VANCOUVER, July 26, 2016 /PRNewswire/ - Canfor Pulp Products
Inc. ("CPPI") (TSX: CFX) today reported net income of $2.2 million, or $0.03 per share, for the second quarter of 2016,
compared to $23.1 million, or
$0.34 per share, for the first
quarter of 2016 and $17.7 million, or
$0.25 per share, for the second
quarter of 2015. For the six months ended June 30, 2016, the Company's net income was
$25.3 million, or $0.37 per share, compared to $45.7 million, or $0.65 per share, for the six months ended
June 30, 2015.
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
Q2
|
|
Q1
|
|
YTD
|
|
Q2
|
|
YTD
|
|
(millions of Canadian
dollars, except per share
amounts)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Sales
|
$
|
257.2
|
$
|
295.3
|
$
|
552.5
|
$
|
276.0
|
$
|
549.8
|
|
Operating income before
amortization
|
$
|
22.1
|
$
|
57.8
|
$
|
79.9
|
$
|
36.4
|
$
|
93.5
|
|
Operating
income
|
$
|
5.2
|
$
|
39.1
|
$
|
44.3
|
$
|
20.9
|
$
|
62.3
|
|
Net
income
|
$
|
2.2
|
$
|
23.1
|
$
|
25.3
|
$
|
17.7
|
$
|
45.7
|
|
Net income per share, basic
and
diluted
|
$
|
0.03
|
$
|
0.34
|
$
|
0.37
|
$
|
0.25
|
$
|
0.65
|
|
Adjusted net
income
|
$
|
2.2
|
$
|
23.1
|
$
|
25.3
|
$
|
13.0
|
$
|
48.0
|
|
Adjusted net income per
share, basic and
diluted
|
$
|
0.03
|
$
|
0.34
|
$
|
0.37
|
$
|
0.18
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no items affecting comparability in the second
quarter of 2016 or for the six months ended June 30, 2016. Adjusted net income was
$13.0 million, or $0.18 per share, for the second quarter of 2015
and $48.0 million, or $0.68 per share, for the six months ended
June 30, 2015.
The Company reported operating income of $5.2 million for the second quarter of 2016, down
$33.9 million from $39.1 million reported for the first quarter of
2016. Results in the second quarter reflected scheduled
maintenance outages taken at all three of the Company's Northern
Bleached Softwood Kraft ("NBSK") pulp mills and its kraft paper
operation as well as lower NBSK pulp unit sales realizations and
energy revenues.
Positive pricing momentum in global softwood pulp markets during
the second quarter of 2016 was due mostly to the impact of industry
spring maintenance outages and solid demand, particularly from
China. The average North
American US-dollar NBSK pulp list price, as published by RISI, was
up US$37 per tonne, or 4%, to
US$980 per tonne, while the average
price to China was up US$27 per tonne, or 5%. However, NBSK pulp
unit sales realizations showed a modest decline from the previous
quarter as price increases were outweighed by the 5 cent, or 7%, stronger Canadian dollar and a
higher proportion of shipments at the beginning of the quarter when
NBSK prices were lower. Similarly, Bleached Chemi-Thermo
Mechanical Pulp ("BCTMP") US-dollar list prices also trended
positively in the second quarter of 2016 but the increases were
offset by the stronger Canadian dollar. Lower energy revenue
in the current quarter reflected both increased scheduled
maintenance downtime and seasonally lower energy prices.
Pulp shipment and production volumes were down 10% and 13%,
respectively, from the previous quarter principally reflecting the
impact of the aforementioned scheduled maintenance outages and, to
a lesser extent, isolated unplanned disruptions prior to the
scheduled outages, which reduced market NBSK pulp production by
approximately 40,000 tonnes compared to the 38,000 tonne impact
forecast in the previous quarter's press release. NBSK unit
manufacturing costs were substantially higher than the previous
quarter principally as a result of the scheduled maintenance
outages. BCTMP production volumes and unit manufacturing
costs were broadly in line with the first quarter of 2016.
Operating income in the Company's paper segment at $5.5 million was down $3.4
million from the first quarter of 2016. Lower earnings
compared to the previous quarter was largely due to lower paper
unit sales realizations and a five day scheduled maintenance outage
in the current quarter, partially offset by increased shipments as
well as lower prices for slush pulp.
During the second quarter of 2016, the Company repurchased over
1.8 million common shares for $19.5
million at an average price of $10.60 per common share and paid a quarterly
dividend of $0.0625 per common
share. Since inception of the Normal Course Issuer Bid
program in 2013, the Company has repurchased over 4.5 million
common shares for $54.4 million
representing approximately 6.4% of the Company's common shares
outstanding at the beginning of the program.
Commenting on the Company's second quarter results, CPPI's Chief
Executive Officer, Don Kayne said,
"This was a challenging quarter for Canfor Pulp given the scheduled
maintenance downtime at all of our NBSK pulp mills. With the
significant majority of the scheduled NBSK pulp mill maintenance
outages now behind us, our focus for the remainder of the year is
on returning to our targeted productivity levels at all
mills."
Looking ahead, with global softwood inventories at the low end
of the balanced range and steady market demand, it is anticipated
that prices will remain stable through the third quarter of
2016. Looking towards the end of 2016 and into 2017, there
continues to be a risk of downward pressure on pricing due in part
to previously announced new pulp capacity forecast to come online
in the latter part of 2016. For the month of July 2016, the Company announced NBSK pulp list
prices of US$1,000 per tonne in
North America unchanged from June
2016.
On July 26, 2016, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on August 16, 2016 to the shareholders of record on
August 9, 2016.
Additional Information and Conference Call
A
conference call to discuss the second quarter's financial and
operating results will be held on Wednesday,
July 27, 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 August 10, 2016, please
dial 888-390-0541 and enter participant pass code 466508#.
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.
Second Quarter
2016
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 June 30, 2016 relative to the
quarters ended March 31, 2016 and
June 30, 2015, and the financial
position of the Company at June 30,
2016. It should be read in conjunction with CPPI's unaudited
interim consolidated financial statements and accompanying notes
for the quarters ended June 30, 2016
and 2015, as well as the 2015 annual MD&A and the 2015 audited
consolidated financial statements and notes thereto, which are
included in CPPI's Annual Report for the year ended December 31, 2015 (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 – for the full
calculation, see the reconciliation included in the section
"Analysis of Specific Material Items Affecting Comparability of Net
Income (Loss)") 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 second quarter of 2016.
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 July 26, 2016.
Forward Looking Statements
Certain statements in this MD&A constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words
such as "expects", "anticipates", "projects", "intends", "plans",
"will", "believes", "seeks", "estimates", "should", "may", "could",
and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements
are based on management's current expectations and beliefs and
actual events or results may differ materially. There are
many factors that could cause such actual events or results
expressed or implied by such forward-looking statements to differ
materially from any future results expressed or implied by such
statements. Forward-looking statements are based on current
expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as
required by law.
SECOND QUARTER 2016 OVERVIEW
Selected Financial
Information and Statistics
|
|
Q2
|
|
Q1
|
|
YTD
|
|
Q2
|
|
YTD
|
|
(millions of Canadian
dollars, except per share
amounts)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Operating income (loss) by
segment:
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
$
|
1.8
|
$
|
33.0
|
$
|
34.8
|
$
|
18.1
|
$
|
54.4
|
|
Paper
|
$
|
5.5
|
$
|
8.9
|
$
|
14.4
|
$
|
5.7
|
$
|
13.6
|
|
Unallocated
|
$
|
(2.1)
|
$
|
(2.8)
|
$
|
(4.9)
|
$
|
(2.9)
|
$
|
(5.7)
|
|
Total operating
income
|
$
|
5.2
|
$
|
39.1
|
$
|
44.3
|
$
|
20.9
|
$
|
62.3
|
|
Add:
Amortization1
|
$
|
16.9
|
$
|
18.7
|
$
|
35.6
|
$
|
15.5
|
$
|
31.2
|
|
Total operating income
before
amortization
|
$
|
22.1
|
$
|
57.8
|
$
|
79.9
|
$
|
36.4
|
$
|
93.5
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
movements
|
$
|
31.9
|
$
|
(12.8)
|
$
|
19.1
|
$
|
(1.1)
|
$
|
(10.6)
|
|
Defined benefit pension plan contributions,
net
|
$
|
(1.4)
|
$
|
(1.2)
|
$
|
(2.6)
|
$
|
(1.3)
|
$
|
(1.7)
|
|
Income taxes paid,
net
|
$
|
(2.6)
|
$
|
(11.6)
|
$
|
(14.2)
|
$
|
(3.2)
|
$
|
(15.7)
|
|
Other operating cash flows,
net
|
$
|
(1.5)
|
$
|
(3.9)
|
$
|
(5.4)
|
$
|
(0.3)
|
$
|
4.6
|
|
Cash from operating
activities
|
$
|
48.5
|
$
|
28.3
|
$
|
76.8
|
$
|
30.5
|
$
|
70.1
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
$
|
(4.3)
|
$
|
(4.3)
|
$
|
(8.6)
|
$
|
(4.4)
|
$
|
(8.8)
|
|
Finance expenses
paid
|
$
|
(0.5)
|
$
|
(0.8)
|
$
|
(1.3)
|
$
|
(0.6)
|
$
|
(1.1)
|
|
Capital additions,
net
|
$
|
(18.6)
|
$
|
(13.1)
|
$
|
(31.7)
|
$
|
(12.8)
|
$
|
(26.2)
|
|
Acquisition of Taylor Pulp
Mill
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(12.6)
|
|
Share
purchases
|
$
|
(19.4)
|
$
|
(5.0)
|
$
|
(24.4)
|
$
|
(7.3)
|
$
|
(9.0)
|
|
Other,
net
|
$
|
(3.5)
|
$
|
0.2
|
$
|
(3.3)
|
$
|
0.3
|
$
|
0.5
|
|
Change in cash /
operating
loans
|
$
|
2.2
|
$
|
5.3
|
$
|
7.5
|
$
|
5.7
|
$
|
12.9
|
|
ROIC – Consolidated
period-to-date2
|
|
0.8%
|
|
4.8%
|
|
5.7%
|
|
3.0%
|
|
10.1%
|
|
Average exchange rate
(US$ per
C$1.00)3
|
$
|
0.776
|
$
|
0.728
|
$
|
0.752
|
$
|
0.813
|
$
|
0.810
|
|
1
|
Amortization includes amortization of certain
capitalized major maintenance
costs.
|
|
2
|
Consolidated Return on Invested Capital ("ROIC") is
equal to operating income, 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. The year-to-date ROIC may not equal the sum
of the quarterly amounts due to rounding and the impact of the
average invested capital balance during the applicable
period.
|
|
3
|
Source – Bank of Canada (average noon rate for the
period).
|
|
|
Analysis of Specific Material Items Affecting Comparability of
Net Income
|
After-tax
impact
|
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian
dollars, except per share
amounts)
|
|
Q2
2016
|
|
Q1
2016
|
|
YTD
2016
|
|
Q2
2015
|
|
YTD
2015
|
|
Net income, as
reported
|
$
|
2.2
|
$
|
23.1
|
$
|
25.3
|
$
|
17.7
|
$
|
45.7
|
|
(Gain) loss on derivative
financial
instruments
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(3.4)
|
$
|
3.6
|
|
Mark-to-market gain on
Taylor Pulp contingent
consideration4
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1.3)
|
$
|
(1.3)
|
|
Net impact of above
items
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(4.7)
|
$
|
2.3
|
|
Adjusted net
income
|
$
|
2.2
|
$
|
23.1
|
$
|
25.3
|
$
|
13.0
|
$
|
48.0
|
|
Net income per share
(EPS), as
reported
|
$
|
0.03
|
$
|
0.34
|
$
|
0.37
|
$
|
0.25
|
$
|
0.65
|
|
Net impact of above items
per
share
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.07)
|
$
|
0.03
|
|
Adjusted net income per
share
|
$
|
0.03
|
$
|
0.34
|
$
|
0.37
|
$
|
0.18
|
$
|
0.68
|
|
4
|
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 the second quarter of
2015, the contingent consideration liability was revalued to nil,
resulting in a gain of $1.8 million (before tax) recorded to Other
Income (see further discussion in the "Purchase of Taylor Pulp
Mill"
section).
|
|
|
The Company reported operating income of $5.2 million for the second quarter of 2016, down
$33.9 million from $39.1 million reported for the first quarter of
2016. Results in the second quarter reflected scheduled
maintenance outages taken at all three of the Company's Northern
Bleached Softwood Kraft ("NBSK") pulp mills and its kraft paper
operation as well as lower NBSK pulp unit sales realizations and
energy revenues.
Positive pricing momentum in global softwood pulp markets during
the second quarter of 2016 was due mostly to the impact of industry
spring maintenance outages and solid demand, particularly from
China. The average North
American US-dollar NBSK pulp list price, as published by RISI, was
up US$37 per tonne, or 4%, to
US$980 per tonne, while the average
price to China was up US$27 per tonne, or 5%. However, NBSK pulp
unit sales realizations showed a modest decline from the previous
quarter as price increases were outweighed by the 5 cent, or 7%, stronger Canadian dollar and a
higher proportion of shipments at the beginning of the quarter when
NBSK prices were lower. Similarly, Bleached Chemi-Thermo
Mechanical Pulp ("BCTMP") US-dollar list prices also trended
positively in the second quarter of 2016 but the increases were
offset by the stronger Canadian dollar. Lower energy revenue
in the current quarter reflected both increased scheduled
maintenance downtime and seasonally lower energy prices.
Pulp shipment and production volumes were down 10% and 13%,
respectively, from the previous quarter principally reflecting the
impact of the aforementioned scheduled maintenance outages and, to
a lesser extent, isolated unplanned disruptions before the
scheduled outages, which reduced market NBSK pulp production by
approximately 40,000 tonnes compared to the 38,000 tonne impact
forecast in the previous quarter's press release. NBSK unit
manufacturing costs were substantially higher than the previous
quarter principally as a result of the scheduled maintenance
outages. BCTMP production volumes and unit manufacturing
costs were broadly in line with the first quarter of 2016.
Operating income in the Company's paper segment at $5.5 million was down $3.4
million from the first quarter of 2016. Lower earnings
compared to the previous quarter was largely due to lower paper
unit sales realizations and a five day scheduled maintenance outage
in the current quarter, partially offset by increased shipments as
well as lower prices for slush pulp.
During the second quarter of 2016, the Company repurchased over
1.8 million common shares for $19.5
million at an average price of $10.60 per common share and paid a quarterly
dividend of $0.0625 per common
share. Since inception of the Normal Course Issuer Bid
program in 2013, the Company has repurchased over 4.5 million
common shares for $54.4 million
representing approximately 6.4% of the Company's common shares
outstanding at the beginning of the program.
Compared to the second quarter of 2015, operating income was
down $15.7 million largely reflecting
lower NBSK pulp unit sales realizations and the
quarter-over-quarter impact of the scheduled maintenance
outages. In the comparative second quarter of 2015, the
Company completed scheduled maintenance outages at the
Intercontinental and Prince George NBSK pulp mills as well as the
Taylor BCTMP mill which reduced total market pulp production by
approximately 14,000 tonnes. The average North American
US-dollar NBSK list price was consistent with second quarter of
2015 at US$980 per tonne while the
average NBSK price to China was
down US$58 per tonne.
Moderately lower NBSK unit sales realizations compared to the same
quarter in 2015 were largely due to lower prices to China and proportionately lower shipments to
the higher-value North American market in the current quarter,
which outweighed the benefit of the weaker Canadian
dollar.
Operating results in the Company's paper segment were broadly in
line with the same quarter in 2015 as the benefit of a weaker
Canadian dollar, lower prices for slush pulp and higher shipment
volumes were offset by lower US-dollar paper prices in the current
quarter. The Company also took a nine-day scheduled
maintenance outage at the paper machine in the second quarter of
2015 reducing paper production by approximately 3,300 tonnes
approximately double that for the current quarter.
OPERATING RESULTS BY BUSINESS SEGMENT
Pulp
Selected Financial Information and Statistics
– Pulp
|
|
Q2
|
|
Q1
|
|
YTD
|
|
Q2
|
|
YTD
|
|
(millions of Canadian
dollars, unless otherwise
noted)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Sales
|
$
|
210.6
|
$
|
249.8
|
$
|
460.4
|
$
|
234.0
|
$
|
465.7
|
|
Operating income before
amortization5
|
$
|
17.8
|
$
|
50.7
|
$
|
68.5
|
$
|
32.8
|
$
|
83.9
|
|
Operating
income
|
$
|
1.8
|
$
|
33.0
|
$
|
34.8
|
$
|
18.1
|
$
|
54.4
|
|
Average pulp price
delivered to US –
US$6
|
$
|
980
|
$
|
943
|
$
|
962
|
$
|
980
|
$
|
988
|
|
Average price in
Cdn$6
|
$
|
1,263
|
$
|
1,295
|
$
|
1,279
|
$
|
1,205
|
$
|
1,220
|
|
Production – pulp (000
mt)7
|
|
279.6
|
|
321.8
|
|
601.4
|
|
294.6
|
|
582.4
|
|
Shipments – pulp (000
mt)7
|
|
287.2
|
|
319.1
|
|
606.3
|
|
291.9
|
|
564.0
|
|
Marketed on behalf of
Canfor7
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15.2
|
|
5
|
Amortization includes amortization of certain
capitalized major maintenance
costs.
|
|
6
|
Per tonne, NBSK pulp list price delivered to US (as
published by RISI); Average price in Cdn$ calculated as average
pulp price delivered to US – US$ multiplied by the average exchange
rate – C$ per US$1.00 according to Bank of Canada average noon rate
for the
period.
|
|
7
|
Pulp production and shipment volumes in 2015 include
BCTMP volumes subsequent to CPPI's purchase of the Taylor BCTMP
Mill on January 30, 2015 (see further discussion in the "Purchase
of Taylor Pulp Mill" section). Following the sale, CPPI no
longer markets any product on behalf of
Canfor.
|
|
|
Overview
Operating income for the pulp segment was $1.8 million for the second quarter, down
$31.2 million from the first quarter
of 2016 and down $16.3 million from
the same quarter in 2015.
The lower pulp segment results reflected scheduled maintenance
outages taken at all three NBSK pulp mills and, to a lesser extent,
isolated unplanned disruptions which reduced production by
approximately 40,000 tonnes compared to the previous quarter and,
after taking account of scheduled outages in the second quarter of
2015, reduced production by approximately 26,000 tonnes compared to
the same quarter in 2015. The pulp segment's lower operating
earnings also reflected a decline in NBSK pulp unit sales
realizations and lower energy revenues associated with fewer
operating days and seasonally lower energy prices. Offsetting
these factors somewhat were the benefits of lower unit fibre costs
and certain Scientific Research and Experimental Development
("SR&ED") tax credits recognized in the second quarter of
2016.
Positive pricing momentum in global softwood pulp markets during
the second quarter of 2016 was due in part to the impact of
industry spring maintenance outages and solid demand, particularly
from China. Pulp producer
inventories as of May 2016 were at 27
days of supply, a decrease of 3 days from March 20168. Market conditions
are generally considered balanced when inventories are in the 27-30
days of supply range.
Global shipments of bleached softwood pulp were up 3.6% for the
first five months of 2016 as compared to the same period in 2015,
driven primarily by increased shipments to China, and to a lesser extent North America.9
Sales
Total pulp shipments in the second quarter of 2016 were 287,200
tonnes, down 31,900 tonnes, or 10%, from the first quarter of 2016
and down 4,700 tonnes, or 2%, from the second quarter of
2015. Lower pulp shipments in the current quarter for the
most part reflected the lower NBSK pulp production. BCTMP
shipments made up approximately 21% of the current quarter's total
pulp shipments, up approximately 3% from the previous
quarter.
The average North American US-dollar NBSK pulp list price, as
published by RISI, was up US$37 per
tonne, or 4%, from the previous quarter while the average price to
China was up US$27 per tonne, or 5%. NBSK pulp unit
sales realization showed a modest decline compared to the first
quarter of 2016 as the US-dollar NBSK price increases and increased
sales to North America were
outweighed by a 5 cent, or 7%,
stronger Canadian dollar and a higher proportion of shipments at
the beginning of the second quarter when NBSK prices were
lower. BCTMP markets showed signs of improvement in the
second quarter of 2016 with US-dollar prices trending upwards
through the quarter but these increases were offset by the stronger
Canadian dollar.
|
8
|
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").
|
|
9
|
As reported PPPC
statistics.
|
|
|
Compared to the second quarter of 2015, the average North
American US-dollar pulp list price was unchanged while the average
price to China was down
US$58 per tonne. The Company's
average NBSK unit sales realizations were moderately lower than the
second quarter of 2015 as lower US-dollar prices to China and proportionately lower NBSK pulp
shipments to the higher-value North American market outweighed the
benefit of the weaker Canadian dollar and lower freight
costs. BCTMP unit sales realizations were well down from the
second quarter of 2015 reflecting lower US-dollar BCTMP prices
which more than offset the weaker Canadian dollar.
The contribution from the Company's energy business was down
compared to the previous quarter of 2016 reflecting lower power
generation due to the scheduled maintenance outages in the current
quarter and seasonally lower energy prices. Energy revenues
are anticipated to return to more normalized levels in the third
quarter of 2016.
Operations
Pulp production in the second quarter of 2016 at 279,600 tonnes
was down 42,200 tonnes, or 13%, from the first quarter of 2016 and
down 15,000 tonnes, or 5%, from the second quarter of 2015.
During the second quarter of 2016, the Company completed scheduled
maintenance outages at all three NBSK pulp mills which combined
with isolated unplanned disruptions reduced pulp production by
approximately 40,000 tonnes in the quarter. Major scheduled
maintenance outages were completed at the Northwood and
Intercontinental NBSK pulp mills while a minor scheduled
maintenance outage was completed at the Prince George NBSK pulp
mill. BCTMP production was in line with the previous quarter
and made up approximately 20% of the Company's total pulp
production during the second quarter of 2016. In the second
quarter of the prior year, the Company completed scheduled
maintenance outages at the Intercontinental and Prince George NBSK
pulp mills as well as the BCTMP Taylor pulp mill which reduced
total market pulp production by approximately 14,000 tonnes.
Pulp unit manufacturing costs were materially higher in the
current quarter principally reflecting costs associated with the
aforementioned maintenance outages. Fibre costs were down
slightly compared to the previous quarter largely reflecting lower
delivered costs for sawmill residual chips (linked to Canadian
dollar NBSK pulp sales realizations) and, to a lesser extent, a
lower proportion of higher-cost whole log chips purchased.
Offsetting these factors was a seasonal improvement in chip quality
which increased the price for sawmill residual chips.
Pulp unit manufacturing costs were broadly in line with the
second quarter of 2015 as lower fibre and energy costs offset the
incremental costs associated with the maintenance outages in the
current quarter. Fibre costs were down compared to the same
quarter in the prior year reflecting lower market prices for
delivered sawmill residual chips.
Paper
Selected Financial Information and
Statistics – Paper
|
|
Q2
|
|
Q1
|
|
YTD
|
|
Q2
|
|
YTD
|
|
(millions of Canadian
dollars unless otherwise
noted)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Sales
|
$
|
45.5
|
$
|
45.2
|
$
|
90.7
|
$
|
42.0
|
$
|
82.6
|
|
Operating income before
amortization10
|
$
|
6.4
|
$
|
9.9
|
$
|
16.3
|
$
|
6.5
|
$
|
15.3
|
|
Operating
income
|
$
|
5.5
|
$
|
8.9
|
$
|
14.4
|
$
|
5.7
|
$
|
13.6
|
|
Production – paper (000
mt)
|
|
32.1
|
|
35.3
|
|
67.4
|
|
31.0
|
|
66.4
|
|
Shipments – paper (000
mt)
|
|
38.5
|
|
34.9
|
|
73.4
|
|
33.8
|
|
65.9
|
|
10
|
Amortization includes
amortization of certain capitalized major maintenance
costs.
|
|
|
Overview
Operating income for the paper segment at $5.5 million for the second quarter of 2016 was
down $3.4 million from the previous
quarter and broadly in line with the same quarter of 2015.
The lower earnings in the current quarter were attributable to
lower unit sales realizations as a result of the
strengthening Canadian dollar and, to a lesser extent, a
lower-value regional sales mix coupled with the impact of a five
day scheduled maintenance outage in the quarter. Offsetting
these factors were increased total shipment volumes and lower
prices for slush pulp in the second quarter of 2016. Compared
to the second quarter of 2015, the benefit of a weaker Canadian
dollar, lower prices for slush pulp and higher shipment volumes
offset lower US-dollar kraft paper prices in the current
quarter.
Markets
Kraft paper demand was stable through the second quarter of 2016
and sales order files were healthy through the quarter due in part
to downtime taken at several North American facilities.
Sales
The Company's paper shipments in the second quarter of 2016 at
38,500 tonnes were up 3,600 tonnes, or 10%, from first quarter of
2016 and up 4,700 tonnes, or 14%, from the same quarter in
2015. The increase in paper shipments from both comparative
periods was largely the result of higher volumes sold to
China and Canada in the current quarter. Paper
shipments outpaced production by 6,400 tonnes due to the
aforementioned scheduled maintenance outage at the Company's kraft
paper operation in the current quarter, resulting in a
corresponding drawdown in finished kraft paper inventory
levels.
Paper unit sales realizations in the second quarter of 2016 were
significantly lower than the previous quarter reflecting the
5 cent, or 7%, strengthening of the
Canadian dollar and, to a lesser extent, proportionately higher
shipments to China in the current
quarter. Compared to the same quarter in 2015, paper unit
sales realizations were moderately lower as lower US-dollar kraft
paper prices and proportionately lower shipments to the North
American market were partly offset by a weaker Canadian dollar.
Operations
Paper production for the second quarter of 2016 at 32,100 tonnes
was down 3,200 tonnes from the first quarter of 2016 and was up
1,100 tonnes from the same quarter in 2015. The decrease in
paper production volume from the previous quarter was largely due
to the aforementioned five-day scheduled maintenance outage during
the current quarter. No maintenance outages occurred in the
first quarter of 2016 while a nine-day scheduled maintenance outage
in the second quarter of 2015 reduced paper production by
approximately 3,300 tonnes in that period.
Paper unit manufacturing costs were relatively flat compared to
the first quarter of 2016 as lower prices for slush pulp were
offset by costs associated with the scheduled maintenance outage in
the current quarter. Compared to the second quarter of 2015,
paper unit manufacturing costs were slightly lower principally
reflecting lower slush pulp costs.
Unallocated Items
Selected Financial
Information
|
|
Q2
|
|
Q1
|
|
YTD
|
|
Q2
|
|
YTD
|
|
(millions of Canadian
dollars)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Corporate
costs
|
$
|
(2.1)
|
$
|
(2.8)
|
$
|
(4.9)
|
$
|
(2.9)
|
$
|
(5.7)
|
|
Finance expense,
net
|
$
|
(1.5)
|
$
|
(1.6)
|
$
|
(3.1)
|
$
|
(1.3)
|
$
|
(2.6)
|
|
Gain (loss) on derivative
financial
instruments
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
4.6
|
$
|
(4.8)
|
|
Other income (expense),
net
|
$
|
0.5
|
$
|
(6.6)
|
$
|
(6.1)
|
$
|
(0.6)
|
$
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
Corporate costs at $2.1 million
for the second quarter of 2016 were lower than both comparative
periods principally reflecting the recognition of carbon offset
credits as well as lower overhead costs in the quarter.
Net finance expense for the second quarter of 2016 at
$1.5 million was broadly in line with
both comparative periods and relates primarily to interest expense
associated with Company's employee future benefit plans and term
debt.
The Company uses a variety of derivative financial instruments
as partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs, interest rates and pulp prices.
In the second quarter of 2016, the Company had no derivative
financial instruments outstanding. A gain of $4.6 million in the second quarter of 2015,
related to unrealized mark-to-market gains on US dollar foreign
exchange collars.
Other income of $0.5 million in
the second quarter of 2016 principally reflected foreign exchange
movements on US dollar denominated working capital balances.
In the previous quarter, the Company recorded a $6.6 million dollar exchange loss on working
capital as a result of the strengthening of the Canadian dollar.
Other Comprehensive Income (Loss)
In the second quarter of 2016, the Company recorded an after-tax
loss of $9.4 million in relation to
changes in the valuation of the Company's employee future benefit
plans. Compared to the first quarter of 2016, the loss principally
reflected a 0.5% decrease in the discount rate used to value the
employee future benefit plans offset by the return generated on
plan assets. This compared to an after-tax loss of
$3.5 million in the previous quarter
and an after-tax gain $4.5 million in
the second quarter of 2015.
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:
|
|
Q2
|
|
Q1
|
|
YTD
|
|
Q2
|
|
YTD
|
|
(millions of Canadian
dollars, except for
ratios)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Increase (decrease) in cash
and cash
equivalents
|
$
|
2.2
|
$
|
5.3
|
$
|
7.5
|
$
|
5.7
|
$
|
12.9
|
|
Operating
activities
|
$
|
48.5
|
$
|
28.3
|
$
|
76.8
|
$
|
30.5
|
$
|
70.1
|
|
Financing
activities
|
$
|
(24.2)
|
$
|
(10.1)
|
$
|
(34.3)
|
$
|
(12.3)
|
$
|
(18.9)
|
|
Investing
activities
|
$
|
(22.1)
|
$
|
(12.9)
|
$
|
(35.0)
|
$
|
(12.5)
|
$
|
(38.3)
|
|
Ratio of current assets to
current
liabilities
|
|
|
|
|
|
2.2 :
1
|
|
|
|
2.5 :
1
|
|
Net debt to
capitalization
|
|
|
|
|
|
5.2%
|
|
|
|
(8.3)%
|
|
ROIC – Consolidated
period-to-date
|
|
0.8%
|
|
4.8%
|
|
5.7%
|
|
3.0%
|
|
10.1%
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Financial Position
Cash generated from operating activities was $48.5 million in the second quarter of 2016, up
$20.2 million from the previous
quarter and $18.0 million from
the second quarter of 2015. The increase in operating cash
flows principally resulted from favourable movements in non-cash
working capital balances partly offset by lower cash earnings in
the second quarter of 2016 with the aforementioned scheduled
maintenance outages contributing to lower trade accounts receivable
and finished inventories at the end of the quarter.
Cash used for financing activities was $24.2 million in the second quarter of 2016, up
$14.1 million from the previous
quarter and up $11.9 million from the
second quarter of 2015, largely due to increased share purchases
under the Company's Normal Course Issuer Bid. During the
current quarter, the Company purchased 1,839,831 common shares for
$19.5 million (see further discussion
of the shares purchased under the normal course issuer bid in the
following "Liquidity and Financial Requirements" section).
Cash used for financing activities in the current period included
payment of a quarterly dividend for $4.3
million ($0.0625 per
share). Interest paid during the quarter was $0.5 million and was broadly in line with
both comparative periods. No amounts were drawn against the
Company's operating loan facility at the end of the second quarter
of 2016.
Cash used for investing activities of $22.1 million in the current quarter
primarily related to capital expenditures associated with several
capital projects including energy, maintenance of business and
improvement projects. Also included in cash used for
investing activities is a $3.5
million investment in Ignite Energy Resources associated
with formation of the Licella Joint Venture (see further discussion
in the following "Licella Pulp Joint Venture" section).
Liquidity and Financial Requirements
At June 30, 2016, CPPI had cash of
$25.0 million and an undrawn
$110.0 million bank loan facility
with a maturity date of January 31,
2019. The Company's $20.0
million facility to cover letters of credit expired on
June 30, 2016 and was not extended.
On June 30, 2016, $6.1 million of letters of credit covered under
the expired facility were transferred to the general operating loan
facility and combined with $3.0
million already outstanding under the general operating loan
facility.
CPPI has $50.0 million of floating
interest rate term debt, repayable in November 2018.
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, 2016, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 3,446,139 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2016. The renewed normal course issuer
bid is set to expire on March 6,
2017. During the second quarter of 2016, CPPI purchased
1,839,831 common shares for $19.5
million (an average of $10.60
per common share). Cash payments for share purchases in the
second quarter of 2016 were $19.4
million with the additional $0.1
million paid at the beginning of July. As at
July 26, 2016, Canfor's ownership
interest in CPPI was 53.6%. The Company may purchase more shares
through the balance of 2016 subject to the terms of the normal
course issuer bid.
Dividends
On July 26, 2016, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on August 16, 2016 to the shareholders of record on
August 9, 2016.
Licella Pulp Joint Venture
On May 27, 2016, CPPI and Licella
Fibre Fuel Pty Ltd. ("Licella") agreed to form a joint venture
under the name Licella Pulp Joint Venture to investigate
opportunities to integrate Licella's Catalytic Hydrothermal Reactor
platform into CPPI's pulp mills with the objective of economically
converting biomass into biofuels and biochemicals.
Licella is a subsidiary of Ignite Energy Resources Ltd. ("IER")
an Australian energy technology development company. In conjunction
with the joint venture agreement, CPPI provided a $7.0 million convertible credit facility to IER,
which matures on June 21,
2019. The advances on this credit facility are convertible, at
CPPI's option, into common shares of IER.
During the second quarter of 2016, CPPI advanced $3.5 million to IER and exercised its option to
convert the amount advanced into common shares of IER.
The remaining credit facility balance of $3.5 million is anticipated to be advanced to IER
during the fourth quarter of 2016.
Purchase of Taylor Pulp Mill
On January 30, 2015, CPPI
completed the purchase of the Taylor pulp mill from Canfor for cash
consideration of $12.6 million
including working capital. The acquisition also included a
long-term fibre supply agreement under which Canfor will supply the
Taylor pulp mill with fibre at
prices that approximate fair market value. In addition to the cash
consideration paid on the acquisition date, CPPI may also pay
contingent consideration to Canfor, based on the Taylor pulp mill's annual adjusted operating
income before amortization over a three year period, starting
January 31, 2015. On the
acquisition date, the fair value of the contingent consideration
was $1.8 million and was recorded as
a long-term provision. CPPI recognized long-term assets
acquired net of liabilities assumed at a fair value of $2.8 million and net working capital of
$11.6 million. The acquisition was
accounted for in accordance with IFRS 3, Business
Combinations.
If the acquisition had occurred on January 1, 2015, CPPI's consolidated 2015 sales
would have increased by approximately $8.9
million and consolidated 2015 net income would have
increased by approximately $0.2
million. The Taylor pulp
mill's results are recorded in the pulp segment.
In 2015, CPPI reversed the $1.8
million contingent consideration provision resulting in a
gain recorded to Other Income to reflect lower forecast BCTMP
prices over the contingent consideration period. The fair value of
the contingent consideration provision was nil at June 30, 2016.
OUTLOOK
Pulp Markets
Global softwood markets are balanced heading into the seasonally
slower summer months. With inventories at the low end of the
balanced range and market demand stable, it is anticipated that
current pricing will be supported through the third quarter of
2016. Looking towards the end of 2016 and into 2017, there
continues to be a risk of downward pressure on pricing due in part
to previously announced new pulp capacity forecast to come online
in the latter part of 2016. For the month of July 2016, the Company announced NBSK pulp list
prices of US$1,000 per tonne in
North America unchanged from
June 2016.
The Prince George NBSK pulp mill has a maintenance outage
scheduled for the third quarter of 2016 with projected reduced
production of approximately 4,000 tonnes and the Taylor BCTMP mill
will complete a maintenance outage in the fourth quarter of 2016
with projected reduced production of approximately 8,000
tonnes.
Paper Markets
North American kraft paper markets are projected to remain
steady through the third quarter of 2016. Heading into the
fourth quarter of 2016 there is potential price pressure as global
demand for sack kraft has not yet shown signs of
rebounding.
The kraft paper machine has a maintenance outage scheduled for
the third quarter of 2016 with projected reduced production of
approximately 3,500 tonnes.
OUTSTANDING SHARES
At July 26, 2016, there were
66,699,368 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 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.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended June 30,
2016, 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 2015 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
|
Q1
2015
|
|
Q4
2014
|
|
Q3
2014
|
|
Sales and
income
(millions of Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
257.2
|
$
|
295.3
|
$
|
330.8
|
$
|
294.1
|
$
|
276.0
|
$
|
273.8
|
$
|
264.0
|
$
|
237.6
|
|
Operating income before
amortization11
|
$
|
22.1
|
$
|
57.8
|
$
|
56.2
|
$
|
58.7
|
$
|
36.4
|
$
|
57.1
|
$
|
43.2
|
$
|
47.7
|
|
Operating
income
|
$
|
5.2
|
$
|
39.1
|
$
|
38.6
|
$
|
42.3
|
$
|
20.9
|
$
|
41.4
|
$
|
28.0
|
$
|
31.4
|
|
Net
income
|
$
|
2.2
|
$
|
23.1
|
$
|
29.7
|
$
|
31.2
|
$
|
17.7
|
$
|
28.0
|
$
|
20.7
|
$
|
24.3
|
|
Per common share
(Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – basic and
diluted
|
$
|
0.03
|
$
|
0.34
|
$
|
0.43
|
$
|
0.45
|
$
|
0.25
|
$
|
0.40
|
$
|
0.29
|
$
|
0.34
|
|
Book
value12
|
$
|
6.88
|
$
|
7.15
|
$
|
6.96
|
$
|
6.65
|
$
|
7.40
|
$
|
7.17
|
$
|
6.92
|
$
|
6.86
|
|
Dividends
declared13
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
1.1875
|
$
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
|
Common Share
Repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share volume repurchased
(000 shares)
|
|
1,840
|
|
413
|
|
693
|
|
557
|
|
138
|
|
490
|
|
-
|
|
178
|
|
Shares repurchased
(millions of Canadian dollars)
|
$
|
19.5
|
|
4.9
|
$
|
9.7
|
$
|
6.9
|
$
|
2.0
|
$
|
7.0
|
$
|
-
|
$
|
2.0
|
|
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp shipments (000
mt)
|
|
287.2
|
|
319.1
|
|
356.2
|
|
307.4
|
|
291.9
|
|
272.1
|
|
258.6
|
|
240.5
|
|
Paper shipments (000
mt)
|
|
38.5
|
|
34.9
|
|
35.4
|
|
32.1
|
|
33.8
|
|
32.1
|
|
35.8
|
|
35.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate –
US$/Cdn$
|
$
|
0.776
|
$
|
0.728
|
$
|
0.749
|
$
|
0.764
|
$
|
0.813
|
$
|
0.806
|
$
|
0.881
|
$
|
0.918
|
|
Average NBSK pulp list
price delivered to US
(US$)
|
$
|
980
|
$
|
943
|
$
|
945
|
$
|
967
|
$
|
980
|
$
|
995
|
$
|
1,025
|
$
|
1,030
|
|
11
|
Amortization includes
certain capitalized major maintenance
costs.
|
|
12
|
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.
|
|
13
|
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)
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
|
Q1
2015
|
|
Q4
2014
|
|
Q3
2014
|
|
Net income, as
reported
|
$
|
2.2
|
$
|
23.1
|
$
|
29.7
|
$
|
31.2
|
$
|
17.7
|
$
|
28.0
|
$
|
20.7
|
$
|
24.3
|
|
(Gain) loss on derivative
financial
instruments
|
$
|
-
|
$
|
-
|
$
|
(0.7)
|
$
|
3.6
|
$
|
(3.4)
|
$
|
7.0
|
$
|
0.6
|
$
|
0.2
|
|
Mark-to market gain on
Taylor
Pulp
contingent
consideration14
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1.3)
|
$
|
-
|
$
|
-
|
$
|
-
|
|
Net impact of above
items
|
$
|
-
|
$
|
-
|
$
|
(0.7)
|
$
|
3.6
|
$
|
(4.7)
|
$
|
7.0
|
$
|
0.6
|
$
|
0.2
|
|
Adjusted net
income
|
$
|
2.2
|
$
|
23.1
|
$
|
29.0
|
$
|
34.8
|
$
|
13.0
|
$
|
35.0
|
$
|
21.3
|
$
|
24.5
|
|
Net income per share
(EPS), as
reported
|
$
|
0.03
|
$
|
0.34
|
$
|
0.43
|
$
|
0.45
|
$
|
0.25
|
$
|
0.40
|
$
|
0.29
|
$
|
0.34
|
|
Net impact of above items
per
share15
|
$
|
-
|
$
|
-
|
$
|
(0.01)
|
$
|
0.05
|
$
|
(0.07)
|
$
|
0.10
|
$
|
0.01
|
$
|
-
|
|
Adjusted net income per
share
|
$
|
0.03
|
$
|
0.34
|
$
|
0.42
|
$
|
0.50
|
$
|
0.18
|
$
|
0.50
|
$
|
0.30
|
$
|
0.34
|
|
14
|
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
(see further discussion in the "Purchase of Taylor Pulp Mill"
section).
|
|
15
|
The year-to-date net impact
of the adjusting items per share and adjusted net income per share
does 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
June
30,
2016
|
As
at
December
31,
2015
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
25.0
|
$
|
17.5
|
|
Accounts
receivable
|
-
Trade
|
|
|
83.0
|
|
101.8
|
|
-
Other
|
|
|
14.8
|
|
17.5
|
|
Inventories (Note
2)
|
|
|
168.2
|
|
163.8
|
|
Prepaid
expenses
|
|
|
8.2
|
|
7.5
|
|
Total current
assets
|
|
|
299.2
|
|
308.1
|
|
Property, plant and
equipment
|
|
|
524.4
|
|
532.3
|
|
Other long-term
assets
|
|
|
4.4
|
|
0.9
|
|
Total
assets
|
|
$
|
828.0
|
$
|
841.3
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued
liabilities
|
|
$
|
136.7
|
$
|
144.2
|
|
Total current
liabilities
|
|
|
136.7
|
|
144.2
|
|
Long-term
debt
|
|
|
50.0
|
|
50.0
|
|
Retirement benefit
obligations (Note
4)
|
|
|
112.2
|
|
93.0
|
|
Other long-term
provisions
|
|
|
6.6
|
|
6.2
|
|
Deferred income taxes,
net
|
|
|
63.4
|
|
68.2
|
|
Total
liabilities
|
|
$
|
368.9
|
$
|
361.6
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
Share
capital
|
|
$
|
491.6
|
$
|
508.2
|
|
Retained earnings
(deficit)
|
|
|
(32.5)
|
|
(28.5)
|
|
Total
equity
|
|
$
|
459.1
|
$
|
479.7
|
|
Total liabilities and
equity
|
|
$
|
828.0
|
$
|
841.3
|
|
|
|
|
|
|
|
Subsequent Event
(Note
13)
|
|
The accompanying notes are
an integral part of these condensed consolidated interim financial
statements.
|
|
|
"S.E.
Bracken-Horrocks"
Director, S.E.
Bracken-Horrocks
|
"M.J. Korenberg"
Director, M.J.
Korenberg
|
|
|
|
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Income
|
|
3 months ended June
30,
|
|
6 months ended June
30,
|
|
(millions of Canadian
dollars, except per share data,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
257.2
|
$
|
276.0
|
$
|
552.5
|
$
|
549.8
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
Manufacturing and product
costs
|
|
190.4
|
|
191.5
|
|
378.2
|
|
362.6
|
|
Freight and other
distribution
costs
|
|
38.0
|
|
41.5
|
|
80.5
|
|
79.6
|
|
Amortization
|
|
16.9
|
|
15.5
|
|
35.6
|
|
31.2
|
|
Selling and administration
costs
|
|
6.7
|
|
6.6
|
|
13.9
|
|
14.1
|
|
|
252.0
|
|
255.1
|
|
508.2
|
|
487.5
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
5.2
|
|
20.9
|
|
44.3
|
|
62.3
|
|
|
|
|
|
|
|
|
|
|
Finance expense,
net
|
|
(1.5)
|
|
(1.3)
|
|
(3.1)
|
|
(2.6)
|
|
Gain (loss) on derivative
financial instruments (Note
5)
|
|
-
|
|
4.6
|
|
-
|
|
(4.8)
|
|
Other income (expense),
net
|
|
0.5
|
|
(0.6)
|
|
(6.1)
|
|
6.4
|
|
Net income before income
taxes
|
|
4.2
|
|
23.6
|
|
35.1
|
|
61.3
|
|
Income tax expense (Note
6)
|
|
(2.0)
|
|
(5.9)
|
|
(9.8)
|
|
(15.6)
|
|
Net
income
|
$
|
2.2
|
$
|
17.7
|
$
|
25.3
|
$
|
45.7
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share: (in Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
Attributable to equity
shareholders of the
Company
|
|
|
|
|
|
|
|
|
|
-
|
Basic and diluted (Note
7)
|
$
|
0.03
|
$
|
0.25
|
$
|
0.37
|
$
|
0.65
|
|
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 June
30,
|
|
6 months ended June
30,
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
2.2
|
$
|
17.7
|
$
|
25.3
|
$
|
45.7
|
|
Other comprehensive
income
(loss)
|
|
|
|
|
|
|
|
|
|
Items that will not be
recycled through net
income:
|
|
|
|
|
|
|
|
|
|
Defined benefit pension
plan actuarial gains (losses) (Note
4)
|
|
(12.8)
|
|
6.1
|
|
(17.5)
|
|
3.1
|
|
Income tax recovery
(expense) on defined benefit
pension
plan actuarial gains
(losses) (Note
6)
|
|
3.4
|
|
(1.6)
|
|
4.6
|
|
(0.8)
|
|
Other comprehensive income
(loss), net of
tax
|
|
(9.4)
|
|
4.5
|
|
(12.9)
|
|
2.3
|
|
Total comprehensive
income
(loss)
|
$
|
(7.2)
|
$
|
22.2
|
$
|
12.4
|
$
|
48.0
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Changes in
Equity
|
|
|
|
|
|
|
|
|
|
|
3 months ended June
30,
|
|
6
months ended June
30,
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period
|
$
|
505.2
|
$
|
518.5
|
$
|
508.2
|
$
|
522.1
|
|
Share purchases (Note
7)
|
|
(13.6)
|
|
(1.0)
|
|
(16.6)
|
|
(4.6)
|
|
Balance at end of
period
|
$
|
491.6
|
$
|
517.5
|
$
|
491.6
|
$
|
517.5
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
(deficit)
|
|
|
|
|
|
|
|
|
|
Balance at beginning of
period
|
$
|
(15.1)
|
$
|
(14.5)
|
$
|
(28.5)
|
$
|
(32.5)
|
|
Net
income
|
2.2
|
|
17.7
|
|
25.3
|
|
45.7
|
|
Defined benefit pension
plan actuarial gains (losses), net of
tax
|
|
(9.4)
|
|
4.5
|
|
(12.9)
|
|
2.3
|
|
Dividends
declared
|
|
(4.3)
|
|
(4.4)
|
|
(8.6)
|
|
(8.8)
|
|
Share purchases (Note
7)
|
|
(5.9)
|
|
(1.0)
|
|
(7.8)
|
|
(4.4)
|
|
Balance at end of
period
|
$
|
(32.5)
|
$
|
2.3
|
$
|
(32.5)
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
$
|
459.1
|
$
|
519.8
|
$
|
459.1
|
$
|
519.8
|
|
|
|
|
|
|
|
|
|
|
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 June
30,
|
6
months ended June
30,
|
|
(millions of Canadian dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash generated from
(used
in):
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
2.2
|
$
|
17.7
|
$
|
25.3
|
$
|
45.7
|
|
Items not affecting
cash:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
16.9
|
|
15.5
|
|
35.6
|
|
31.2
|
|
|
Income tax
expense
|
|
2.0
|
|
5.9
|
|
9.8
|
|
15.6
|
|
|
Changes in mark-to-market value of derivative
financial
|
|
|
|
|
|
|
|
|
|
|
instruments
|
|
-
|
|
(6.1)
|
|
-
|
|
0.9
|
|
|
Employee future
benefits
|
|
1.2
|
|
1.4
|
|
2.5
|
|
2.8
|
|
|
Finance expense,
net
|
|
1.5
|
|
1.3
|
|
3.1
|
|
2.6
|
|
|
Other,
net
|
|
(3.2)
|
|
0.4
|
|
(1.8)
|
|
(0.7)
|
|
Defined benefit pension plan contributions,
net
|
|
(1.4)
|
|
(1.3)
|
|
(2.6)
|
|
(1.7)
|
|
Income taxes paid,
net
|
|
(2.6)
|
|
(3.2)
|
|
(14.2)
|
|
(15.7)
|
|
|
16.6
|
|
31.6
|
|
57.7
|
|
80.7
|
|
Net change in non-cash working capital (Note
8)
|
|
31.9
|
|
(1.1)
|
|
19.1
|
|
(10.6)
|
|
|
48.5
|
|
30.5
|
|
76.8
|
|
70.1
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Finance expenses
paid
|
|
(0.5)
|
|
(0.6)
|
|
(1.3)
|
|
(1.1)
|
|
Dividends
paid
|
|
(4.3)
|
|
(4.4)
|
|
(8.6)
|
|
(8.8)
|
|
Share purchases (Note
7)
|
|
(19.4)
|
|
(7.3)
|
|
(24.4)
|
|
(9.0)
|
|
|
(24.2)
|
|
(12.3)
|
|
(34.3)
|
|
(18.9)
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment,
net
|
|
(18.6)
|
|
(12.8)
|
|
(31.7)
|
|
(26.2)
|
|
Acquisition of Taylor pulp mill (Note
12)
|
|
-
|
|
-
|
|
-
|
|
(12.6)
|
|
Other,
net
|
|
(3.5)
|
|
0.3
|
|
(3.3)
|
|
0.5
|
|
|
(22.1)
|
|
(12.5)
|
|
(35.0)
|
|
(38.3)
|
|
Increase in cash and
cash
equivalents*
|
|
2.2
|
|
5.7
|
|
7.5
|
|
12.9
|
|
Cash and cash equivalents
at beginning of
period*
|
|
22.8
|
|
84.0
|
|
17.5
|
|
76.8
|
|
Cash and cash
equivalents at end of
period*
|
$
|
25.0
|
$
|
89.7
|
$
|
25.0
|
$
|
89.7
|
|
|
|
|
|
|
|
|
|
|
*Cash and cash
equivalents include cash on hand less unpresented
cheques.
|
|
The accompanying notes are
an integral part of these condensed consolidated interim financial
statements.
|
Canfor Pulp Products Inc.
Notes to the Condensed
Consolidated Financial Statements
Three and six months ended
June 30, 2016 and 2015
(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 July 26, 2016, Canfor Corporation ("Canfor") held
a 53.6% 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,
2015, available at www.canfor.com or www.sedar.com.
These financial statements were authorized for issue by the
Company's Board of Directors on July 26,
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. Inventories
|
(millions of Canadian
dollars,
unaudited)
|
|
As
at
June
30,
2016
|
|
As
at
December
31,
2015
|
|
Pulp
|
$
|
69.1
|
$
|
71.2
|
|
Paper
|
|
16.1
|
|
20.9
|
|
Wood chips and
logs
|
|
31.1
|
|
21.9
|
|
Materials and
supplies
|
|
51.9
|
|
49.8
|
|
$
|
168.2
|
$
|
163.8
|
|
|
|
|
|
The above inventory balances are stated after inventory
write-downs from cost to net realizable value. Write-downs at
June 30, 2016 totaled $0.6 million (December 31,
2015 - $0.5 million).
3. Operating Loans
Available Operating Loans
|
(millions of Canadian
dollars,
unaudited)
|
|
As
at
June
30,
2016
|
|
As
at
December
31,
2015
|
|
Operating loan
facility
|
$
|
110.0
|
$
|
110.0
|
|
Facility for letters of
credit
|
|
-
|
|
20.0
|
|
Total operating loan
facility
|
|
110
.0
|
|
130.0
|
|
Letters of
credit
|
|
(9.1)
|
|
(13.0)
|
|
Total available operating
loan facility
|
$
|
100.9
|
$
|
117.0
|
|
|
|
|
|
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. In 2015, the maturity date of
this facility was extended to January 31,
2019 and the minimum net worth financial covenant, which was
based on shareholders' equity, was removed.
CPPI had a separate facility to cover letters of credit, which
expired on June 30, 2016 and was not
extended. On June 30, 2016, the
$6.1 million of letters of credit
covered under the expired facility were transferred to the general
operating loan facility and combined with the $3.0 million of letters of credit already
outstanding under the general operating loan facility.
As at June 30, 2016, the Company
was in compliance with all covenants relating to its operating
loans.
4. Employee Future Benefits
For the three months ended June 30,
2016, defined benefit pension plan actuarial losses of
$12.8 million (before tax) were
recognized in other comprehensive income (loss). The losses
recorded in the second quarter of 2016 principally reflect a lower
discount rate used to value the net defined benefit pension plan
obligations offset by the return generated on plan assets. For the
six months ended June 30, 2016, an
amount of $17.5 million (before tax)
was charged to other comprehensive income (loss). For the three and
six months ended June 30, 2015, the
Company recognized before tax actuarial gains in other
comprehensive income (loss) of $6.1
million and $3.1 million,
respectively.
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 would decrease the
accrued benefit obligation by an estimated $26.3 million.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
Pension
Benefit
Plans
|
Other
Benefit
Plans
|
|
|
|
|
|
June 30,
2016
|
|
|
|
3.5%
|
|
3.5%
|
|
March 31,
2016
|
|
|
|
4.0%
|
|
4.0%
|
|
December 31,
2015
|
|
|
|
4.1%
|
|
4.1%
|
|
June 30,
2015
|
|
|
|
3.9%
|
|
3.9%
|
|
March 31,
2015
|
|
|
|
3.6%
|
|
3.6%
|
|
December 31,
2014
|
|
|
|
3.9%
|
|
3.9%
|
|
|
|
|
|
|
|
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 June
30, 2016, the fair value of the Company's long-term debt
approximates its amortized cost of $50.0
million (December 31, 2015 -
$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.
The Company uses a variety of derivative financial instruments,
which are included in Level 2 of the fair value hierarchy, 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 June 30, 2016 and December
31, 2015, the Company had no derivative financial
instruments outstanding.
The following table summarizes the gain (loss) on derivative
financial instruments for the three and six-month periods ended
June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months ended June
30,
|
|
6 months ended June
30,
|
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
collars
|
$
|
-
|
$
|
4.0
|
$
|
-
|
$
|
(5.0)
|
|
|
Crude oil
collars
|
|
-
|
|
0.6
|
|
-
|
|
0.2
|
|
|
Gain (loss) on derivative
financial
instruments
|
$
|
-
|
$
|
4.6
|
$
|
-
|
$
|
(4.8)
|
|
|
|
|
|
|
|
|
|
|
|
6. Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
3 months ended June
30,
|
|
6 months ended June
30,
|
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
-
|
$
|
(3.5)
|
$
|
(10.0)
|
$
|
(16.2)
|
|
|
Deferred
|
|
(2.0)
|
|
(2.4)
|
|
0.2
|
|
0.6
|
|
|
Income tax
expense
|
$
|
(2.0)
|
$
|
(5.9)
|
$
|
(9.8)
|
$
|
(15.6)
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months
ended June
30,
|
6 months ended June
30,
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Income tax expense at
statutory
rate 2016
– 26.0% (2015 –
26.0%)
|
$
|
(1.1)
|
$
|
(6.1)
|
$
|
(9.1)
|
$
|
(15.9)
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
Entities with different
income tax rates and other tax adjustments
|
|
(0.9)
|
|
0.2
|
|
(0.7)
|
|
0.3
|
|
Income tax
expense
|
$
|
(2.0)
|
$
|
(5.9)
|
$
|
(9.8)
|
$
|
(15.6)
|
|
|
|
|
|
|
|
|
|
In addition to the amounts recorded to net income, a tax
recovery of $3.4 million was recorded
in other comprehensive income (loss) for the three months ended
June 30, 2016 (three months ended
June 30, 2015 - tax expense of
$1.6 million) in relation to the
actuarial gains (losses) on defined benefit employee compensation
plans. For the six month period ended June
30, 2016, a tax recovery of $4.6
million was recorded in other comprehensive income (loss)
(six months ended June 30, 2015 - tax
expense of $0.8 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 June
30,
|
6 months ended June
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Weighted average number of
common
shares
|
67,815,261
|
70,262,911
|
68,340,408
|
70,533,749
|
|
|
|
|
|
On March 7, 2016, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 3,446,139 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2016. The renewed normal course issuer
bid is set to expire on March 6,
2017. During the second quarter of 2016, CPPI purchased
1,839,831 common shares for $19.5
million (an average of $10.60
per common share), of which $13.6
million was charged to share capital and $5.9 million was charged to retained earnings. As
at July 26, 2016, there were
66,699,368 common shares of the Company outstanding and Canfor's
ownership interest in CPPI was 53.6%.
8. Net Change in Non-Cash Working Capital
|
3 months ended June
30,
|
6 months ended June
30,
|
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
Accounts
receivable
|
$
|
18.0
|
$
|
(0.8)
|
$
|
20.5
|
$
|
(15.6)
|
|
|
Inventories
|
|
5.4
|
|
2.9
|
|
(4.5)
|
|
(10.3)
|
|
|
Prepaid expenses and other
assets
|
|
0.4
|
|
0.4
|
|
(0.7)
|
|
6.1
|
|
|
Accounts payable and
accrued
liabilities
|
|
8.1
|
|
(3.6)
|
|
3.8
|
|
9.2
|
|
|
Net decrease (increase) in
non-cash working
capital
|
$
|
31.9
|
$
|
(1.1)
|
$
|
19.1
|
$
|
(10.6)
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
(millions of Canadian
dollars,
unaudited)
|
|
Pulp
|
Paper
|
Unallocated
|
Elimination
Adjustment
|
Consolidated
|
|
3 months ended June 30,
2016
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
210.6
|
45.5
|
1.1
|
-
|
$
|
257.2
|
|
Sales to other
segments
|
$
|
19.9
|
-
|
-
|
(19.9)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
1.8
|
5.5
|
(2.1)
|
-
|
$
|
5.2
|
|
Amortization
|
$
|
16.0
|
0.9
|
-
|
-
|
$
|
16.9
|
|
Capital
expenditures1
|
$
|
18.3
|
0.3
|
-
|
-
|
$
|
18.6
|
|
3 months ended June 30,
2015
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
234.0
|
42.0
|
-
|
-
|
$
|
276.0
|
|
Sales to other
segments
|
$
|
21.0
|
-
|
-
|
(21.0)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
18.1
|
5.7
|
(2.9)
|
-
|
$
|
20.9
|
|
Amortization
|
$
|
14.7
|
0.8
|
-
|
-
|
$
|
15.5
|
|
Capital
expenditures1
|
$
|
9.7
|
3.1
|
-
|
-
|
$
|
12.8
|
|
|
|
|
|
|
|
|
6 months ended June 30,
2016
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
460.4
|
90.7
|
1.4
|
-
|
$
|
552.5
|
|
Sales to other
segments
|
$
|
42.7
|
-
|
-
|
(42.7)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
34.8
|
14.4
|
(4.9)
|
-
|
$
|
44.3
|
|
Amortization
|
$
|
33.7
|
1.9
|
-
|
-
|
$
|
35.6
|
|
Capital
expenditures1
|
$
|
31.2
|
0.5
|
-
|
-
|
$
|
31.7
|
|
Identifiable
assets
|
$
|
729.7
|
59.0
|
39.3
|
-
|
$
|
828.0
|
|
6 months ended June 30,
2015
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
465.7
|
82.6
|
1.5
|
-
|
$
|
549.8
|
|
Sales to other
segments
|
$
|
45.9
|
-
|
-
|
(45.9)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
54.4
|
13.6
|
(5.7)
|
-
|
$
|
62.3
|
|
Amortization
|
$
|
29.5
|
1.7
|
-
|
-
|
$
|
31.2
|
|
Capital
expenditures1
|
$
|
22.4
|
3.8
|
-
|
-
|
$
|
26.2
|
|
Identifiable
assets
|
$
|
712.3
|
62.3
|
99.7
|
-
|
$
|
874.3
|
|
1
|
Capital expenditures
represent cash paid for capital assets during the periods and
include capital expenditures that were partially financed by
government grants. Capital expenditures for the three and six
months ended June 30, 2015 exclude the assets purchased as part of
the acquisition of the Taylor pulp mill (Note
12).
|
|
|
10. Related Party Transactions
For the six months ended June 30,
2016, the Company depended on Canfor to provide
approximately 64% (six months ended June 30,
2015 - 60%) 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, 2015 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 June
30,
|
6 months ended June
30,
|
|
(millions of Canadian
dollars,
unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
Purchase of wood chips and
other
|
$
|
35.9
|
$
|
38.4
|
$
|
81.9
|
$
|
76.3
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian
dollars,
unaudited)
|
As
at
June 30,
2016
|
As
at
December 31,
2015
|
|
Balance
Sheet
|
|
|
|
|
|
Included in accounts
payable and accrued
liabilities:
|
$
|
10.2
|
$
|
15.6
|
|
|
|
|
|
11. Licella Pulp Joint Venture
On May 27, 2016, CPPI and Licella
Fibre Fuel Pty Ltd. ("Licella") agreed to form a joint venture
under the name Licella Pulp Joint Venture to investigate
opportunities to integrate Licella's Catalytic Hydrothermal Reactor
platform into CPPI's pulp mills to economically convert biomass
into biofuels and biochemicals.
Licella is a subsidiary of Ignite Energy Resources Ltd. ("IER")
an Australian energy technology development company. In conjunction
with the joint venture agreement, CPPI provided a $7.0 million convertible credit facility to IER,
which matures on June 21,
2019. The advances on this credit facility are convertible, at
CPPI's option, into common shares of IER.
During the second quarter of 2016, CPPI advanced $3.5 million to IER and exercised its option to
convert the amount advanced into common shares of IER. The equity
investment is classified as a level 3 available-for-sale financial
instrument and is measured at fair value at each reporting period
with any gains or losses recognized through other comprehensive
income. At June 30, 2016, the fair
value of the financial instrument is $3.5
million.
The remaining credit facility balance of $3.5 million is anticipated to be advanced to IER
during the fourth quarter of 2016.
12. Purchase of Taylor Pulp Mill
On January 30, 2015, CPPI
completed the purchase of the Taylor pulp mill from Canfor for cash
consideration of $12.6 million
including working capital. The acquisition also included a
long-term fibre supply agreement under which Canfor will supply the
Taylor pulp mill with fibre at
prices that approximate fair market value. In addition to the cash
consideration paid on the acquisition date, CPPI may also pay
contingent consideration to Canfor, based on the Taylor pulp mill's annual adjusted operating
income before amortization over a three-year period, starting
January 31, 2015. On the
acquisition date, the fair value of the contingent consideration
was $1.8 million and was recorded as
a long-term provision. CPPI recognized long-term assets
acquired net of liabilities assumed at a fair value of $2.8 million and net working capital of
$11.6 million. The acquisition was
accounted for in accordance with IFRS 3 Business
Combinations.
If the acquisition had occurred on January 1, 2015, CPPI's consolidated 2015 sales
would have increased by approximately $8.9
million and consolidated 2015 net income would have
increased by approximately $0.2
million. The Taylor pulp
mill's results are recorded in the pulp segment.
Subsequent to the acquisition date, in 2015, CPPI reversed the
$1.8 million contingent consideration
provision resulting in a gain recorded to Other Income to reflect
lower forecast Bleached Chemi-Thermo Mechanical Pulp prices over
the contingent consideration period. The fair value of the
contingent consideration provision was nil at June 30, 2016.
13. Subsequent Event
On July 26, 2016, the Board of Directors declared a
quarterly dividend of $0.0625 per
share, payable on August 16, 2016, to
shareholders of record on August 9,
2016.
SOURCE Canfor Pulp Products Inc.