VANCOUVER, Oct. 23, 2019 /CNW/ - Canfor Corporation (TSX:
CFP) today reported its third quarter of 2019 results:
Overview
- Third quarter of 2019 reported operating loss of $124 million
- Third quarter of 2019 adjusted operating loss of $69 million (adjusted for duties, restructuring
costs and reversal of inventory write-down provisions)
- Adjusted shareholder net loss of $44
million, or $0.35 per
share
Financial Results
The following table summarizes selected financial information
for the Company for the comparative periods:
(millions of Canadian
dollars, except per share amounts)
|
|
Q3
2019
|
|
Q2
2019
|
|
YTD
2019
|
|
Q3
2018
|
|
YTD
2018
|
Sales
|
$
|
1,091.4
|
$
|
1,313.0
|
$
|
3,553.1
|
$
|
1,323.3
|
$
|
4,016.3
|
Reported operating
income (loss) before amortization
|
$
|
(27.4)
|
$
|
43.1
|
$
|
32.3
|
$
|
269.9
|
$
|
888.2
|
Reported operating
income (loss)
|
$
|
(124.0)
|
$
|
(49.7)
|
$
|
(243.6)
|
$
|
201.8
|
$
|
687.7
|
Adjusted operating
income before amortization1
|
$
|
27.2
|
$
|
88.2
|
$
|
207.2
|
$
|
312.5
|
$
|
1,017.4
|
Adjusted operating
income (loss)1
|
$
|
(69.4)
|
$
|
(4.6)
|
$
|
(68.7)
|
$
|
244.4
|
$
|
816.9
|
Net income
(loss)2
|
$
|
(90.4)
|
$
|
(48.6)
|
$
|
(228.5)
|
$
|
125.3
|
$
|
407.3
|
Net income (loss) per
share, basic and diluted2
|
$
|
(0.72)
|
$
|
(0.39)
|
$
|
(1.82)
|
$
|
0.98
|
$
|
3.17
|
Adjusted net income
(loss)2, 3
|
$
|
(44.4)
|
$
|
(11.8)
|
$
|
(93.0)
|
$
|
156.9
|
$
|
516.4
|
Adjusted net income
(loss) per share, basic and diluted2, 3
|
$
|
(0.35)
|
$
|
(0.10)
|
$
|
(0.74)
|
$
|
1.23
|
$
|
4.02
|
2019 results include
the adoption of IFRS 16 Leases, from January 1, 2019, on a
prospective basis. Comparative periods have not been
restated.
|
1
Adjusted for countervailing and
anti-dumping duties expense ($53.5 million in Q3 2019, $45.2
million in Q2 2019, $42.6 million in Q3 2018), inventory write-down
recoveries ($5.3 million net recovery in Q3 2019, $11.6 million net
recovery in Q2 2019), and restructuring costs related to mill
closures and curtailments ($6.4 million in Q3 2019, $11.5 million
in Q2 2019).
|
2
Attributable to equity shareholders of
the Company.
|
3
Adjusted for after-tax impact of certain
one-time items, including the aforementioned countervailing and
anti-dumping duties expense and restructuring costs, as well as
foreign exchange (gain) loss on long-term debt and duties
recoverable, and (gain) loss on derivative financial
instruments.
|
Reflecting weak global market conditions and a challenging fibre
cost environment in British
Columbia ("BC"), for the third quarter of 2019, Canfor
reported an operating loss of $124.0
million compared to an operating loss of $49.7 million reported for the second quarter of
2019. The material decline reflected significantly lower operating
earnings in both the lumber and pulp and paper segments, and
substantial curtailments taken by both businesses during the third
quarter.
Reported results for the third quarter of 2019 included a net
duty expense of $53.5 million, at a
combined countervailing duty ("CVD") and anti-dumping duty ("ADD")
accrual rate of 29.24%, compared to $45.2
million reported in the second quarter of 2019 at a combined
rate of 26.24%. Results in the third quarter of 2019 also included
a net $5.3 million recovery in the
lumber and log inventory write-down provisions, as well as
restructuring costs of $6.4 million
related to the previously announced permanent capacity reductions
and indefinite curtailments at the Vavenby, Mackenzie and Isle Pierre sawmills.
Lumber segment losses primarily reflected prolonged weakness in
Western Spruce/Pine/Fir ("Western SPF") benchmark lumber prices,
continued elevated log costs in BC, and 360 million board feet of
production curtailments and capacity reductions in that operating
region during the current quarter.
Results in the pulp and paper segment reflected weak global pulp
market conditions, significant market-related downtime and fibre
supply disruptions from BC Interior sawmill curtailments. Northern
Bleached Softwood Kraft ("NBSK") pulp and Bleached Chemi-Thermo
Mechanical Pulp ("BCTMP") prices saw significant declines
through the quarter, driven by weak global softwood pulp demand in
combination with elevated global pulp inventory levels. In response
to the deteriorating pulp market conditions and fibre supply
disruptions, Canfor Pulp Products Inc. ("CPPI") took phased summer
curtailments at its Intercontinental, Northwood and Prince George
NBSK pulp mills in Prince George,
BC, as well as at its BCTMP mill in Taylor, BC. Combined, the summer curtailments
reduced pulp production in the current quarter by 75,000 tonnes of
NSBK pulp and 60,000 tonnes of BCTMP.
Lumber market fundamentals remained relatively unchanged through
the third quarter of 2019, with supply continuing to exceed demand.
North American home construction showed signs of a recovery late in
the third quarter of 2019 while repair and remodeling activity was
steady during the quarter and throughout 2019 overall. US housing
starts, on a seasonally adjusted basis, averaged 1,282,000 units,
up 2% from the previous quarter; multi-family starts were down 6%,
while single-family starts, which consume a higher proportion of
lumber, were up 6%. The slower than anticipated recovery of US
housing starts year-to-date has in part reflected record high
levels of precipitation and severe flooding across the US South,
combined with market uncertainty stemming from ongoing trade
disputes between the US and China.
In Canada, housing starts averaged
223,000 units on a seasonally adjusted basis, broadly in line with
the previous quarter, and reflecting strong demand in Eastern
Canadian urban centres. Offshore demand for Western SPF lumber
products, particularly in China,
weakened in the third quarter. European lumber demand waned during
the current quarter, as weaker market conditions spilled over from
North America, and this weighed on
European benchmark commodity lumber pricing.
The average benchmark North American Random Lengths Western SPF
2x4 #2&Btr price was up US$23 per
Mfbm, or 7%, from the previous quarter, to US$356 per Mfbm. A similar increase was seen in
the Company's Western SPF lumber unit sales realizations driven by
benchmark pricing movements across various grades, combined with a
modest improvement in the Company's high-value sales mix.
Southern Yellow Pine ("SYP") lumber unit sales realizations were
slightly lower than the prior quarter as a US$17 per Mfbm, or 4%, increase in the SYP East
2x4 #2 price to US$410 per Mfbm, was
more than offset by the impact of price declines for wider-width
dimension products.
The average European indicative SPF lumber benchmark price (an
internally generated benchmark based on delivered price to the
largest continental market), at 3,652 Swedish Krona ("SEK") per
Mfbm, was down SEK 351 per Mfbm, or
9%, from the previous quarter, primarily a result of tepid global
lumber demand. The Company's European SPF lumber unit sales
realizations showed a more moderate decrease compared to the
previous quarter, as a higher-value sales mix partially offset the
aforementioned pricing pressure. Further reducing the unit sales
realizations compared to the previous quarter was a 3%
strengthening of the Canadian dollar against the SEK.
Total lumber shipments, at 1.23 billion board feet, were 16%
lower than the previous quarter principally reflecting the
challenging market conditions impacting our Western SPF lumber
business and the related market downtime in the current
quarter.
Total lumber production, at 1.18 billion board feet, was 15%
lower than the previous quarter primarily due to the aforementioned
BC production curtailments and mill closures, which reduced Western
SPF production capacity by approximately 37%, and, to a lesser
extent, seasonal production downtime at the Company's European
operations taken for a four-week period in July and August.
Lumber unit manufacturing and product costs declined slightly
from the previous quarter, as the impact of reduced market pricing
on consumed log costs in both Western
Canada and the US South, outweighed the incremental effect
of lower production volumes. The timing difference between the
delivery and consumption of logs meant that the increase in
market-based stumpage in BC, effective July
1, 2019, did not significantly impact log costs in the
current quarter; however, this will materially impact BC log costs
in upcoming quarters. In Europe,
lumber unit manufacturing and product costs were marginally higher
than the previous quarter, as the benefit of a market-related
decline in log costs offset most of the impact on unit fixed costs
from the seasonal production downtime.
Global pulp markets weakened for a third straight quarter with
the combination of tepid demand and inventory oversupply,
particularly in China and
Europe, significantly weighing on
global pulp prices. During the current quarter, the US-dollar NBSK
pulp list price to China declined
to its lowest level in over 10 years, averaging US$585 per tonne, down US$68 per tonne, or 10%, from the previous
quarter. Prices to other global regions, including North America and Europe, also experienced similar decreases in
the current quarter. As a result of weakening pulp market
conditions and pricing, average NBSK pulp and BCTMP unit sales
realizations were down significantly compared to the second quarter
of 2019.
Energy revenues increased in the current quarter as
improved power generation, driven by Northwood's new Turbo
Generator Condensing turbine, and higher energy prices, more than
offset the decrease in operating days associated with the
aforementioned downtime.
Pulp production was 174,000 tonnes, down
126,000 tonnes, or 42%, from the previous quarter, largely
reflecting the quarter-over-quarter impact of downtime, which, in
the current quarter, principally related to the aforementioned
production curtailments at all of CPPI's pulp mills. The completion
of a scheduled maintenance outage at CPPI's Prince George pulp mill in the current quarter
further reduced pulp production by 4,000 tonnes. In the second
quarter of 2019, CPPI completed scheduled maintenance outages at
the Intercontinental NBSK pulp and Taylor BCTMP mills which reduced
pulp production by 11,000 tonnes and 6,000 tonnes,
respectively.
Pulp shipments were 213,000 tonnes, down
75,000 tonnes, or 26%, from the previous quarter reflecting
the decrease in pulp production, offset in part by a drawdown of
inventory in the current quarter.
Pulp unit manufacturing costs were significantly higher than the
previous quarter, principally reflecting reduced production. Fibre
costs showed a modest decline, with lower market-based prices for
sawmill residual chips (linked to Canadian dollar NBSK pulp sales
realizations) offsetting increased seasonal pricing adjustments and
a higher proportion of available higher-cost whole log chips.
"The ongoing tough market conditions made for another extremely
challenging quarter for our Western SPF business and all of our
employees" said Don Kayne, Canfor's
President and Chief Executive Officer. "However, despite the global
lumber market challenges, our SYP and European businesses continued
to deliver positive results in the third quarter and we expect that
to continue through the balance of the year. Our pulp business also
had a very difficult quarter, as deteriorating pulp market
conditions and reduced fibre supply resulted in significant pulp
mill curtailments in the third quarter. We expect to see
stabilization and a slow recovery in both lumber and pulp prices
towards the end of 2019 and into 2020 as demand steadily improves
and global inventory levels come back into balance."
On August 10, 2019, Canfor
received an unsolicited and non-binding proposal from Great Pacific
Capital Corp. ("Great Pacific") to acquire all outstanding common
shares of Canfor (excluding those already directly or indirectly
owned by Great Pacific) at a price of $16.00 per common share (the "Indicative
Offer").
The Board has constituted a Special Committee of independent
directors to review the Indicative Offer and, in consultation with
its legal and financial advisors, consider Canfor's strategic
alternatives, including Canfor's response, if any, to the
Indicative Offer. The Special Committee's review remains in
progress.
Looking ahead, for the lumber segment, a gradual recovery in
demand in the US housing sector is anticipated, in part reflecting
an alleviation of affordability concerns, coupled with solid
projected demand in the repair and remodeling sector. Despite the
anticipated steady uptick in US lumber demand, increased supply
into the North American market is projected to temper North
American lumber prices for the balance of 2019, reflecting the
combined impacts of incremental European lumber imports into the
US, lower shipments from North
America to China, and
capacity coming online in the US South. Lumber prices in
Asia, particularly in Japan, are anticipated to improve through the
balance of 2019, with prices projected to return to more normalized
levels. In Europe, the pricing
pressure experienced in the current quarter is estimated to
continue through the balance of the year, with stabilization
anticipated in early 2020, as global inventory levels return to a
more balanced range. It is anticipated that this pricing pressure
will be somewhat moderated by lower log costs in Europe.
In the pulp and paper segment, global softwood kraft pulp
markets are projected to show signs of a modest recovery in the
fourth quarter of 2019 with consumers replenishing inventories
following the seasonally slower summer months. It is anticipated
that global pulp pricing will slowly improve through the balance of
2019 and into 2020 as global inventories move towards a more
balanced range. Given the impacts of recently announced sawmill
curtailments and closures in the BC Interior, fibre costs are
projected to remain under pressure given the limited supply of
incremental pulp logs. Results in the fourth quarter of 2019 will
include a one week curtailment at CPPI's Prince George NBSK pulp
mill and paper machine at the beginning of October, a continuation
from the third quarter. Bleached kraft paper demand is anticipated
to remain relatively weak through the balance of the year, with
prices projected to remain under pressure in the fourth quarter
before stabilizing in 2020.
Additional Information and Conference Call
A conference call to discuss the third quarter's financial and
operating results will be held on Thursday,
October 24, 2019 at 8:00 AM Pacific
time. To participate in the call, please dial Toll-Free
888-390-0546. For instant replay access until November 7, 2019, please dial 888-390-0541 and
enter participant pass code 315653#.
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.
Non-IFRS Measures and Forward Looking Statements
Operating Income (Loss) before Amortization, Adjusted Operating
Income (Loss) and 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 (loss) or cash flows as determined in accordance with IFRS.
Refer to the Company's Annual Management's Discussion and Analysis
for a reconciliation of Operating Income (Loss) before Amortization
and Adjusted Operating Income (Loss) to Operating Income (Loss) and
Adjusted Net Income (Loss) to Net Income (Loss) reported in
accordance with IFRS.
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, BC with interests in
BC, Alberta, North and
South Carolina, Alabama, Georgia, Mississippi and Arkansas, as well as in Sweden with its recent majority acquisition of
the Vida Group. Canfor produces primarily softwood lumber and
also owns a 54.8% 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.
SOURCE Canfor Corporation