average list
prices to China, as published by
RISI, moved up by US$50 per tonne as
a result of successive price increases implemented through the
first quarter, however, the Company's overall NBSK pulp unit sales
realizations were relatively unchanged from the previous quarter,
reflecting shipments of a higher proportion of orders taken in late
2016 and early in 2017, as well as further pressure on customer
discounts and a stronger Canadian dollar. Higher Bleached
Chemi-Thermo Mechanical Pulp ("BCTMP") unit sales realizations in
the first quarter of 2017 reflected a continued improvement in
BCTMP demand and prices in the current quarter. Energy
revenues were up in the current quarter reflecting slightly higher
energy prices combined with seasonally higher power generation.
Pulp shipment and production volumes were up 22% and 4%,
respectively, from the previous quarter, with the increase in the
former primarily reflecting increased shipments to China and North
America, combined with the impact of the delayed vessel to
Asia over the year end, and, to a
lesser extent, improved productivity. Pulp unit manufacturing
costs saw a modest decrease in the current quarter, largely
reflecting improved productivity, offset in part by seasonally
higher energy consumption.
Operating income in the Company's paper segment at $7.1 million was down $1.0
million from the fourth quarter of 2016, largely reflecting
slightly lower paper unit sales realizations in the current
quarter, mostly attributable to the stronger Canadian dollar,
combined with modest increases in paper unit manufacturing costs,
which, for the most part, reflected the timing of spend on
maintenance.
Commenting on the Company's first quarter of 2017 results,
CPPI's Chief Executive Officer, Don
Kayne said, "Despite several weather related challenges
early in the quarter, Canfor Pulp delivered another solid financial
performance, as the Company benefited from stronger-than-expected
global softwood pulp demand as well as productivity gains."
Looking ahead, global softwood markets are projected to remain
relatively strong during the second quarter. Reduced capacity
over the traditional spring maintenance period may support further
price increases in the second quarter of 2017. With the
commissioning of new pulp capacity in the latter part of 2017 and
into 2018, there is risk of downward pressure on pricing in the
second half of this year. For the month of April 2017, the Company announced increases of
US$20 per tonne for NBSK pulp list
prices to China and North
America.
Results in the second quarter of 2017 will reflect the positive
impact of recent price gains, particularly in Asia, and scheduled maintenance outages
at the Company's Northwood and Taylor pulp mills, with a projected 33,000
tonnes of reduced NBSK pulp and 4,000 tonnes of reduced BCTMP
production, respectively, as well as higher associated
maintenance costs and lower projected shipment volumes. For
the third quarter of 2017, the Company's Intercontinental pulp mill
has a maintenance outage scheduled, with a projected 8,000 tonnes
of reduced NBSK pulp production.
On April 25, 2017, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on May 15, 2017 to the shareholders of record on
May 8, 2017.
Additional Information and Conference Call
A
conference call to discuss the first quarter's financial and
operating results will be held on Thursday,
April 27, 2017 at 7:30 AM Pacific
time. To participate in the call, please dial Toll-Free
888-390-0546. For instant replay access until May 11, 2017, please dial 888-390-0541 and enter
participant pass code 426530#. The conference call will be
webcast live and will be available at www.canfor.com. This
news release, the attached financial statements and a presentation
used during the conference call can be accessed via the Company's
website at
http://www.canfor.com/investor-relations/overview.
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.
CPPI is a leading global supplier of pulp and paper products
with operations in the central interior of British Columbia ("BC") employing
approximately 1,300 people throughout the organization.
Canfor Pulp owns and operates three mills in Prince George, BC with a total capacity of 1.1
million tonnes of Premium Reinforcing Northern Bleached Softwood
Kraft Pulp and 140,000 tonnes of kraft paper, as well as one mill
in Taylor, BC with an annual
production capacity of 220,000 tonnes of Bleached Chemi-Thermo
Mechanical Pulp ("BCTMP"). Canfor Pulp is the largest North
American, and one of the largest global producers of market NBSK
Pulp. CPPI shares are traded on the Toronto Stock Exchange
under the symbol CFX.
Canfor Pulp Products Inc.
First Quarter
2017
Management's Discussion and Analysis
This interim Management's Discussion and Analysis
("MD&A") provides a review of Canfor Pulp Products Inc.'s
("CPPI" or "the Company") financial performance for the quarter
ended March 31, 2017 relative to the
quarters ended December 31, 2016 and
March 31, 2016, and the financial
position of the Company at March 31,
2017. It should be read in conjunction with CPPI's unaudited
interim consolidated financial statements and accompanying notes
for the quarters ended, March 31,
2017 and 2016, as well as the 2016 annual MD&A and the
2016 audited consolidated financial statements and notes thereto,
which are included in CPPI's Annual Report for the year ended
December 31, 2016 (available at
www.canfor.com). The financial information in this interim
MD&A has been prepared in accordance with International
Financial Reporting Standards ("IFRS"), which is the required
reporting framework for Canadian publicly accountable
enterprises.
Throughout this discussion, reference is made to Operating
Income (Loss) before Amortization which CPPI considers to be a
relevant indicator for measuring trends in the Company's
performance and its ability to generate funds to meet its debt
service and capital expenditure requirements, and to pay
dividends. Reference is also made to Adjusted Net Income
(Loss) (calculated as Net Income (Loss) less specific items
affecting comparability with prior periods) and Adjusted Net Income
(Loss) per Share (calculated as Adjusted Net Income (Loss) divided
by the weighted average number of shares outstanding during the
period). Operating Income (Loss) before Amortization,
Adjusted Net Income (Loss) and Adjusted 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, CPPI's Operating
Income (Loss) before Amortization, Adjusted Net Income (Loss) and
Adjusted 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 Net Income (Loss) to Net
Income (Loss) reported in accordance with IFRS are included in this
MD&A. Throughout this discussion reference is made to the
current quarter which refers to the results for the first quarter
of 2017.
Factors that could impact future operations are also
discussed. These factors may be influenced by both known and
unknown risks and uncertainties that could cause the actual results
to be materially different from those stated in this
discussion. Factors that could have a material impact on any
future oriented statements made herein include, but are not limited
to: general economic, market and business conditions; product
selling prices; raw material and operating costs; currency exchange
rates; interest rates; changes in law and public policy; the
outcome of labour and trade disputes; and opportunities available
to or pursued by CPPI.
All financial references are in millions of Canadian dollars
unless otherwise noted. The information in this report is as
at April 25, 2017.
Forward Looking Statements
Certain statements in this MD&A constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words
such as "expects", "anticipates", "projects", "intends", "plans",
"will", "believes", "seeks", "estimates", "should", "may", "could",
and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements
are based on management's current expectations and beliefs and
actual events or results may differ materially. There are
many factors that could cause such actual events or results
expressed or implied by such forward-looking statements to differ
materially from any future results expressed or implied by such
statements. Forward-looking statements are based on current
expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as
required by law.
FIRST QUARTER 2017 OVERVIEW
Selected Financial Information and Statistics
(millions of Canadian
dollars, except per share amounts)
|
|
|
|
|
|
Q1
2017
|
|
Q4
2016
|
|
Q1
2016
|
Operating income
(loss) by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
|
|
|
|
|
$
|
31.1
|
$
|
18.1
|
$
|
33.0
|
|
Paper
|
|
|
|
|
|
$
|
7.1
|
$
|
8.1
|
$
|
8.9
|
|
Unallocated
|
|
|
|
|
|
$
|
(3.0)
|
$
|
(3.3)
|
$
|
(2.8)
|
Total operating
income
|
|
|
|
|
$
|
35.2
|
$
|
22.9
|
$
|
39.1
|
Add:
Amortization1
|
|
|
|
|
$
|
18.8
|
$
|
19.2
|
$
|
18.7
|
Total operating
income before amortization
|
|
|
|
|
$
|
54.0
|
$
|
42.1
|
$
|
57.8
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
movements
|
|
|
|
|
|
$
|
(0.2)
|
$
|
3.8
|
$
|
(12.8)
|
|
Defined benefit
pension plan contributions, net
|
|
|
|
|
|
$
|
(1.5)
|
$
|
(2.1)
|
$
|
(1.2)
|
|
Income taxes paid,
net
|
|
|
|
|
|
$
|
(0.2)
|
$
|
(0.8)
|
$
|
(11.6)
|
|
Other operating cash
flows, net
|
|
|
|
|
|
$
|
(1.4)
|
$
|
4.1
|
$
|
(3.9)
|
Cash from
operating activities
|
|
|
|
|
$
|
50.7
|
$
|
47.1
|
$
|
28.3
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
|
|
|
$
|
(4.2)
|
$
|
(4.2)
|
$
|
(4.3)
|
|
Finance expenses
paid
|
|
|
|
|
|
$
|
(0.7)
|
$
|
(1.1)
|
$
|
(0.8)
|
|
Capital additions,
net
|
|
|
|
|
|
$
|
(16.8)
|
$
|
(18.3)
|
$
|
(13.1)
|
|
Advances to
Licella
|
|
|
|
|
|
$
|
-
|
$
|
(3.5)
|
$
|
-
|
|
Share
purchases
|
|
|
|
|
|
$
|
(2.8)
|
$
|
-
|
$
|
(5.0)
|
|
Other, net
|
|
|
|
|
|
$
|
0.2
|
$
|
-
|
$
|
0.2
|
Change in cash /
operating loans
|
|
|
|
|
$
|
26.4
|
$
|
20.0
|
$
|
5.3
|
Net income
|
|
|
|
|
$
|
24.1
|
$
|
10.1
|
$
|
23.1
|
Net income per share
(EPS)
|
|
|
|
|
$
|
0.36
|
$
|
0.15
|
$
|
0.34
|
ROIC – Consolidated
period-to-date2
|
|
|
|
|
|
5.3%
|
|
2.7%
|
|
4.8%
|
Average exchange
rate (US$ per C$1.00)3
|
|
|
|
|
$
|
0.756
|
$
|
0.750
|
$
|
0.728
|
1
Amortization includes amortization of certain capitalized major
maintenance costs.
|
2
Consolidated Return on Invested Capital ("ROIC") is equal to
operating income (loss), plus realized gains/losses on derivatives
and other income/expense, 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.
|
3 Source –
Bank of Canada (average noon rate for the period).
|
The Company reported operating income of $35.2 million for the first quarter of 2017, up
$12.3 million from $22.9 million reported for the fourth quarter of
2016. The improvement in the Company's operating results was
primarily attributable to higher pulp shipments during the current
quarter, reflecting the strengthening of the global softwood pulp
markets and stronger-than-anticipated customer demand, particularly
from Asia, combined with the
impact of the slippage of a 14,000 tonne vessel shipment to
Asia from December 2016 into January 2017. NBSK pulp
average list prices to China, as
published by RISI, moved up by US$50
per tonne as a result of successive price increases implemented
through the first quarter, however, the Company's overall NBSK pulp
unit sales realizations were relatively unchanged from the previous
quarter, reflecting shipments of a higher proportion of orders
taken in late 2016 and early in 2017, as well as further pressure
on customer discounts and a stronger Canadian dollar. Also
contributing to the first quarter results were higher pulp and
paper productivity, increased energy revenues and lower fibre
costs, partially offset by higher energy consumption by the pulp
segment during the current quarter.
Compared to the first quarter of 2016, operating income was down
$3.9 million as increased pulp and
paper unit manufacturing costs, in part reflecting extreme weather
conditions early in the current quarter, more than offset increased
pulp shipment volumes and higher energy revenue. Average NBSK
pulp unit sales realizations were broadly in line with the same
quarter of 2016, reflecting the impact of a 4% stronger Canadian
dollar, the timing of shipments (versus orders), and increased
customer discounts, all of which offset higher US-dollar list
prices to China.
OPERATING RESULTS BY BUSINESS SEGMENT
Pulp
Selected Financial Information and Statistics
– Pulp
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q1
|
(millions of Canadian
dollars, unless otherwise noted)
|
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
Sales
|
|
|
|
|
$
|
267.4
|
$
|
215.9
|
$
|
249.8
|
Operating income
before amortization4
|
|
|
|
|
$
|
49.0
|
$
|
36.2
|
$
|
50.7
|
Operating
income
|
|
|
|
|
$
|
31.1
|
$
|
18.1
|
$
|
33.0
|
Average NBSK pulp
price delivered to China –US$5
|
|
|
|
|
$
|
645
|
$
|
595
|
$
|
590
|
Average NBSK pulp
price delivered to China – Cdn$5
|
|
|
|
|
$
|
853
|
$
|
794
|
$
|
810
|
Production – pulp
(000 mt)
|
|
|
|
|
|
317.1
|
|
304.0
|
|
321.8
|
Shipments – pulp (000
mt)
|
|
|
|
|
|
337.1
|
|
275.4
|
|
319.1
|
4
Amortization includes amortization of certain capitalized major
maintenance costs.
|
5 Per
tonne, NBSK pulp list price delivered to China (as published by
Resource Information Systems, Inc.); Average NBSK pulp price
delivered to China in Cdn$ calculated as average NBSK pulp price
delivered to China – US$ multiplied by the average exchange rate –
Cdn$ per US$1.00 according to Bank of Canada average noon rate for
the period.
|
Overview
Operating income for the pulp segment was $31.1 million for the first quarter of 2017, up
$13.0 million from the fourth quarter
of 2016 and down $1.9 million from
the first quarter of 2016.
The improvement in the pulp segment results from the fourth
quarter of 2016, primarily reflected a significant increase in pulp
shipments driven by the strengthening China and North American markets combined with
the impact of the vessel slippage from December 2016 into January 2017. Also
contributing to improved pulp segment results in the first quarter
of 2017, were improvements in NBSK pulp productivity, higher energy
revenues combined with moderately lower fibre costs. In
addition, certain Scientific Research and Experimental Development
("SR&ED") tax credits were recognized in the current
quarter. As highlighted above, average NBSK pulp unit sales
realizations remained broadly in line with the previous
quarter.
Compared to the first quarter of 2016, the decrease in pulp
segment results reflected a 4% stronger Canadian dollar, an
increase in customer discounts and the impact of the timing of
shipments (versus orders) on average NBSK pulp sales realizations
in the current quarter, partially offset by moderately higher
shipments, primarily to China. Energy revenues were up
quarter-over-quarter and pulp production was broadly in line with
the first quarter of 2016. Pulp unit manufacturing costs were
moderately higher when compared to the first quarter of 2016,
primarily due to increases in energy costs, as a result of the
aforementioned extreme weather conditions early in the quarter,
which more than offset the benefits of lower fibre costs.
Markets
Global softwood pulp markets strengthened through the first
quarter of 2017 reflecting higher demand, primarily from
China, North America and other Asian countries.
Pulp softwood inventories as at the end of February 2017, were in the balanced range at 30
days of supply, a decrease of 2 days from December 20166, and in line with
inventory levels from March 2016. Market conditions are
generally considered balanced when inventories are in the 27-30
days of supply range.
Global shipments of bleached softwood pulp increased by 7.3%,
for the first two months of 2017 when compared to the first two
months of 2016, driven primarily by increased shipments to
China and other Asian
countries7.
6 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").
|
7 As
reported PPPC statistics.
|
Sales
The Company's pulp shipments for the first quarter of 2017 were
337,100 tonnes, up 61,700 tonnes, or 22%, from the previous quarter
and up 18,000 tonnes, or 6%, from the first quarter of 2016.
When compared to the previous quarter, higher NBSK pulp shipments
reflected increased shipments to China and North
America, combined with the impact of the slippage of a
14,000 tonne vessel shipment to Asia from December
2016 into January 2017. Compared to the first quarter
of 2016, the moderate increase in NBSK pulp shipments was mostly
attributable to the vessel slippage into the current quarter.
The average China US-dollar NBSK pulp list price of US$645 per tonne, as published by RISI, was up
US$50 per tonne, or 8%, from the
fourth quarter of 2016, as a result of successive price increases
throughout the quarter. Average NBSK pulp unit sales
realizations were broadly in line with the previous quarter,
reflecting the impact of a higher proportion of shipments in the
period relating to orders taken late in 2016 and early 2017, which
included 14,000 tonnes related to the aforementioned vessel
slippage into January. This was combined with further
pressure on customer discounts and a 1
cent or 1% stronger Canadian dollar. BCTMP markets
continued to improve in the first quarter of 2017 when compared to
the fourth quarter of 2016, positively impacting average BCTMP unit
sales realizations.
Compared to the first quarter of 2016, the average China
US-dollar NBSK pulp list price was up US$55 per tonne, or 9%. As highlighted
above, the Company's average NBSK pulp unit sales realizations were
broadly in line with the first quarter of 2016, reflecting a
3 cent or 4% strengthening of the
Canadian dollar combined with the impact of the timing of shipments
(versus orders) and increases in customer discounts, all of which
offset the higher market prices to China. BCTMP unit sales
realizations significantly increased when compared to the first
quarter of 2016 reflecting the growth in BCTMP market demands when
compared to the same period of 2016.
Energy revenues were up in the first quarter of 2017 when
compared to the previous quarter, reflecting slightly higher energy
prices combined with higher power generation. Compared to the
first quarter of 2016, energy revenues were also up, principally
due to increased power generation in the current quarter.
Operations
Pulp production in the first quarter of 2017 at 317,100 tonnes
was up 13,100 tonnes, or 4%, from the fourth quarter of 2016 and
broadly in line with the first quarter of 2016. The modest
increase in pulp production when compared to the previous quarter,
was principally as a result of improved operating rates for NBSK
pulp. BCTMP production made up approximately 18% of the
Company's total pulp production in the first quarter of 2017, which
was consistent with the fourth quarter of 2016.
Pulp unit manufacturing costs saw a modest decrease when
compared to the previous quarter, largely reflecting improved
productivity and lower fibre costs, which were offset in part, by
higher energy costs, driven by increased consumption during the
current quarter. Fibre costs were moderately lower compared
to the previous quarter, reflecting seasonal pricing adjustments
combined with lower delivered freight costs and lower whole log
chip costs, despite the increase in the proportion of whole log
chips purchased in the current quarter.
Pulp unit manufacturing costs saw a moderate increase when
compared with the first quarter of 2016 as lower fibre costs were
more than offset by substantially higher energy costs, driven by
market-related energy price increases combined with weather-related
increased consumption levels during the current quarter, as well
as, higher chemical prices and usage (the latter largely weather
related), and increased maintenance spend when compared to the
first quarter of 2016. Fibre costs were moderately down
compared to the first quarter of 2016, reflecting a decline in chip
prices resulting from the adverse weather early in the current
quarter.
Paper
Selected Financial Information and
Statistics – Paper
|
|
|
|
|
|
Q1
|
|
Q4
|
|
Q1
|
(millions of Canadian
dollars, unless otherwise noted)
|
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
Sales
|
|
|
|
|
$
|
41.6
|
$
|
41.8
|
$
|
45.2
|
Operating income
before amortization8
|
|
|
|
|
$
|
8.0
|
$
|
9.1
|
$
|
9.9
|
Operating
income
|
|
|
|
|
$
|
7.1
|
$
|
8.1
|
$
|
8.9
|
Production – paper
(000 mt)
|
|
|
|
|
|
34.6
|
|
36.0
|
|
35.3
|
Shipments – paper
(000 mt)
|
|
|
|
|
|
33.7
|
|
33.6
|
|
34.9
|
8
Amortization includes amortization of certain capitalized major
maintenance costs.
|
Overview
Operating income for the paper segment at $7.1 million for the first quarter of 2017 was
down $1.0 million from the fourth
quarter of 2016 and down $1.8 million
when compared with the first quarter of 2016.
The decline in operating income compared to the previous quarter
principally reflected slightly lower paper unit sales realizations
in the current quarter due to the stronger Canadian dollar combined
with modest increases in paper unit manufacturing costs, largely
due to the timing of spend on maintenance. Similarly, when
compared to the first quarter of 2016, the stronger Canadian dollar
and higher planned maintenance spend offset lower market-driven
slush pulp costs in the current quarter.
Markets
Global kraft paper markets were relatively strong through the
first quarter of 2017. North American markets saw some
positive momentum as customers restocked their inventory after a
slower fourth quarter of 2016, while demand in Asia was in line with the previous
quarter.
Sales
The Company's paper shipments in the first quarter of 2017 of
33,700 tonnes, was broadly in line with the fourth quarter of 2016
and the first quarter of 2016. Prime bleached paper
shipments, which attract higher prices, were in line with the
fourth quarter of 2016 and represented approximately 5% more of
total paper shipments when compared to first quarter in
2016.
Paper unit sales realizations in the first quarter of 2017 were
down slightly from the previous quarter reflecting a higher value
regional mix, which was more than offset by the 1% stronger
Canadian dollar. Compared to the same quarter of 2016, paper
unit sales realizations were moderately lower, as the change in the
sales mix was more than offset by the 4% stronger Canadian
dollar.
Operations
Paper production for the first quarter of 2017 at 34,600 tonnes
was relatively consistent with both comparative periods.
Paper unit manufacturing costs saw modest increases when
compared to the fourth quarter of 2016, primarily driven by the
timing of spend on maintenance and higher operating expenses in the
current quarter. Compared to the first quarter of 2016, paper
unit manufacturing costs were slightly higher, principally
reflecting the timing of spend on maintenance in the current
quarter.
Unallocated Items
Selected Financial
Information
(millions of Canadian
dollars)
|
|
|
|
|
|
Q1
2017
|
|
Q4
2016
|
|
Q1
2016
|
Corporate
costs
|
|
|
|
|
$
|
(3.0)
|
$
|
(3.3)
|
$
|
(2.8)
|
Finance expense,
net
|
|
|
|
|
$
|
(1.8)
|
$
|
(1.9)
|
$
|
(1.6)
|
Other expense,
net
|
|
|
|
|
$
|
(1.0)
|
$
|
(5.1)
|
$
|
(6.6)
|
Corporate costs at $3.0 million
for the first quarter of 2017 were down from the fourth quarter of
2016 and were up when compared with the first quarter of 2016.
The decrease from the previous quarter was primarily due to
declines in corporate, head office and general and administrative
expenses. The increase when compared to the first quarter of
2016 primarily related to the recognition of carbon offset credits
in the comparative quarter.
Net finance expense for the first quarter of 2017 at
$1.8 million was broadly in line with
the previous quarter and was $0.2
million higher than the first quarter of 2016. The
increase primarily related to higher interest expense associated
with the Company's employee future benefit plans and letter of
credit fees.
Other expenses of $1.0 million in
the first quarter of 2017 principally related to unfavourable
foreign exchange movements on US-dollar denominated working capital
balances.
Other Comprehensive Income (Loss)
In the first quarter of 2017, there were no changes in the
discount rate or rate of return on assets used to value the
Company's employee future benefit plans as compared to an after-tax
gain of $2.5 million in the previous
quarter and an after-tax loss of $3.5
million in the first quarter of 2016. During the
fourth quarter of 2016, the Company purchased $33.7 million of annuities through its defined
benefit plans in order to mitigate its exposure to the future
volatility fluctuations in the related pension obligations.
At purchase of these annuities, transaction costs of $3.6 million were recognized in Other
Comprehensive Income principally reflecting the difference in the
annuity rate (which is comparable to solvency rates) as compared to
the discount rate used to value the pension obligations on a going
concern basis. A further $18.0
million of annuities were purchased on April 13, 2017, increasing total annuities
purchased by the Company to $57.8
million representing approximately 39% of defined
benefit pension plan liabilities.
SUMMARY OF FINANCIAL POSITION
The following table summarizes CPPI's cash flow and selected
ratios for and as at the end of the following periods:
(millions of Canadian
dollars, except for ratios)
|
|
|
|
|
|
Q1
2017
|
|
Q4
2016
|
|
Q1
2016
|
Increase (decrease)
in cash and cash equivalents
|
|
|
|
|
$
|
26.4
|
$
|
20.0
|
$
|
5.3
|
|
Operating
activities
|
|
|
|
|
$
|
50.7
|
$
|
47.1
|
$
|
28.3
|
|
Financing
activities
|
|
|
|
|
$
|
(7.7)
|
$
|
(5.3)
|
$
|
(10.1)
|
|
Investing
activities
|
|
|
|
|
$
|
(16.6)
|
$
|
(21.8)
|
$
|
(12.9)
|
Ratio of current
assets to current liabilities
|
|
|
|
|
|
2.5 :
1
|
|
2.5 : 1
|
|
2.4 : 1
|
Net debt to
capitalization
|
|
|
|
|
|
(6.0)%
|
|
(0.4)%
|
|
5.3%
|
ROIC – Consolidated
period-to-date
|
|
|
|
|
|
5.3%
|
|
2.7%
|
|
4.8%
|
Changes in Financial Position
Cash generated from operating activities was $50.7 million in the first quarter of 2017, up
$3.6 million from the previous
quarter and up $22.4 million from the
first quarter of 2016. The increase in operating cash flows
compared to the immediately preceding quarter reflected higher cash
earnings offset in part by unfavourable movements in non-cash
working capital balances, as a result of a reduction in accounts
receivable balances in late 2016. Compared to the first
quarter of 2016, the increase in operating cash flows largely
reflected the drawdown of finished pulp inventories in the current
quarter as shipments exceeded production, and higher income tax
payments in the first quarter of 2016.
Cash used for financing activities was $7.7 million in the first quarter of 2017, up
$2.4 million from the previous
quarter and down $2.4 million from
the first quarter of 2016. Cash used for financing activities
in the current quarter included the Company's quarterly dividend
resulting in a payment of $4.2
million ($0.0625 per share) as
well $2.8 million for shares
purchased under the Company's normal course issuer bid. This
compared to $5.0 million paid for
shares purchased in the first quarter of 2016. No shares were
repurchased in the fourth quarter of 2016 (see further discussion
of the shares purchased under the normal course issuer bid in the
following "Liquidity and Financial Requirements" section).
Interest paid in the quarter of $0.7
million was $0.4 million lower
than the previous quarter and consistent with the first quarter of
2016.
Cash used for investing activities of $16.6 million in the current quarter
primarily related to capital expenditures associated with various
energy, maintenance of business and capital improvement
projects.
Liquidity and Financial Requirements
At March 31, 2017, the Company had
a $110.0 million unsecured operating
loan facility which was unused, except for $9.0 million reserved for several standby letters
of credit, leaving $101.0 million
available and undrawn on the operating facility.
CPPI has $50.0 million of floating
interest rate term debt.
The Company remained in compliance with the covenants relating
to its operating loans and long-term debt during the quarter, and
expects to remain so for the foreseeable future.
On March 7, 2017, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 3,332,038 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2017. The renewed normal course issuer
bid is set to expire on March 6,
2018. During the first quarter of 2017, CPPI purchased
264,203 common shares for $3.0
million (an average of $11.35
per common share), of which $2.8
million was paid in the period, with the balance paid in
early April. As at April 25,
2017, Canfor's ownership interest in CPPI was 53.9%.
The Company may purchase more shares through the balance of 2017
subject to the terms of the normal course issuer bid.
Dividends
On April 25, 2017, the Board of Directors declared a
quarterly dividend of $0.0625 per
share, payable on May 15, 2017 to the
shareholders of record on May 8,
2017.
Licella Pulp Joint Venture
In March 2017, the Canadian
Federal Government through its Sustainable Development Technology
Canada program announced the funding over several years of
approximately $13.2 million,
contingent on future spending, to allow the Licella Pulp Joint
Venture to further develop and demonstrate a technology that will
economically convert biomass into biofuels and biochemicals.
OUTLOOK
Pulp Markets
Global softwood markets are projected to remain relatively
strong during the second quarter. Reduced capacity over the
traditional spring maintenance period may support further price
increases in the second quarter of 2017. With the
commissioning of new pulp capacity in the latter part of 2017 and
into 2018, there is risk of downward pressure on pricing in the
second half of this year. For the month of April 2017, the Company announced increases of
US$20 per tonne for NBSK pulp list
prices to China and North America.
Results in the second quarter of 2017 will reflect the positive
impact of recent price gains, particularly in Asia, and scheduled maintenance outages
at the Northwood and Taylor pulp
mills, with a projected 33,000 tonnes of reduced NBSK pulp and
4,000 tonnes of reduced BCTMP production, respectively, as
well as higher associated maintenance costs and lower
projected shipment volumes. For the third quarter of 2017, the
Intercontinental pulp mill has a maintenance outage scheduled, with
a projected 8,000 tonnes of reduced NBSK pulp production.
Paper Markets
The bleached kraft paper market is expected to show continued
strength in the second quarter of 2017.
OUTSTANDING SHARES
At April 25, 2017, there
were 66,434,365 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, pension and other
employee future benefit plans and asset retirement obligations
based upon currently available information. While it is
reasonably possible that circumstances may arise which cause actual
results to differ from these estimates, management does not believe
it is likely that any such differences will materially affect the
Company's financial condition.
ACCOUNTING STANDARDS ISSUED AND NOT APPLIED
In May 2014, the International
Accounting Standards Board ("IASB") issued IFRS 15, Revenue from
Contracts with Customers, which will supersede IAS 18,
Revenue, IAS 11, Construction Contracts and related
interpretations. The new standard is effective for annual
periods beginning on or after January
1, 2018. The Company has performed a preliminary
assessment of the impact of the new standard, and currently
anticipates no significant impact on its financial statements, with
the assessment to be finalized in the second half of 2017.
In July 2014, the IASB issued IFRS
9, Financial Instruments. The required adoption date
for IFRS 9 is January 1, 2018 and the
Company does not anticipate the new standard to have a significant
impact on its financial statements.
In January 2016, the IASB issued
IFRS 16, Leases, which will supersede IAS 17, Leases
and related interpretations. The required adoption date for IFRS 16
is January 1, 2019 and the Company is
in the process of assessing the impact, if any, on the financial
statements of this new standard.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended March 31,
2017, there were no changes in the Company's internal
controls over financial reporting that materially affected, or
would be reasonably likely to materially affect, such controls.
RISKS AND UNCERTAINTIES
A comprehensive discussion of risks and uncertainties is
included in the Company's 2016 annual statutory reports which are
available on www.canfor.com or www.sedar.com.
Sales are primarily influenced by changes in market pulp prices,
sales volumes and fluctuations in Canadian dollar exchange rates.
Operating income, net income and operating income before
amortization are primarily impacted by: sales revenue; freight
costs; fluctuations of fibre, chemical and energy prices; level of
spending and timing of maintenance downtime; and production
curtailments. Net income is also impacted by fluctuations in
Canadian dollar exchange rates, the revaluation to the period end
rate of US dollar denominated working capital balances and
revaluation of outstanding derivative financial instruments.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
Q1
2017
|
|
Q4
2016
|
|
Q3
2016
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
Sales and
income
(millions of Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
309.2
|
$
|
257.8
|
$
|
291.6
|
$
|
257.2
|
$
|
295.3
|
$
|
330.8
|
$
|
294.1
|
$
|
276.0
|
Operating income
before amortization9
|
$
|
54.0
|
$
|
42.1
|
$
|
50.0
|
$
|
22.1
|
$
|
57.8
|
$
|
56.2
|
$
|
58.7
|
$
|
36.4
|
Operating
income
|
$
|
35.2
|
$
|
22.9
|
$
|
31.0
|
$
|
5.2
|
$
|
39.1
|
$
|
38.6
|
$
|
42.3
|
$
|
20.9
|
Net income
|
$
|
24.1
|
$
|
10.1
|
$
|
22.4
|
$
|
2.2
|
$
|
23.1
|
$
|
29.7
|
$
|
31.2
|
$
|
17.7
|
Per common
share (Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – basic
and diluted
|
$
|
0.36
|
$
|
0.15
|
$
|
0.34
|
$
|
0.03
|
$
|
0.34
|
$
|
0.43
|
$
|
0.45
|
$
|
0.25
|
Book
value10
|
$
|
7.55
|
$
|
7.27
|
$
|
7.14
|
$
|
6.88
|
$
|
7.15
|
$
|
6.96
|
$
|
6.65
|
$
|
7.40
|
Dividends
declared11
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
1.1875
|
Common Share
Repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share volume
repurchased (000 shares)
|
|
264
|
|
-
|
|
-
|
|
1,840
|
|
413
|
|
693
|
|
557
|
|
138
|
Shares repurchased
(millions of Canadian
dollars)
|
$
|
3.0
|
$
|
-
|
$
|
-
|
$
|
19.5
|
$
|
4.9
|
$
|
9.7
|
$
|
6.9
|
$
|
2.0
|
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp shipments (000
mt)
|
|
337.1
|
|
275.4
|
|
319.8
|
|
287.2
|
|
319.1
|
|
356.2
|
|
307.4
|
|
291.9
|
Paper shipments (000
mt)
|
|
33.7
|
|
33.6
|
|
35.5
|
|
38.5
|
|
34.9
|
|
35.4
|
|
32.1
|
|
33.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate
– US$/Cdn$
|
$
|
0.756
|
$
|
0.750
|
$
|
0.766
|
$
|
0.776
|
$
|
0.728
|
$
|
0.749
|
$
|
0.764
|
$
|
0.813
|
Average NBSK pulp
list price delivered to
China (US$)
|
$
|
645
|
$
|
595
|
$
|
595
|
$
|
617
|
$
|
590
|
$
|
600
|
$
|
638
|
$
|
675
|
9
Amortization includes amortization of certain capitalized major
maintenance costs.
|
10 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.
|
11
Dividends declared in Q2 2015 included a quarterly dividend of
$0.0625 per share and a special dividend of $1.1250 per
share.
|
Other material factors that impact the comparability of the
quarters are noted below:
After-tax
impact
|
|
|
(millions of Canadian
dollars, except for
per share amounts)
|
|
Q1
2017
|
|
Q4
2016
|
|
Q3
2016
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
Net income, as
reported
|
$
|
24.1
|
$
|
10.1
|
$
|
22.4
|
$
|
2.2
|
$
|
23.1
|
$
|
29.7
|
$
|
31.2
|
$
|
17.7
|
(Gain) loss on
derivative financial instruments
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.7)
|
$
|
3.6
|
$
|
(3.4)
|
Mark-to market gain
on Taylor Pulp
contingent consideration12
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1.3)
|
Net impact of above
items
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.7)
|
$
|
3.6
|
$
|
(4.7)
|
Adjusted net
income
|
$
|
24.1
|
$
|
10.1
|
$
|
22.4
|
$
|
2.2
|
$
|
23.1
|
$
|
29.0
|
$
|
34.8
|
$
|
13.0
|
Net income per
share (EPS), as reported16
|
$
|
0.36
|
$
|
0.15
|
$
|
0.34
|
$
|
0.03
|
$
|
0.34
|
$
|
0.43
|
$
|
0.45
|
$
|
0.25
|
Net impact of above
items per share13
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.01)
|
$
|
0.05
|
$
|
(0.07)
|
Adjusted net
income per share13
|
$
|
0.36
|
$
|
0.15
|
$
|
0.34
|
$
|
0.03
|
$
|
0.34
|
$
|
0.42
|
$
|
0.50
|
$
|
0.18
|
12 As part
of the purchase of the Taylor Pulp Mill on January 30, 2015, CPPI
may pay 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. During
2015, the contingent consideration liability was revalued to nil,
resulting in a gain of $1.8 million (before tax) recorded to Other
Income.
|
13 The
year-to-date net impact of net income per share, the adjusting
items per share and adjusted net income per share may not equal the
sum of the quarterly per share amounts due to rounding.
|
Canfor Pulp Products Inc.
Condensed Consolidated Balance Sheets
(millions of Canadian
dollars, unaudited)
|
|
|
As
at
March 31,
2017
|
|
As at
December 31,
2016
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
|
$
|
78.3
|
$
|
51.9
|
Accounts
receivable
|
-
Trade
|
|
|
|
|
103.5
|
|
75.9
|
|
-
Other
|
|
|
|
|
16.5
|
|
16.8
|
Inventories (Note
2)
|
|
|
|
|
153.3
|
|
166.5
|
Prepaid
expenses
|
|
|
|
|
2.7
|
|
5.1
|
Total current
assets
|
|
|
|
|
354.3
|
|
316.2
|
Property, plant
and equipment
|
|
|
|
|
509.6
|
|
518.7
|
Other long-term
assets
|
|
|
|
|
2.7
|
|
2.2
|
Total
assets
|
|
|
|
$
|
866.6
|
$
|
837.1
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
|
|
$
|
140.2
|
$
|
125.4
|
Total current
liabilities
|
|
|
|
|
140.2
|
|
125.4
|
Long-term
debt
|
|
|
|
|
50.0
|
|
50.0
|
Retirement benefit
obligations (Note 4)
|
|
|
|
|
109.9
|
|
109.1
|
Other long-term
provisions
|
|
|
|
|
5.9
|
|
6.2
|
Deferred income
taxes, net
|
|
|
|
|
59.0
|
|
61.7
|
Total
liabilities
|
|
|
|
$
|
365.0
|
$
|
352.4
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
$
|
489.7
|
$
|
491.6
|
Retained earnings
(deficit)
|
|
|
|
|
11.9
|
|
(6.9)
|
Total
equity
|
|
|
|
$
|
501.6
|
$
|
484.7
|
Total liabilities
and equity
|
|
|
|
$
|
866.6
|
$
|
837.1
|
Subsequent Events (Note 4, Note 11)
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
APPROVED BY THE BOARD
"S.E.
Bracken-Horrocks"
|
"M.J.
Korenberg"
|
Director, S.E.
Bracken-Horrocks
|
Director, M.J.
Korenberg
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Income
|
3 months ended March
31,
|
(millions of Canadian
dollars, except per share data, unaudited)
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
$
|
309.2
|
$
|
295.3
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
Manufacturing and
product costs
|
|
|
|
|
|
206.1
|
|
187.8
|
|
Freight and other
distribution costs
|
|
|
|
|
|
42.0
|
|
42.5
|
|
Amortization
|
|
|
|
|
|
18.8
|
|
18.7
|
|
Selling and
administration costs
|
|
|
|
|
|
7.1
|
|
7.2
|
|
|
|
|
|
|
274.0
|
|
256.2
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
35.2
|
|
39.1
|
|
|
|
|
|
|
|
|
|
Finance expense,
net
|
|
|
|
|
|
(1.8)
|
|
(1.6)
|
Other expense,
net
|
|
|
|
|
|
(1.0)
|
|
(6.6)
|
Net income before
income taxes
|
|
|
|
|
|
32.4
|
|
30.9
|
Income tax expense
(Note 6)
|
|
|
|
|
|
(8.3)
|
|
(7.8)
|
Net
income
|
|
|
|
|
$
|
24.1
|
$
|
23.1
|
|
|
|
|
|
|
|
|
|
Net income per
common share: (in Canadian dollars)
|
|
|
|
|
|
|
|
|
Attributable to
equity shareholders of the Company
|
|
|
|
|
|
|
|
|
-
|
Basic and diluted
(Note 7)
|
|
|
|
|
$
|
0.36
|
$
|
0.34
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Other Comprehensive Income (Loss)
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
|
|
|
|
Net
income
|
$
|
24.1
|
$
|
23.1
|
Other
comprehensive loss
|
|
|
|
|
Items that will not
be recycled through net income:
|
|
|
|
|
|
Defined benefit plan
actuarial losses (Note 4)
|
|
-
|
|
(4.7)
|
|
Income tax recovery
on defined benefit plan actuarial losses (Note 6)
|
|
-
|
|
1.2
|
Other comprehensive
loss, net of tax
|
|
-
|
|
(3.5)
|
Total
comprehensive income
|
$
|
24.1
|
$
|
19.6
|
Condensed Consolidated Statements of Changes in
Equity
|
3 months ended March
31,
|
(millions of Canadian
dollars, unaudited)
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
|
|
|
|
$
|
491.6
|
$
|
508.2
|
Share purchases (Note
7)
|
|
|
|
|
|
(1.9)
|
|
(3.0)
|
Balance at end of
period
|
|
|
|
|
$
|
489.7
|
$
|
505.2
|
|
|
|
|
|
|
|
|
|
Retained earnings
(deficit)
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
|
|
|
|
$
|
(6.9)
|
$
|
(28.5)
|
Net income
|
|
|
|
|
24.1
|
|
23.1
|
Defined benefit plan
actuarial losses, net of tax
|
|
|
|
|
|
-
|
|
(3.5)
|
Dividends
declared
|
|
|
|
|
|
(4.2)
|
|
(4.3)
|
Share purchases (Note
7)
|
|
|
|
|
|
(1.1)
|
|
(1.9)
|
Balance at end of
period
|
|
|
|
|
$
|
11.9
|
$
|
(15.1)
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
$
|
501.6
|
$
|
490.1
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Cash Flows
3
months ended March 31,
|
(millions of
Canadian dollars, unaudited)
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Cash generated
from (used in):
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
$
|
24.1
|
$
|
23.1
|
|
Items not affecting
cash:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
18.8
|
|
18.7
|
|
|
Income tax
expense
|
|
|
|
|
|
8.3
|
|
7.8
|
|
|
Employee future
benefits
|
|
|
|
|
|
1.3
|
|
1.3
|
|
|
Finance expense,
net
|
|
|
|
|
|
1.8
|
|
1.6
|
|
|
Other, net
|
|
|
|
|
|
(1.7)
|
|
1.4
|
Defined benefit plan contributions, net
|
|
|
|
|
|
(1.5)
|
|
(1.2)
|
Income taxes paid, net
|
|
|
|
|
|
(0.2)
|
|
(11.6)
|
|
|
|
|
|
|
50.9
|
|
41.1
|
Net change in non-cash working capital (Note 8)
|
|
|
|
|
|
(0.2)
|
|
(12.8)
|
|
|
|
|
|
|
50.7
|
|
28.3
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Finance expenses
paid
|
|
|
|
|
|
(0.7)
|
|
(0.8)
|
|
Dividends
paid
|
|
|
|
|
|
(4.2)
|
|
(4.3)
|
|
Share purchases (Note
7)
|
|
|
|
|
|
(2.8)
|
|
(5.0)
|
|
|
|
|
|
|
(7.7)
|
|
(10.1)
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Additions to
property, plant and equipment, net
|
|
|
|
|
|
(16.8)
|
|
(13.1)
|
|
Other, net
|
|
|
|
|
|
0.2
|
|
0.2
|
|
|
|
|
|
|
(16.6)
|
|
(12.9)
|
Increase in cash
and cash equivalents*
|
|
|
|
|
|
26.4
|
|
5.3
|
Cash and cash
equivalents at beginning of period*
|
|
|
|
|
|
51.9
|
|
17.5
|
Cash and cash
equivalents at end of period*
|
|
|
|
|
$
|
78.3
|
$
|
22.8
|
*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 Pulp Products Inc.
Notes to the Condensed
Consolidated Financial Statements
Three months ended
March 31, 2017 and 2016
(unaudited, millions of Canadian dollars unless otherwise
noted)
1. Basis of
Preparation
These condensed consolidated interim financial statements (the
"financial statements") have been prepared in accordance with
International Accounting Standard ("IAS") 34 Interim Financial
Reporting, and include the accounts of Canfor Pulp Products
Inc. ("CPPI") and its subsidiary entities, hereinafter referred to
as "CPPI" or "the Company." At April
25, 2017, Canfor Corporation ("Canfor") held a 53.9%
interest in CPPI.
These financial statements do not include all of the disclosures
required by International Financial Reporting Standards ("IFRS")
for annual financial statements. Additional disclosures relevant to
the understanding of these financial statements, including the
accounting policies applied, can be found in the Company's Annual
Report for the year ended December 31,
2016, available at www.canfor.com or www.sedar.com.
Effective January 1, 2017, the
Company has adopted the amendments to IAS 7 Statement of Cash
Flows, which clarified disclosures requirements associated with
cash and non-cash changes in liabilities from financing
activities. The adoption of this amendment has had no impact
on the Company's disclosures in the financial statements.
These financial statements were authorized for issue by the
Company's Board of Directors on April 25,
2017.
Accounting Standards Issued and Not Applied
In May 2014, the International
Accounting Standards Board ("IASB") issued IFRS 15, Revenue from
Contracts with Customers, which will supersede IAS 18,
Revenue, IAS 11, Construction Contracts and related
interpretations. The new standard is effective for annual periods
beginning on or after January 1,
2018. The Company has performed a preliminary assessment of
the impact of the new standard, and currently anticipates no
significant impact on its financial statements, with the assessment
to be finalized in the second half of 2017.
In July 2014, the IASB issued IFRS
9, Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company does not anticipate the new standard to have a significant
impact on its financial statements.
In January 2016, the IASB issued
IFRS 16, Leases, which will supersede IAS 17, Leases
and related interpretations. The required adoption date for IFRS 16
is January 1, 2019 and the Company is
in the process of assessing the impact on the financial statements
of this new standard.
2. Inventories
(millions of Canadian
dollars, unaudited)
|
|
As
at
March 31,
2017
|
|
As at
December 31,
2016
|
Pulp
|
$
|
69.2
|
$
|
84.2
|
Paper
|
|
15.8
|
|
15.7
|
Wood chips and
logs
|
|
15.4
|
|
15.4
|
Materials and
supplies
|
|
52.9
|
|
51.2
|
|
$
|
153.3
|
$
|
166.5
|
Inventory balances are stated after inventory write-downs from
cost to net realizable value. There were no inventory write-downs
at March 31, 2017 or December 31, 2016.
3. Operating Loans
(millions of Canadian
dollars, unaudited)
|
|
As
at
March
31,
2017
|
|
As at
December 31,
2016
|
|
Operating loan
facility
|
$
|
110.0
|
$
|
110.0
|
|
Letters of
credit
|
|
(9.0)
|
|
(9.3)
|
Total available
operating loan facility
|
$
|
101.0
|
$
|
100.7
|
The terms of the Company's operating loan facility include
interest payable at floating rates that vary depending on the ratio
of debt to total capitalization, and is based on the lenders'
Canadian prime rate, bankers acceptances, US dollar base rate or US
dollar LIBOR rate, plus a margin. The facility has certain
financial covenants including a covenant based on maximum debt to
total capitalization of the Company. No amounts were drawn on the
operating loan facility as at March 31,
2017 (December 31, 2016 -
nil).
At March 31, 2017, $9.0 million of letters of credit outstanding are
covered under the general operating loan facility, and the Company
was in compliance with all covenants relating to its operating
loans.
4. Employee Future Benefits
For the three months ended March 31,
2017, no defined benefit pension plan actuarial gains or
losses were recognized in other comprehensive income as the
discount rate used to value the net defined benefit obligations was
unchanged and the rate of return on plan assets was consistent with
expectations. For the three months ended March 31, 2016, the Company recognized before tax
actuarial losses in other comprehensive income of $4.7 million. The losses recorded in the first
quarter of 2016 principally reflect a lower return on plan assets
and a lower discount rate used to value the net defined benefit
obligations.
For the Company's employee future benefit plans, a one
percentage point increase in the discount rate used in calculating
the actuarial estimate of future liabilities and related plan
assets would decrease the accrued benefit obligation by an
estimated $28.6 million, and decrease
defined benefit pension plan annuity assets by an estimated
$3.6 million, before taking into
account the impact of hedging.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
Defined
Benefit
Pension Plans
|
Other
Benefit Plans
|
|
|
|
|
March 31,
2017
|
|
|
|
3.9%
|
|
3.9%
|
December 31,
2016
|
|
|
|
3.9%
|
|
3.9%
|
March 31,
2016
|
|
|
|
4.0%
|
|
4.0%
|
December 31,
2015
|
|
|
|
4.1%
|
|
4.1%
|
Subsequent to quarter end, on April 13,
2017, the Company purchased $18.0
million of buy-in annuities through its defined benefit
pension plans, increasing total annuities purchased to $57.8 million.
5. Financial
Instruments
CPPI's cash and cash equivalents, accounts receivable, loans and
advances, operating loans, accounts payable and accrued
liabilities, and long-term debt are measured at amortized cost
subsequent to initial recognition. At March
31, 2017, the fair value of the Company's long-term debt
approximates its amortized cost of $50.0
million (December 31, 2016 -
$50.0 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.
At times, the Company uses a variety of derivative financial
instruments to reduce its exposure to risks associated with
fluctuations in foreign exchange rates, pulp prices, energy costs
and floating interest rates on long-term debt. As at
March 31, 2017 and December 31, 2016, the Company had no derivative
financial instruments outstanding.
6. Income Taxes
|
3 months ended
March 31,
|
(millions of Canadian
dollars, unaudited)
|
|
|
|
|
|
2017
|
|
2016
|
Current
|
|
|
|
|
$
|
(11.0)
|
$
|
(10.0)
|
Deferred
|
|
|
|
|
|
2.7
|
|
2.2
|
Income tax
expense
|
|
|
|
|
$
|
(8.3)
|
$
|
(7.8)
|
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months
ended March 31,
|
(millions of Canadian
dollars, unaudited)
|
|
|
|
|
|
2017
|
|
2016
|
Income tax expense at
statutory rate - 26.0%
|
|
$
|
(8.4)
|
$
|
(8.0)
|
Add:
|
|
|
|
|
|
|
|
|
|
Entities with
different income tax rates and other tax adjustments
|
|
|
|
|
|
0.1
|
|
0.2
|
Income tax
expense
|
|
|
|
|
$
|
(8.3)
|
$
|
(7.8)
|
No tax expense or recovery was recorded in other comprehensive
income for the three months ended March 31,
2017 in relation to actuarial gains or losses on the defined
benefit plans (three months ended March 31,
2016 – tax recovery of $1.2
million).
7. Earnings per Share and Normal
Course Issuer Bid
Basic net income per share is calculated by dividing the net
income available to common shareholders by the weighted average
number of common shares outstanding during the period.
|
|
3 months ended March
31,
|
|
|
|
2017
|
2016
|
Weighted average
number of common shares
|
|
|
66,588,605
|
68,865,554
|
On March 7, 2017, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 3,332,038 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2017. The renewed normal course issuer
bid is set to expire on March 6,
2018. During the first quarter of 2017, CPPI purchased
264,203 common shares for $3.0
million (an average of $11.35
per common share), of which $2.8
million was paid in the period, with the balance paid in
early April. As a result of the share purchases during the quarter,
Canfor's interest in CPPI increased to 53.9% by quarter end. As at
April 25, 2017, there were 66,434,365
common shares of the Company outstanding and Canfor's ownership
interest in CPPI was 53.9%.
8. Net Change in Non-Cash Working
Capital
|
|
3 months ended
March 31,
|
(millions of Canadian
dollars, unaudited)
|
|
|
|
|
|
2017
|
|
2016
|
Accounts
receivable
|
|
|
|
|
$
|
(27.2)
|
$
|
2.5
|
Inventories
|
|
|
|
|
|
13.0
|
|
(9.9)
|
Prepaid
expenses
|
|
|
|
|
|
2.4
|
|
(1.1)
|
Accounts payable and
accrued liabilities
|
|
|
|
|
|
11.6
|
|
(4.3)
|
Net increase in
non-cash working capital
|
|
|
|
|
$
|
(0.2)
|
$
|
(12.8)
|
9. Segment Information
The Company has two reportable segments, which operate as
separate business units and represent separate product
lines.
Sales between the pulp and paper segments are accounted for at
prices that approximate fair value. These include sales of slush
pulp from the pulp segment to the paper segment.
Information regarding the operations of each reportable segment
is included in the following table.
(millions of Canadian
dollars, unaudited)
|
|
Pulp
|
|
Paper
|
|
Unallocated
|
|
Elimination
Adjustment
|
Consolidated
|
3 months ended
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
267.4
|
$
|
41.6
|
$
|
0.2
|
$
|
-
|
$
|
309.2
|
Sales to other
segments
|
|
22.1
|
|
-
|
|
-
|
|
(22.1)
|
|
-
|
Operating income
(loss)
|
|
31.1
|
|
7.1
|
|
(3.0)
|
|
-
|
|
35.2
|
Amortization
|
|
17.9
|
|
0.9
|
|
-
|
|
-
|
|
18.8
|
Capital
expenditures1
|
|
16.2
|
|
0.2
|
|
0.4
|
|
-
|
|
16.8
|
Identifiable
assets
|
|
724.7
|
|
52.4
|
|
89.5
|
|
-
|
|
866.6
|
3 months ended March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
249.8
|
$
|
45.2
|
$
|
0.3
|
$
|
-
|
$
|
295.3
|
Sales to other
segments
|
|
22.8
|
|
-
|
|
-
|
|
(22.8)
|
|
-
|
Operating income
(loss)
|
|
33.0
|
|
8.9
|
|
(2.8)
|
|
-
|
|
39.1
|
Amortization
|
|
17.7
|
|
1.0
|
|
-
|
|
-
|
|
18.7
|
Capital
expenditures1
|
|
12.9
|
|
0.2
|
|
-
|
|
-
|
|
13.1
|
Identifiable
assets
|
|
742.8
|
|
62.9
|
|
37.4
|
|
-
|
|
843.1
|
1Capital
expenditures represent cash paid for capital assets during the
periods and include capital expenditures that were partially
financed by government grants.
|
10. Related Party Transactions
For the three months ended March 31,
2017, the Company depended on Canfor to provide
approximately 64% (three months ended March
31, 2016 - 64%) of its fibre supply as well as certain key
business and administrative services. As a result of these
relationships the Company considers its operations to be dependent
on its ongoing relationship with Canfor. The transactions with
Canfor are consistent with the transactions described in the
December 31, 2016 audited
consolidated financial statements of CPPI and are based on agreed
upon amounts between the parties.
Transactions and payables to Canfor include purchases of wood
chips, logs, pulp and administrative services. These are
summarized below:
|
|
3 months ended March 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
|
2016
|
Transactions
|
|
|
|
|
|
Purchase of wood
chips and other
|
$
|
41.8
|
|
$
|
46.0
|
|
|
|
|
|
|
(millions of Canadian
dollars, unaudited)
|
|
As
at March 31,
2017
|
|
|
As at
December
31,
2016
|
Balance
Sheet
|
|
|
|
|
|
Included in accounts
payable and accrued
liabilities
|
$
|
16.5
|
|
$
|
10.3
|
11. Subsequent Event
On April 25, 2017, the Board of Directors declared a
quarterly dividend of $0.0625 per
share, payable on May 15, 2017, to
shareholders of record on May 8,
2017.
SOURCE Canfor Pulp Products Inc.