VANCOUVER, Oct. 26, 2016 /PRNewswire/ - Canfor Pulp Products
Inc. ("CPPI") (TSX: CFX) today reported net income of $22.4 million, or $0.34 per share, for the third quarter of 2016,
compared to $2.2 million, or
$0.03 per share, for the second
quarter of 2016 and $31.2 million, or
$0.45 per share, for the third
quarter of 2015. For the nine months ended September 30, 2016, the Company's net income was
$47.7 million, or $0.70 per share, compared to $76.9 million, or $1.09 per share, for the nine months ended
September 30, 2015.
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
|
(millions of Canadian
dollars, except per share amounts)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Sales
|
$
|
291.6
|
$
|
257.2
|
$
|
844.1
|
$
|
294.1
|
$
|
843.9
|
|
Operating income
before amortization
|
$
|
50.0
|
$
|
22.1
|
$
|
129.9
|
$
|
58.7
|
$
|
152.2
|
|
Operating
income
|
$
|
31.0
|
$
|
5.2
|
$
|
75.3
|
$
|
42.3
|
$
|
104.6
|
|
Net income
|
$
|
22.4
|
$
|
2.2
|
$
|
47.7
|
$
|
31.2
|
$
|
76.9
|
|
Net income per share,
basic and diluted
|
$
|
0.34
|
$
|
0.03
|
$
|
0.70
|
$
|
0.45
|
$
|
1.09
|
|
Adjusted net
income
|
$
|
22.4
|
$
|
2.2
|
$
|
47.7
|
$
|
34.8
|
$
|
82.8
|
|
Adjusted net income
per share, basic and diluted
|
$
|
0.34
|
$
|
0.03
|
$
|
0.70
|
$
|
0.50
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no items affecting comparability in the third
quarter of 2016 or for the nine months ended September 30, 2016. Adjusted net income was
$34.8 million, or $0.50 per share, for the third quarter of 2015
and $82.8 million, or $1.17 per share, for the nine months ended
September 30, 2015.
The Company reported operating income of $31.0 million for the third quarter of 2016, up
$25.8 million from $5.2 million reported for the second quarter of
2016. The improvement in the Company's operating results
primarily reflected significantly less scheduled maintenance
downtime at the Company's Northern Bleached Softwood Kraft ("NBSK")
pulp mills in the current quarter. Also contributing to the
third quarter results were higher pulp shipment volumes, increased
energy revenues as well as an improvement in pulp and paper unit
sales realizations.
Global softwood pulp markets were relatively stable through the
third quarter of 2016 with the average North American US-dollar
NBSK pulp list price, as published by RISI, up US$18 per tonne, or 2%, to US$998 per tonne, while the average list price to
China was down US$22 per tonne, or 4%, to US$595 per tonne. NBSK pulp unit sales
realizations were up slightly compared to the second quarter of
2016 as the benefit of the 1 cent, or
1%, weaker Canadian dollar more than offset modestly lower NBSK
pulp prices in China during the
quarter. Bleached Chemi-Thermo Mechanical Pulp ("BCTMP")
markets improved in the third quarter of 2016, positively impacting
BCTMP unit sales realizations at the Company's Taylor pulp mill. Energy revenues were
well up in the current quarter reflecting a return to more
normalized power generation levels as well as higher energy
prices.
Pulp shipment and production volumes were up 11% and 12%,
respectively, from the previous quarter primarily reflecting the
quarter-over-quarter impact of scheduled maintenance
downtime. In the current quarter, the Company completed
scheduled maintenance outages at the Prince George pulp mill and at the Taylor
BCTMP mill which reduced pulp production by approximately 3,700
tonnes and 3,100 tonnes, respectively, while in the second quarter
of 2016 scheduled maintenance outages and, to a lesser extent,
isolated operational disruptions reduced NBSK pulp production by
approximately 40,000 tonnes. NBSK unit manufacturing costs
were substantially lower in the current quarter principally as a
result of lower maintenance costs.
Operating income in the Company's paper segment at $7.2 million was up $1.7
million from the second quarter of 2016, largely reflecting
improved paper unit sales realizations as a result of a
higher-value sales mix and, to a lesser extent, the favourable
impact of the weaker Canadian dollar in the third quarter of
2016. The Company completed a nine- day scheduled maintenance
outage at the paper operations in the current quarter reducing
paper production by approximately 3,300 tonnes, but this was offset
by improved productivity. In the previous quarter, a five-day
scheduled maintenance outage that reduced paper production by
approximately 1,800 tonnes was completed.
Commenting on the Company's third quarter results, CPPI's Chief
Executive Officer, Don Kayne said,
"Canfor Pulp delivered solid financial results for the third
quarter, following a return to more normal operating levels after
the significant scheduled maintenance outages taken in the previous
quarter."
Looking ahead, with new pulp capacity forecast to come on line
there is risk of downward pressure on pricing. For the month
of October 2016, the Company's
announced NBSK pulp list price is US$1,000 per tonne in North America.
On October 26, 2016, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on November 15, 2016 to the shareholders of record
on November 8, 2016.
Additional Information and Conference Call
A conference call to discuss the third quarter's financial and
operating results will be held on Thursday,
October 27, 2016 at 6:00 AM Pacific
time. To participate in the call, please dial
416-764-8688 or Toll-Free 888-390-0546. For instant replay
access until November 10, 2016,
please dial 888-390-0541 and enter participant pass code
712812#. 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.
Third 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 September 30, 2016 relative to
the quarters ended June 30, 2016 and
September 30, 2015, and the financial
position of the Company at September
30, 2016. It should be read in conjunction with CPPI's
unaudited interim consolidated financial statements and
accompanying notes for the quarters ended September 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 third 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 October 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.
THIRD QUARTER 2016 OVERVIEW
Selected Financial Information and Statistics
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
|
(millions of Canadian
dollars, except per share amounts)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Operating income
(loss) by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Pulp
|
$
|
26.7
|
$
|
1.8
|
$
|
61.5
|
$
|
38.2
|
$
|
92.6
|
|
Paper
|
$
|
7.2
|
$
|
5.5
|
$
|
21.6
|
$
|
7.1
|
$
|
20.7
|
|
Unallocated
|
$
|
(2.9)
|
$
|
(2.1)
|
$
|
(7.8)
|
$
|
(3.0)
|
$
|
(8.7)
|
|
Total operating
income
|
$
|
31.0
|
$
|
5.2
|
$
|
75.3
|
$
|
42.3
|
$
|
104.6
|
|
Add:
Amortization1
|
$
|
19.0
|
$
|
16.9
|
$
|
54.6
|
$
|
16.4
|
$
|
47.6
|
|
Total operating
income before amortization
|
$
|
50.0
|
$
|
22.1
|
$
|
129.9
|
$
|
58.7
|
$
|
152.2
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
movements
|
$
|
(3.9)
|
$
|
31.9
|
$
|
15.2
|
$
|
(10.5)
|
$
|
(21.1)
|
|
Defined benefit
pension plan contributions, net
|
$
|
(3.6)
|
$
|
(1.4)
|
$
|
(6.2)
|
$
|
(0.5)
|
$
|
(2.2)
|
|
Income taxes paid,
net
|
$
|
(18.6)
|
$
|
(2.6)
|
$
|
(32.8)
|
$
|
(18.3)
|
$
|
(34.0)
|
|
Other operating cash
flows, net
|
$
|
2.2
|
$
|
(1.5)
|
$
|
(3.2)
|
$
|
2.8
|
$
|
7.4
|
|
Cash from
operating activities
|
$
|
26.1
|
$
|
48.5
|
$
|
102.9
|
$
|
32.2
|
$
|
102.3
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
$
|
(4.1)
|
$
|
(4.3)
|
$
|
(12.7)
|
$
|
(83.3)
|
$
|
(92.1)
|
|
Finance expenses
paid
|
$
|
(0.8)
|
$
|
(0.5)
|
$
|
(2.1)
|
$
|
(0.9)
|
$
|
(2.0)
|
|
Capital additions,
net
|
$
|
(14.0)
|
$
|
(18.6)
|
$
|
(45.7)
|
$
|
(14.5)
|
$
|
(40.7)
|
|
Acquisition of Taylor
Pulp Mill
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(12.6)
|
|
Share
purchases
|
$
|
(0.3)
|
$
|
(19.4)
|
$
|
(24.7)
|
$
|
(6.7)
|
$
|
(15.7)
|
|
Other, net
|
$
|
-
|
$
|
(3.5)
|
$
|
(3.3)
|
$
|
0.1
|
$
|
0.6
|
|
Change in cash /
operating loans
|
$
|
6.9
|
$
|
2.2
|
$
|
14.4
|
$
|
(73.1)
|
$
|
(60.2)
|
|
ROIC – Consolidated
period-to-date2
|
|
4.7%
|
|
0.8%
|
|
10.3%
|
|
6.9%
|
|
17.0%
|
|
Average exchange
rate (US$ per C$1.00)3
|
$
|
0.766
|
$
|
0.776
|
$
|
0.756
|
$
|
0.764
|
$
|
0.794
|
|
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)
|
|
Q3
2016
|
|
Q2
2016
|
|
YTD
2016
|
|
Q3
2015
|
|
YTD
2015
|
|
Net income, as
reported
|
$
|
22.4
|
$
|
2.2
|
$
|
47.7
|
$
|
31.2
|
$
|
76.9
|
|
Loss on derivative
financial instruments
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
3.6
|
$
|
7.2
|
|
Mark-to-market gain
on Taylor Pulp contingent
consideration4
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1.3)
|
|
Net impact of above
items
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
3.6
|
$
|
5.9
|
|
Adjusted net
income
|
$
|
22.4
|
$
|
2.2
|
$
|
47.7
|
$
|
34.8
|
$
|
82.8
|
|
Net income per
share (EPS), as reported5
|
$
|
0.34
|
$
|
0.03
|
$
|
0.70
|
$
|
0.45
|
$
|
1.09
|
|
Net impact of above
items per share5
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
0.05
|
$
|
0.08
|
|
Adjusted net
income per share5
|
$
|
0.34
|
$
|
0.03
|
$
|
0.70
|
$
|
0.50
|
$
|
1.17
|
|
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).
|
|
5 The
year-to-date net impact of net income per share, the adjusting
items per share and adjusted net income per share may not equal the
sum of the quarterly per share amounts due to rounding.
|
|
The Company reported operating income of $31.0 million for the third quarter of 2016, up
$25.8 million from $5.2 million reported for the second quarter of
2016. The improvement in the Company's operating results
primarily reflected significantly less scheduled maintenance
downtime at the Company's Northern Bleached Softwood Kraft ("NBSK")
pulp mills in the current quarter. Also contributing to the
third quarter results were higher pulp shipment volumes, increased
energy revenues as well as an improvement in pulp and paper unit
sales realizations.
Global softwood pulp markets were relatively stable through the
third quarter of 2016 with the average North American US-dollar
NBSK pulp list price, as published by RISI, up US$18 per tonne, or 2%, to US$998 per tonne, while the average list price to
China was down US$22 per tonne, or 4%, to US$595 per tonne. NBSK pulp unit sales
realizations were up slightly compared to the second quarter of
2016 as the benefit of the 1 cent, or
1%, weaker Canadian dollar more than offset modestly lower NBSK
pulp prices in China during the
quarter. Bleached Chemi-Thermo Mechanical Pulp ("BCTMP")
markets improved in the third quarter of 2016, positively impacting
BCTMP unit sales realizations at the Company's Taylor pulp mill. Energy revenues were
well up in the current quarter reflecting a return to more
normalized power generation levels as well as higher energy
prices.
Pulp shipment and production volumes were up 11% and 12%,
respectively, from the previous quarter primarily reflecting the
quarter-over-quarter impact of scheduled maintenance
downtime. In the current quarter, the Company completed
scheduled maintenance outages at the Prince George pulp mill and at the Taylor
BCTMP mill which reduced pulp production by approximately 3,700
tonnes and 3,100 tonnes, respectively, while in the second quarter
of 2016 scheduled maintenance outages and, to a lesser extent,
isolated operational disruptions reduced NBSK pulp production by
approximately 40,000 tonnes. NBSK pulp unit manufacturing
costs were substantially lower in the current quarter principally
as a result of lower maintenance costs.
Operating income in the Company's paper segment at $7.2 million was up $1.7
million from the second quarter of 2016, largely reflecting
improved paper unit sales realizations as a result of a
higher-value sales mix and, to a lesser extent, the favourable
impact of the weaker Canadian dollar in the third quarter of
2016. The Company completed a nine day scheduled maintenance
outage at the paper operations in the current quarter reducing
paper production by approximately 3,300 tonnes, but this was offset
by improved productivity. In the previous quarter, a five-day
scheduled maintenance outage that reduced paper production by
approximately 1,800 tonnes was completed.
Compared to the third quarter of 2015, operating income was down
$11.3 million largely reflecting
moderately lower NBSK pulp unit sales realizations and an increase
in amortization expense linked to the timing of major maintenance
outages, offset in part by higher energy revenues in the current
quarter. The decrease in NBSK pulp unit sales realizations
were largely a factor of lower US-dollar prices to China and a lower-value regional sales mix
which outweighed the benefit of the slightly weaker Canadian
dollar. Higher North American US-dollar list prices compared
to the same quarter in 2015 were offset by increased customer
discounts. Pulp unit manufacturing costs were relatively flat
compared to the third quarter of 2015 as lower fibre costs were
offset by a slight increase in conversion costs. Operating
results in the paper segment were in line with the third quarter of
2015.
OPERATING RESULTS BY BUSINESS SEGMENT
Pulp
Selected Financial Information and Statistics
– Pulp
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
|
(millions of Canadian
dollars, unless otherwise noted)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Sales
|
$
|
247.9
|
$
|
210.6
|
$
|
708.3
|
$
|
253.5
|
$
|
719.2
|
|
Operating income
before amortization6
|
$
|
44.8
|
$
|
17.8
|
$
|
113.3
|
$
|
53.7
|
$
|
137.6
|
|
Operating
income
|
$
|
26.7
|
$
|
1.8
|
$
|
61.5
|
$
|
38.2
|
$
|
92.6
|
|
Average pulp price
delivered to US – US$7
|
$
|
998
|
$
|
980
|
$
|
974
|
$
|
967
|
$
|
981
|
|
Average price in
Cdn$7
|
$
|
1,303
|
$
|
1,263
|
$
|
1,288
|
$
|
1,266
|
$
|
1,236
|
|
Production – pulp
(000 mt)8
|
|
312.5
|
|
279.6
|
|
913.9
|
|
310.5
|
|
892.9
|
|
Shipments – pulp (000
mt)8
|
|
319.8
|
|
287.2
|
|
926.1
|
|
307.4
|
|
871.4
|
|
Marketed on behalf of
Canfor8
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15.2
|
|
6
Amortization includes amortization of certain capitalized major
maintenance costs.
|
|
7 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.
|
|
8 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 $26.7 million for the third quarter of 2016, up
$24.9 million from the second quarter
of 2016 and down $11.5 million from
the same quarter in 2015.
The improvement in the pulp segment results from the second
quarter of 2016 reflected a return to more normal operating rates
following significant scheduled maintenance downtime at the NBSK
pulp mills in the second quarter of 2016. Also contributing
to improved pulp segment results in the third quarter of 2016 were
increased pulp shipment volumes, higher energy revenues and a
slight increase in unit NBSK pulp sales realizations. Unit
manufacturing costs were substantially lower in the current quarter
principally as a result of lower maintenance costs. In the
previous quarter, certain Scientific Research and Experimental
Development ("SR&ED") tax credits were recognized while none
were recognized in the current quarter.
Compared to the third quarter of 2015, the decrease in pulp
segment results reflected moderately lower NBSK pulp unit sales
realizations as a result of lower average NBSK pulp prices in
China combined with lower
shipments to the higher-margin North American market in the current
quarter. Unit manufacturing costs were relatively flat
compared to the third quarter of 2015 as lower fibre costs offset a
slight increase in conversion costs. Amortization expense was
higher compared to the third quarter of 2015 as a result of the
timing of major maintenance outages.
Markets
Global softwood pulp markets were relatively stable through the
third quarter of 2016 with average NBSK pulp list prices to
North America and Europe up slightly and average list prices to
China decreasing modestly from the
second quarter of 2016. Pulp producer inventories as
of September 2016 were at 30 days of supply, an increase
of 2 days from June
20169 partly reflecting minimal industry downtime
during the third quarter of 2016. Market conditions are
generally considered balanced when inventories are in the 27-30
days of supply range.
Global shipments of bleached softwood pulp decreased slightly in
July before rebounding in August with global shipments up 3.3% for
the first nine months of 2016 compared to the same period in
2015. The increase was primarily driven by increased bleached
softwood pulp shipments to China
and, to a lesser extent, North
America10.
|
9 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").
|
|
10 As
reported PPPC statistics.
|
|
Sales
The Company's pulp shipments for the third quarter of 2016 were
319,800 tonnes, up 32,600 tonnes, or 11%, from the previous quarter
reflecting increased NBSK pulp production in the current
quarter. BCTMP shipments made up approximately 16% of the
current quarter's total pulp shipments, and represented a 5%
decrease from the previous quarter. Compared to the third
quarter of 2015, pulp shipments were up 12,400 tonnes, or 4%, with
higher shipments to Korea partly offset by lower shipments to the
US.
The average North American US-dollar NBSK pulp list price of
US$998 per tonne, as published by
RISI, was up US$18 per tonne, or 2%,
from the second quarter of 2016 while the average list price to
China was down US$22 per tonne, or 4%, to US$595 per tonne. Average NBSK pulp unit
sales realizations showed a slight increase compared to the second
quarter of 2016 principally reflecting the benefit of the 1% weaker
Canadian dollar offset, in part, by modestly lower list prices to
China in the third quarter of
2016. BCTMP markets improved in the third quarter of 2016
positively impacting unit sales realizations at the Company's
Taylor pulp mill.
Compared to the third quarter of 2015, the average North
American US-dollar NBSK pulp list price was up US$31 per tonne, or 3%, while the average
US-dollar NBSK pulp list price to China was down US$43 per tonne, or 7%. With respect to
North American markets, the increase in list price was partly
offset by increased customer discounts. The Company's average NBSK
pulp unit sales realizations were moderately lower than the third
quarter of 2015 as lower US-dollar prices to China and a lower-value regional sales mix
outweighed the benefit of the slightly weaker Canadian dollar.
BCTMP unit sales realizations were up slightly compared to
third quarter of 2015 reflecting the recovery of BCTMP prices in
the current quarter.
Energy revenues returned to more normalized levels in the third
quarter of 2016 following lower power generation due to the
significant scheduled maintenance outages and seasonally lower
energy prices in the second quarter of 2016. Compared to the
same quarter in 2015, energy revenues were also up principally due
to increased power generation in the current quarter.
Operations
Pulp production in the third quarter of 2016 at 312,500 tonnes
was up 32,900 tonnes, or 12%, from the second quarter of 2016
principally reflecting the previous quarter's scheduled maintenance
downtime at all three NBSK pulp mills. In the current quarter, the
Company completed scheduled maintenance outages at the Prince George pulp mill and the Taylor BCTMP
mill, reducing pulp production by 3,700 tonnes of NBSK pulp and
3,100 tonnes of BCTMP, respectively. BCTMP production made up
approximately 16% of the Company's total pulp production in the
third quarter of 2016.
Compared to the third quarter of 2015, pulp production was up
2,000 tonnes, or 1%, reflecting the quarter-over-quarter impact of
the scheduled maintenance outages as well as higher operating rates
at the Taylor BCTMP mill in the current quarter. In the
comparative third quarter of 2015, the Company completed a
scheduled maintenance outage at the Northwood pulp mill which
reduced NBSK pulp production by approximately 6,000 tonnes.
Pulp unit manufacturing costs were well down in the current
quarter, compared to the previous quarter, largely reflecting costs
associated with the major maintenance outages in the second quarter
of 2016. Fibre costs were relatively flat compared to the
previous quarter reflecting slightly higher delivered costs for
sawmill residual chips (linked to Canadian dollar NBSK pulp sales
realizations) offset by a decrease in the proportion of higher-cost
whole log chips purchased.
Pulp unit manufacturing costs were broadly in line with the
third quarter of 2015 as lower fibre costs were offset by slightly
higher chemical costs 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 as well as
a decrease in the proportion of higher-cost whole log chips.
Paper
Selected Financial Information and
Statistics – Paper
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
|
(millions of Canadian
dollars, unless otherwise noted)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Sales
|
$
|
43.6
|
$
|
45.5
|
$
|
134.3
|
$
|
40.5
|
$
|
123.1
|
|
Operating income
before amortization11
|
$
|
8.1
|
$
|
6.4
|
$
|
24.4
|
$
|
8.0
|
$
|
23.3
|
|
Operating
income
|
$
|
7.2
|
$
|
5.5
|
$
|
21.6
|
$
|
7.1
|
$
|
20.7
|
|
Production – paper
(000 mt)
|
|
32.4
|
|
32.1
|
|
99.8
|
|
34.6
|
|
101.0
|
|
Shipments – paper
(000 mt)
|
|
35.5
|
|
38.5
|
|
108.9
|
|
32.1
|
|
98.0
|
|
11
Amortization includes amortization of certain capitalized major
maintenance costs.
|
|
Overview
Operating income for the paper segment at $7.2 million for the third quarter of 2016 was up
$1.7 million from the second quarter
of 2016 and in line with the third quarter of 2015.
The increase in operating income compared to the previous
quarter principally reflected modestly higher unit sales
realizations in the current quarter which reflected a higher value
sales mix offset, in part, by lower paper shipment volumes.
The impact of greater scheduled maintenance downtime in the current
quarter was mitigated by improved operating rates compared to the
previous quarter. Compared to the third quarter of 2015,
modestly lower unit sales realizations were offset by lower
market-driven slush pulp costs and increased paper shipments.
Markets
Global kraft paper markets were relatively stable through the
third quarter of 2016.
Sales
The Company's paper shipments in the third quarter of 2016 at
35,500 tonnes, were down 3,000 tonnes, or 8%, from the second
quarter of 2016 and up 3,400 tonnes, or 11%, from the same quarter
in 2015. Prime bleached paper shipments, which attract higher
prices, were up from both the second quarter of 2016 and the same
quarter in 2015. Paper shipments outpaced production by 3,100
tonnes as a result of additional scheduled maintenance downtime
taken at the kraft paper machine in the current quarter resulting
in a corresponding drawdown in finished kraft paper
inventory.
Paper unit sales realizations in the third quarter of 2016 were
up modestly from the previous quarter reflecting a higher value
sales mix and, to a lesser extent, the 1% weaker Canadian
dollar. Compared to the same quarter in 2015, paper unit
sales realizations were modestly lower reflecting the decrease in
US-dollar kraft paper prices in export markets through the second
half of 2015 partly offset by a higher proportion of prime bleached
paper shipments in the current quarter.
Operations
Paper production of 32,400 tonnes for the third quarter of 2016
was broadly in line with the second quarter of 2016 and down 2,200
tonnes from the same quarter in 2015. During the third
quarter of 2016, the kraft paper machine completed a nine-day
scheduled maintenance outage reducing paper production by
approximately 3,300 tonnes. This compared to a five-day
scheduled outage in the second quarter of 2016. Despite the
longer scheduled maintenance outage in the current quarter, paper
production was relatively flat quarter-over-quarter reflecting
stronger operating rates in the current quarter. No scheduled
maintenance outages were completed in the comparative third quarter
in 2015.
Paper unit manufacturing costs were relatively flat compared to
the second quarter of 2016 despite the more significant scheduled
maintenance outage in the current quarter. Compared to the
third quarter of 2015, paper unit manufacturing costs were slightly
lower principally reflecting lower slush pulp costs in the current
quarter.
Unallocated Items
Selected Financial
Information
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
|
(millions of Canadian
dollars)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Corporate
costs
|
$
|
(2.9)
|
$
|
(2.1)
|
$
|
(7.8)
|
$
|
(3.0)
|
$
|
(8.7)
|
|
Finance expense,
net
|
$
|
(1.6)
|
$
|
(1.5)
|
$
|
(4.7)
|
$
|
(1.7)
|
$
|
(4.3)
|
|
Loss on derivative
financial instruments
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(4.9)
|
$
|
(9.7)
|
|
Other income
(expense), net
|
$
|
0.8
|
$
|
0.5
|
$
|
(5.3)
|
$
|
6.2
|
$
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
Corporate costs at $2.9 million
for the third quarter of 2016 were up from the second quarter of
2016 and were broadly in line with the third quarter of 2015. The
increase from the second quarter of 2016 was primarily due to the
recognition of carbon offset credits in the previous quarter.
Net finance expense for the third quarter of 2016 at
$1.6 million was broadly in line with
both comparative periods and relates primarily to interest expense
associated with the Company's employee future benefit plans and
term debt.
The Company uses a variety of derivative financial instruments
at times as partial economic hedges against unfavourable
changes in foreign exchange rates, energy costs, interest rates and
pulp prices. In the third and second quarters of 2016, the
Company had no derivative financial instruments outstanding.
A loss of $4.9 million was recognized
in the third quarter of 2015, principally reflecting realized
losses on US-dollar foreign exchange collars.
Other income of $0.8 million in
the third quarter of 2016 partly reflected favourable foreign
exchange movements on US-dollar denominated working capital
balances.
Other Comprehensive Income (Loss)
In the third quarter of 2016, the Company recorded an after-tax
loss of $1.1 million in relation to
changes in the valuation of the Company's employee future benefit
plans. Compared to the second quarter of 2016, the loss principally
reflected a 0.1% 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 $9.4 million in the previous quarter and an
after-tax gain of $2.8 million in the
third quarter of 2015.
During the third quarter of 2016, the Company recorded a
$0.2 million (after-tax)
mark-to-market gain on its equity investment in Ignite Energy
Resources ("IER") as a result of favourable foreign exchange
movements (see further discussion on the investment in IER in the
"Licella Pulp Joint Venture" section).
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:
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
|
(millions of Canadian
dollars, except for ratios)
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
Increase (decrease)
in cash and cash equivalents
|
$
|
6.9
|
$
|
2.2
|
$
|
14.4
|
$
|
(73.1)
|
$
|
(60.2)
|
|
Operating
activities
|
$
|
26.1
|
$
|
48.5
|
$
|
102.9
|
$
|
32.2
|
$
|
102.3
|
|
Financing
activities
|
$
|
(5.2)
|
$
|
(24.2)
|
$
|
(39.5)
|
$
|
(90.9)
|
$
|
(109.8)
|
|
Investing
activities
|
$
|
(14.0)
|
$
|
(22.1)
|
$
|
(49.0)
|
$
|
(14.4)
|
$
|
(52.7)
|
|
Ratio of current
assets to current liabilities
|
|
|
|
|
|
2.4 :
1
|
|
|
|
2.2 : 1
|
|
Net debt to
capitalization
|
|
|
|
|
|
3.7%
|
|
|
|
6.7%
|
|
ROIC – Consolidated
period-to-date
|
|
4.7%
|
|
0.8%
|
|
10.3%
|
|
6.9%
|
|
17.0%
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Financial Position
Cash generated from operating activities was $26.1 million in the third quarter of 2016, down
$22.4 million from the previous
quarter and $6.1 million from
the third quarter of 2015. The decrease in operating cash
flows compared to the previous quarter principally resulted from an
unfavourable movement in non-cash working capital balances as well
as the timing of income tax installments and property tax payments
partly offset by higher cash earnings in the third quarter of
2016. Also impacting operating cash flows in the current
quarter were increased contributions to the Company's pension
plans. Compared to the third quarter of 2015, the decrease in
operating cash flows principally reflected lower cash earnings and
the aforementioned pension contributions offset, in part, by
favourable non-cash working capital movements. 2016 year-to-date
operating cash flow remained consistent with the comparable period
in 2015, with an improved working capital performance offsetting
lower cash earnings.
Cash used for financing activities was $5.2 million in the third quarter of 2016, down
$19.0 million from the previous
quarter and down $85.7 million from
the third quarter of 2015. Cash used for financing activities
in the current quarter included the Company's quarterly dividend
resulting in a payment $4.1 million
($0.0625 per share) as well as
interest paid of $0.8 million, which
was consistent with both comparative periods. In the third
quarter of 2016, the Company did not repurchase common shares under
its normal course issuer bid; however, $0.3
million was paid for common shares that were repurchased at
the end of the second quarter of 2016 (see further discussion of
the shares purchased under the normal course issuer bid in the
following "Liquidity and Financial Requirements" section). In
the third quarter of 2015, the Company paid a special dividend for
$79.0 million ($1.125 per share) and a quarterly dividend for
$4.3 million ($0.0625 per share).
Cash used for investing activities of $14.0 million in the current quarter related
to capital expenditures associated with scheduled maintenance
outages completed during the quarter as well as certain capital
improvement projects.
Liquidity and Financial Requirements
At September 30, 2016, CPPI had
cash of $31.9 million and an undrawn
$110.0 million bank loan facility
with a maturity date of January 31,
2019. CPPI had a separate facility to cover letters of
credit, which expired on June 30,
2016 and was not extended. At September 30, 2016, $9.1
million of letters of credit were covered 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 third quarter of 2016, CPPI did not purchase
any common shares. As at October 26,
2016, Canfor's ownership interest in CPPI was
53.6%.
Dividends
On October 26, 2016, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on November 15, 2016 to the shareholders of record
on November 8, 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 September 30, 2016.
OUTLOOK
Pulp and Paper Markets
NBSK pulp list prices have held up well to date in October;
however, with new pulp capacity forecast to come on line, there is
risk of downward pressure on pricing. For the month of
October 2016, the Company's announced
NBSK pulp list price is US$1,000 per
tonne in North America.
Bleached kraft paper markets and prices are projected to remain
relatively unchanged in the fourth quarter of 2016 and into early
2017.
All of the Company's scheduled maintenance outages have now been
completed for 2016.
OUTSTANDING SHARES
At October 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 September 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3
2016
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
|
Q1
2015
|
|
Q4
2014
|
|
Sales and
income
(millions of Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
291.6
|
$
|
|
257.2
|
$
|
295.3
|
$
|
330.8
|
$
|
294.1
|
$
|
276.0
|
$
|
273.8
|
|
$
|
264.0
|
|
Operating income
before
amortization12
|
$
|
50.0
|
$
|
|
22.1
|
$
|
57.8
|
$
|
56.2
|
$
|
58.7
|
$
|
36.4
|
$
|
57.1
|
$
|
43.2
|
|
Operating
income
|
$
|
31.0
|
$
|
|
5.2
|
$
|
39.1
|
$
|
38.6
|
$
|
42.3
|
$
|
20.9
|
$
|
41.4
|
$
|
28.0
|
|
Net income
|
$
|
22.4
|
$
|
|
2.2
|
$
|
23.1
|
$
|
29.7
|
$
|
31.2
|
$
|
17.7
|
$
|
28.0
|
$
|
20.7
|
|
Per common
share (Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – basic
and diluted
|
$
|
|
0.34
|
$
|
0.03
|
$
|
0.34
|
$
|
|
0.43
|
$
|
|
0.45
|
$
|
|
0.25
|
$
|
0.40
|
$
|
0.29
|
|
Book
value13
|
$
|
|
7.14
|
$
|
6.88
|
$
|
7.15
|
$
|
|
6.96
|
$
|
|
6.65
|
$
|
|
7.40
|
$
|
7.17
|
$
|
6.92
|
|
Dividends
declared14
|
$
|
|
0.0625
|
$
|
0.0625
|
$
|
0.0625
|
$
|
|
0.0625
|
$
|
|
0.0625
|
$
|
|
1.1875
|
$
|
0.0625
|
$
|
0.0625
|
|
Common Share
Repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share volume
repurchased (000
shares)
|
|
-
|
|
1,840
|
|
413
|
|
693
|
|
557
|
|
138
|
|
490
|
|
-
|
|
Shares repurchased
(millions of
Canadian dollars)
|
$
|
|
-
|
$
|
19.5
|
$
|
4.9
|
$
|
|
9.7
|
$
|
|
6.9
|
$
|
|
2.0
|
$
|
7.0
|
$
|
-
|
|
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp shipments (000
mt)
|
|
319.8
|
|
287.2
|
|
319.1
|
|
356.2
|
|
307.4
|
|
291.9
|
|
272.1
|
|
258.6
|
|
Paper shipments (000
mt)
|
|
35.5
|
|
38.5
|
|
34.9
|
|
35.4
|
|
32.1
|
|
33.8
|
|
32.1
|
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate
– US$/Cdn$
|
$
|
0.766
|
$
|
|
0.776
|
$
|
0.728
|
$
|
0.749
|
$
|
0.764
|
$
|
0.813
|
$
|
0.806
|
$
|
0.881
|
|
Average NBSK pulp
list price delivered
to US
(US$)
|
$
|
998
|
$
|
|
980
|
$
|
943
|
$
|
945
|
$
|
967
|
$
|
980
|
$
|
995
|
$
|
1,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Amortization includes certain capitalized major maintenance
costs.
|
|
13 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.
|
|
14
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)
|
|
Q3
2016
|
|
Q2
2016
|
|
Q1
2016
|
|
Q4
2015
|
|
Q3
2015
|
|
Q2
2015
|
|
Q1
2015
|
|
Q4
2014
|
|
Net income, as
reported
|
$
|
22.4
|
$
|
2.2
|
$
|
23.1
|
$
|
29.7
|
$
|
31.2
|
$
|
17.7
|
$
|
28.0
|
$
|
20.7
|
|
(Gain) loss on
derivative financial
instruments
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.7)
|
$
|
3.6
|
$
|
(3.4)
|
$
|
7.0
|
$
|
0.6
|
|
Mark-to market gain
on Taylor Pulp
contingent
consideration15
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1.3)
|
$
|
-
|
$
|
-
|
|
Net impact of above
items
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.7)
|
$
|
3.6
|
$
|
(4.7)
|
$
|
7.0
|
$
|
0.6
|
|
Adjusted net
income
|
$
|
22.4
|
$
|
2.2
|
$
|
23.1
|
$
|
29.0
|
$
|
34.8
|
$
|
13.0
|
$
|
35.0
|
$
|
21.3
|
|
Net income per
share (EPS), as
reported16
|
$
|
0.34
|
$
|
0.03
|
$
|
0.34
|
$
|
0.43
|
$
|
0.45
|
$
|
0.25
|
$
|
0.40
|
$
|
0.29
|
|
Net impact of above
items per share16
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(0.01)
|
$
|
0.05
|
$
|
(0.07)
|
$
|
0.10
|
$
|
0.01
|
|
Adjusted net
income per share16
|
$
|
0.34
|
$
|
0.03
|
$
|
0.34
|
$
|
0.42
|
$
|
0.50
|
$
|
0.18
|
$
|
0.50
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 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).
|
|
16 The
year-to-date net impact of net income per share, the adjusting
items per share and adjusted net income per share may not equal the
sum of the quarterly per share amounts due to rounding.
|
|
Canfor Pulp Products Inc.
Condensed Consolidated
Balance Sheets
|
(millions of Canadian
dollars, unaudited)
|
|
|
As at
September 30,
2016
|
|
As at
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
31.9
|
$
|
17.5
|
|
Accounts
receivable
|
-
Trade
|
|
|
87.1
|
|
101.8
|
|
-
Other
|
|
|
20.7
|
|
17.5
|
|
Inventories (Note
2)
|
|
|
154.0
|
|
163.8
|
|
Prepaid
expenses
|
|
|
11.3
|
|
7.5
|
|
Total current
assets
|
|
|
305.0
|
|
308.1
|
|
Property, plant
and equipment
|
|
|
524.6
|
|
532.3
|
|
Other long-term
assets (Note 11)
|
|
|
5.1
|
|
0.9
|
|
Total
assets
|
|
$
|
834.7
|
$
|
841.3
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
125.9
|
$
|
144.2
|
|
Total current
liabilities
|
|
|
125.9
|
|
144.2
|
|
Long-term
debt
|
|
|
50.0
|
|
50.0
|
|
Retirement benefit
obligations (Note 4)
|
|
|
112.5
|
|
93.0
|
|
Other long-term
provisions
|
|
|
6.8
|
|
6.2
|
|
Deferred income
taxes, net
|
|
|
63.0
|
|
68.2
|
|
Total
liabilities
|
|
$
|
358.2
|
$
|
361.6
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
Share
capital
|
|
$
|
491.6
|
$
|
508.2
|
|
Retained earnings
(deficit)
|
|
|
(15.3)
|
|
(28.5)
|
|
Accumulated other
comprehensive income
|
|
|
0.2
|
|
-
|
|
Total
equity
|
|
$
|
476.5
|
$
|
479.7
|
|
Total liabilities
and equity
|
|
$
|
834.7
|
$
|
841.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent
Event (Note 13)
|
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
|
|
APPROVED BY THE
BOARD
|
|
"S.E.
Bracken-Horrocks"
|
"M.J.
Korenberg"
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director, S.E.
Bracken-Horrocks
|
Director, M.J.
Korenberg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Income
|
3 months ended
September 30,
|
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, except per share data, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
291.6
|
$
|
294.1
|
$
|
844.1
|
$
|
843.9
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
Manufacturing and
product costs
|
|
195.2
|
|
186.2
|
|
573.4
|
|
548.8
|
|
Freight and other
distribution costs
|
|
39.9
|
|
42.4
|
|
120.4
|
|
122.0
|
|
Amortization
|
|
19.0
|
|
16.4
|
|
54.6
|
|
47.6
|
|
Selling and
administration costs
|
|
6.5
|
|
6.8
|
|
20.4
|
|
20.9
|
|
|
260.6
|
|
251.8
|
|
768.8
|
|
739.3
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
31.0
|
|
42.3
|
|
75.3
|
|
104.6
|
|
|
|
|
|
|
|
|
|
|
Finance expense,
net
|
|
(1.6)
|
|
(1.7)
|
|
(4.7)
|
|
(4.3)
|
|
Loss on derivative
financial instruments (Note 5)
|
|
-
|
|
(4.9)
|
|
-
|
|
(9.7)
|
|
Other income
(expense), net
|
|
0.8
|
|
6.2
|
|
(5.3)
|
|
12.6
|
|
Net income before
income taxes
|
|
30.2
|
|
41.9
|
|
65.3
|
|
103.2
|
|
Income tax expense
(Note 6)
|
|
(7.8)
|
|
(10.7)
|
|
(17.6)
|
|
(26.3)
|
|
Net
income
|
$
|
22.4
|
$
|
31.2
|
$
|
47.7
|
$
|
76.9
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share: (in Canadian dollars)
|
|
|
|
|
|
|
|
|
|
Attributable to
equity shareholders of the Company
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
(Note 7)
|
$
|
0.34
|
$
|
0.45
|
$
|
0.70
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 30,
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
22.4
|
$
|
31.2
|
$
|
47.7
|
$
|
76.9
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
Items that will not
be recycled through net income:
|
|
|
|
|
|
|
|
|
|
Defined benefit
pension plan actuarial gains (losses) (Note 4)
|
|
(1.5)
|
|
3.8
|
|
(19.0)
|
|
6.9
|
|
Income tax recovery
(expense) on defined benefit pension
plan actuarial gains
(losses) (Note 6)
|
|
0.4
|
|
(1.0)
|
|
5.0
|
|
(1.8)
|
|
|
(1.1)
|
|
2.8
|
|
(14.0)
|
|
5.1
|
|
Items that may be
recycled through net income:
|
|
|
|
|
|
|
|
|
|
Change in fair value
of available-for-sale financial instruments,
net of tax (Note
11)
|
|
0.2
|
|
-
|
|
0.2
|
|
-
|
|
Other comprehensive
income (loss), net of tax
|
|
(0.9)
|
|
2.8
|
|
(13.8)
|
|
5.1
|
|
Total
comprehensive income
|
$
|
21.5
|
$
|
34.0
|
$
|
33.9
|
$
|
82.0
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Changes in
Equity
|
3 months ended
September 30,
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
491.6
|
$
|
517.5
|
$
|
508.2
|
$
|
522.1
|
|
Share purchases (Note
7)
|
|
-
|
|
(4.1)
|
|
(16.6)
|
|
(8.7)
|
|
Balance at end of
period
|
$
|
491.6
|
$
|
513.4
|
$
|
491.6
|
$
|
513.4
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
(deficit)
|
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
(32.5)
|
$
|
2.3
|
$
|
(28.5)
|
$
|
(32.5)
|
|
Net income
|
22.4
|
|
31.2
|
|
47.7
|
|
76.9
|
|
Defined benefit
pension plan actuarial gains (losses), net of tax
|
|
(1.1)
|
|
2.8
|
|
(14.0)
|
|
5.1
|
|
Dividends
declared
|
|
(4.1)
|
|
(83.3)
|
|
(12.7)
|
|
(92.1)
|
|
Share purchases (Note
7)
|
|
-
|
|
(2.8)
|
|
(7.8)
|
|
(7.2)
|
|
Balance at end of
period
|
$
|
(15.3)
|
$
|
(49.8)
|
$
|
(15.3)
|
$
|
(49.8)
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
Change in fair value
of available-for-sale financial instruments, net
of tax (Note
11)
|
|
0.2
|
|
-
|
|
0.2
|
|
-
|
|
Balance at end of
period
|
$
|
0.2
|
$
|
-
|
$
|
0.2
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
$
|
476.5
|
$
|
463.6
|
$
|
476.5
|
$
|
463.6
|
|
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
September 30,
|
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash generated
from (used in):
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
22.4
|
$
|
31.2
|
$
|
47.7
|
$
|
76.9
|
|
Items not affecting
cash:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
19.0
|
|
16.4
|
|
54.6
|
|
47.6
|
|
|
Income tax
expense
|
|
7.8
|
|
10.7
|
|
17.6
|
|
26.3
|
|
|
Changes in
mark-to-market value of derivative financial
instruments
|
|
-
|
|
0.4
|
|
-
|
|
1.3
|
|
|
Employee future
benefits
|
|
1.2
|
|
1.4
|
|
3.7
|
|
4.2
|
|
|
Finance expense,
net
|
|
1.6
|
|
1.7
|
|
4.7
|
|
4.3
|
|
|
Other, net
|
|
0.2
|
|
(0.3)
|
|
(1.6)
|
|
(1.0)
|
|
Defined benefit
pension plan contributions, net
|
|
(3.6)
|
|
(0.5)
|
|
(6.2)
|
|
(2.2)
|
|
Income taxes paid,
net
|
|
(18.6)
|
|
(18.3)
|
|
(32.8)
|
|
(34.0)
|
|
|
30.0
|
|
42.7
|
|
87.7
|
|
123.4
|
|
Net change in
non-cash working capital (Note 8)
|
|
(3.9)
|
|
(10.5)
|
|
15.2
|
|
(21.1)
|
|
|
26.1
|
|
32.2
|
|
102.9
|
|
102.3
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Finance expenses
paid
|
|
(0.8)
|
|
(0.9)
|
|
(2.1)
|
|
(2.0)
|
|
Dividends
paid
|
|
(4.1)
|
|
(83.3)
|
|
(12.7)
|
|
(92.1)
|
|
Share purchases (Note
7)
|
|
(0.3)
|
|
(6.7)
|
|
(24.7)
|
|
(15.7)
|
|
|
(5.2)
|
|
(90.9)
|
|
(39.5)
|
|
(109.8)
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Additions to
property, plant and equipment and intangible assets, net
|
|
(14.0)
|
|
(14.5)
|
|
(45.7)
|
|
(40.7)
|
|
Acquisition of Taylor
pulp mill (Note 12)
|
|
-
|
|
-
|
|
-
|
|
(12.6)
|
|
Other, net
|
|
-
|
|
0.1
|
|
(3.3)
|
|
0.6
|
|
|
(14.0)
|
|
(14.4)
|
|
(49.0)
|
|
(52.7)
|
|
Increase
(decrease) in cash and cash equivalents*
|
|
6.9
|
|
(73.1)
|
|
14.4
|
|
(60.2)
|
|
Cash and cash
equivalents at beginning of period*
|
|
25.0
|
|
89.7
|
|
17.5
|
|
76.8
|
|
Cash and cash
equivalents at end of period*
|
$
|
31.9
|
$
|
16.6
|
$
|
31.9
|
$
|
16.6
|
|
|
*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 nine months ended September 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 October 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 October 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
September 30,
2016
|
|
As at
December 31,
2015
|
|
Pulp
|
$
|
64.5
|
$
|
71.2
|
|
Paper
|
|
13.7
|
|
20.9
|
|
Wood chips and
logs
|
|
24.4
|
|
21.9
|
|
Materials and
supplies
|
|
51.4
|
|
49.8
|
|
$
|
154.0
|
$
|
163.8
|
|
|
|
|
|
The above inventory balances are stated after inventory
write-downs from cost to net realizable value. There were no
inventory write-downs at September 30,
2016 (December 31, 2015 -
$0.5 million).
3. Operating Loans
Available Operating Loans
|
(millions of Canadian
dollars, unaudited)
|
|
As
at
September
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. At September 30, 2016,
$9.1 million of letters of credit
outstanding are covered under the general operating loan
facility.
As at September 30, 2016, the
Company was in compliance with all covenants relating to its
operating loans.
4. Employee Future Benefits
For the three months ended September 30,
2016, defined benefit pension plan actuarial losses of
$1.5 million (before tax) were
recognized in other comprehensive income (loss). The losses
recorded in the third 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
nine months ended September 30, 2016,
an amount of $19.0 million (before
tax) was charged to other comprehensive income (loss). For the
three and nine months ended September 30,
2015, the Company recognized before tax actuarial gains in
other comprehensive income (loss) of $3.8
million and $6.9 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
|
|
|
|
|
|
September 30,
2016
|
|
|
|
3.4%
|
|
3.4%
|
|
June 30,
2016
|
|
|
|
3.5%
|
|
3.5%
|
|
December 31,
2015
|
|
|
|
4.1%
|
|
4.1%
|
|
September 30,
2015
|
|
|
|
4.1%
|
|
4.1%
|
|
June 30,
2015
|
|
|
|
3.9%
|
|
3.9%
|
|
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 September 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, energy costs, and floating interest rates
on long-term debt. As at September 30,
2016 and December 31, 2015,
the Company had no derivative financial instruments
outstanding.
The following table summarizes the loss on derivative financial
instruments for the three and nine month periods ended September 30, 2016 and 2015:
|
3 months ended
September 30,
|
9
months ended September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Foreign exchange
collars
|
$
|
-
|
$
|
(4.2)
|
$
|
-
|
$
|
(9.1)
|
|
Crude oil
collars
|
|
-
|
|
(0.7)
|
|
-
|
|
(0.5)
|
|
Interest rate
swaps
|
|
-
|
|
-
|
|
-
|
|
(0.1)
|
|
Loss on derivative
financial instruments
|
$
|
-
|
$
|
(4.9)
|
$
|
-
|
$
|
(9.7)
|
|
|
|
|
|
|
|
|
|
6. Income Taxes
|
3 months ended
September 30,
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Current
|
$
|
(7.8)
|
$
|
(11.9)
|
$
|
(17.8)
|
$
|
(28.1)
|
|
Deferred
|
|
-
|
|
1.2
|
|
0.2
|
|
1.8
|
|
Income tax
expense
|
$
|
(7.8)
|
$
|
(10.7)
|
$
|
(17.6)
|
$
|
(26.3)
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months ended
September 30,
|
9 months
ended September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Income tax expense at
statutory rate
|
|
|
|
|
|
|
|
|
|
2016 – 26.0% (2015 –
26.0%)
|
$
|
(7.9)
|
$
|
(10.9)
|
$
|
(17.0)
|
$
|
(26.8)
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
Entities with
different income tax rates and other tax
adjustments
|
|
0.1
|
|
0.2
|
|
(0.6)
|
|
0.5
|
|
Income tax
expense
|
$
|
(7.8)
|
$
|
(10.7)
|
$
|
(17.6)
|
$
|
(26.3)
|
|
|
|
|
|
|
|
|
|
In addition to the amounts recorded to net income, a tax
recovery of $0.4 million was recorded
in other comprehensive income (loss) for the three months ended
September 30, 2016 (three months
ended September 30, 2015 - tax
expense of $1.0 million) in relation
to the actuarial gains (losses) on defined benefit employee
compensation plans. For the nine month period ended September 30, 2016, a tax recovery of
$5.0 million was recorded in other
comprehensive income (loss) (nine months ended September 30, 2015 - tax expense of $1.8 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
September 30,
|
9 months ended
September 30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Weighted average
number of common shares
|
66,699,368
|
69,948,740
|
67,793,394
|
70,335,187
|
|
|
|
|
|
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 third quarter of 2016, CPPI did not
purchase any common shares. In early July, $0.3 million was paid for shares purchased at the
end of the second quarter of 2016. As at October 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
September 30,
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Accounts
receivable
|
$
|
(5.1)
|
$
|
6.1
|
$
|
15.4
|
$
|
(9.5)
|
|
Inventories
|
|
14.2
|
|
(8.5)
|
|
9.7
|
|
(18.8)
|
|
Prepaid
expenses
|
|
(3.0)
|
|
(5.2)
|
|
(3.7)
|
|
0.9
|
|
Accounts payable and
accrued liabilities
|
|
(10.0)
|
|
(2.9)
|
|
(6.2)
|
|
6.3
|
|
Net decrease
(increase) in non-cash working capital
|
$
|
(3.9)
|
$
|
(10.5)
|
$
|
15.2
|
$
|
(21.1)
|
|
|
|
|
|
|
|
|
|
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
September 30, 2016
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
247.9
|
43.6
|
0.1
|
-
|
$
|
291.6
|
|
Sales to other
segments
|
$
|
20.4
|
-
|
-
|
(20.4)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
26.7
|
7.2
|
(2.9)
|
-
|
$
|
31.0
|
|
Amortization
|
$
|
18.1
|
0.9
|
-
|
-
|
$
|
19.0
|
|
Capital
expenditures1
|
$
|
12.8
|
0.8
|
0.4
|
-
|
$
|
14.0
|
|
3 months ended
September 30, 2015
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
253.5
|
40.5
|
0.1
|
-
|
$
|
294.1
|
|
Sales to other
segments
|
$
|
23.9
|
-
|
-
|
(23.9)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
38.2
|
7.1
|
(3.0)
|
-
|
$
|
42.3
|
|
Amortization
|
$
|
15.5
|
0.9
|
-
|
-
|
$
|
16.4
|
|
Capital
expenditures1
|
$
|
12.9
|
1.6
|
-
|
-
|
$
|
14.5
|
|
|
|
|
|
|
|
|
9 months ended
September 30, 2016
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
708.3
|
134.3
|
1.5
|
-
|
$
|
844.1
|
|
Sales to other
segments
|
$
|
63.1
|
-
|
-
|
(63.1)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
61.5
|
21.6
|
(7.8)
|
-
|
$
|
75.3
|
|
Amortization
|
$
|
51.8
|
2.8
|
-
|
-
|
$
|
54.6
|
|
Capital
expenditures1
|
$
|
44.0
|
1.3
|
0.4
|
-
|
$
|
45.7
|
|
Identifiable
assets
|
$
|
727.1
|
55.3
|
52.3
|
-
|
$
|
834.7
|
|
9 months ended
September 30, 2015
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
719.2
|
123.1
|
1.6
|
-
|
$
|
843.9
|
|
Sales to other
segments
|
$
|
69.8
|
-
|
-
|
(69.8)
|
$
|
-
|
|
Operating income
(loss)
|
$
|
92.6
|
20.7
|
(8.7)
|
-
|
$
|
104.6
|
|
Amortization
|
$
|
45.0
|
2.6
|
-
|
-
|
$
|
47.6
|
|
Capital
expenditures1
|
$
|
35.3
|
5.4
|
-
|
-
|
$
|
40.7
|
|
Identifiable
assets
|
$
|
715.1
|
61.8
|
31.2
|
-
|
$
|
808.1
|
|
1Capital
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 nine
months ended September 30, 2015 exclude the assets purchased as
part of the acquisition of the Taylor pulp mill (Note
12).
|
|
10. Related Party Transactions
For the nine months ended September 30,
2016, the Company depended on Canfor to provide
approximately 63% (nine months ended September 30, 2015 - 61%) 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
September 30,
|
9 months ended
September 30,
|
|
(millions of Canadian
dollars, unaudited)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Transactions
|
|
|
|
|
|
|
|
|
|
Purchase of wood
chips and other
|
$
|
39.0
|
$
|
48.7
|
$
|
120.9
|
$
|
125.0
|
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian
dollars, unaudited)
|
As
at
September
30,
2016
|
As at
December 31,
2015
|
|
Balance
Sheet
|
|
|
|
|
|
|
Included in accounts
payable and accrued liabilities
|
|
$
|
10.8
|
$
|
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 September 30, 2016, the
fair value of the financial instrument is $3.8 million resulting in a gain of $0.2 million (after-tax) recorded in other
comprehensive income (loss) in the third quarter of 2016.
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 September 30, 2016.
13. Subsequent Event
On October 26, 2016, the Board of Directors declared a
quarterly dividend of $0.0625 per
share, payable on November 15, 2016,
to shareholders of record on November 8,
2016.
SOURCE Canfor Pulp Products Inc.