Canfor Pulp Products Inc. ("CPPI") (TSX:CFX) today reported net income of $25.7
million, or $0.36 per share, for the first quarter of 2014, compared to $14.2
million, or $0.20 per share, for the fourth quarter of 2013 and $10.9 million,
or $0.15 per share, for the first quarter of 2013.
The following table summarizes selected financial information for the Company
for the comparative periods:
Q1 Q4 Q1
(millions of Canadian dollars, except per share
amounts) 2014 2013 2013
----------------------------------------------------------------------------
Sales $ 226.4 $ 245.6 $ 217.5
Operating income $ 36.4 $ 24.0 $ 19.0
Net income $ 25.7 $ 14.2 $ 10.9
Net income per share, basic and diluted $ 0.36 $ 0.20 $ 0.15
Adjusted net income $ 26.7 $ 17.3 $ 12.4
Adjust net income per share, basic and diluted $ 0.37 $ 0.24 $ 0.17
----------------------------------------------------------------------------
----------------------------------------------------------------------------
After adjusting for items affecting comparability with the prior periods, the
Company's adjusted net income for the first quarter of 2014 was $26.7 million,
or $0.37 per share, compared to an adjusted net income of $17.3 million, or
$0.24 per share, for the fourth quarter of 2013. CPPI's adjusted net income for
the first quarter of 2013 was $12.4 million, or $0.17 per share.
The Company reported operating income of $36.4 million for the first quarter of
2014, an increase of $12.4 million from operating income of $24.0 million for
the fourth quarter of 2013, with the Company's pulp segment contributing $10.9
million of the improvement. The increase largely reflected gains in Northern
Bleached Softwood Kraft ("NBSK") pulp sales realizations, which more than offset
the impact of reduced shipments resulting from abnormally severe winter weather
which limited railcar supply to Western Canada, and a 28-day truckers' strike at
Canada's largest port in Vancouver, British Columbia.
Global softwood pulp markets showed a modest improvement in all major regions in
the first quarter of 2014, while global softwood pulp producer inventory levels
remained balanced over the period, increasing 1 day from the end of December
2013, to 28 days' supply in March 2014 (market conditions are generally
considered balanced when inventories are in the 27-30 days of supply range).
Average NBSK pulp list prices saw solid gains in all regions during the first
quarter of 2014, with the North American NBSK pulp list price increasing US$34,
or 3%, from the previous quarter to US$1,017 per tonne (the highest level in
almost three years), while list prices to China and Europe saw gains of 2%.
Current quarter pulp sales realizations were also buoyed by the weaker Canadian
dollar and proportionately higher shipments to the higher-margin U.S. market.
Pulp shipments were down 51,000 tonnes, or 19%, from the prior quarter, largely
reflecting the transportation challenges experienced in the quarter. Pulp
production levels were up 5% from the previous quarter, mainly as a result of an
improvement in operating rates as the quarter progressed and a scheduled
maintenance outage at the Prince George Pulp Mill in the previous quarter. Pulp
unit manufacturing costs were up slightly compared to the previous quarter, with
the favourable impact of increased production more than offset by higher market
prices for sawmill residual chips and higher energy costs, the latter reflecting
both seasonally higher consumption as well as natural gas price increases.
The Company's paper segment results showed a modest improvement from the
previous quarter, with improved unit sales realizations, due principally to the
weaker Canadian dollar, offset in part by higher unit manufacturing costs. Unit
manufacturing costs were up moderately as a result of increased costs for slush
pulp, reflecting higher market pulp prices, mitigated somewhat by higher
productivity and lower unit operating costs.
Commenting on the first quarter's results, CPPI's Chief Executive Officer, Don
Kayne, said, "Our earnings benefitted from better-than-anticipated global
softwood pulp markets, as well as improved operating rates at our facilities.
Our energy business was boosted with the start-up of our upgraded turbines at
the Northwood Pulp Mill."
NBSK pulp markets are projected to face challenges by the middle of the year,
with the annual spring maintenance downtime providing some supply side relief in
the second quarter of 2014. For the month of April 2014, the Company announced
NBSK pulp list prices of US$1,030 per tonne in North America, unchanged from
March 2014, and list prices to China and Europe also remained unchanged. A risk
of price weakness remains due in part to the significant new hardwood capacity
forecast to come online through 2014. The Company anticipates that it will clear
its transportation-related backlog of finished inventories by early in the third
quarter of 2014. Maintenance outages are planned at the Intercontinental and
Prince George Mills in the second quarter of 2014 with a projected 15,000 tonnes
of reduced production.
On April 29, 2014, the Board of Directors declared a quarterly dividend of
$0.0625 per share, a 25% increase from the previous quarter, with a declaration
date of April 29, 2014, payable on May 20, 2014, to the shareholders of record
on May 12, 2014.
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and operating results
will be held on Thursday, May 1, 2014 at 8:00 AM Pacific time. To participate in
the call, please dial 416-340-9534 or Toll-Free 800-952-6845. For instant replay
access until May 15, 2014, please dial 800-408-3053 and enter participant pass
code 6959461#. The conference call will be webcast live and will be available at
www.canforpulp.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.canforpulp.com/investors/webcasts.
Forward-Looking Statements
Certain statements in this press release constitute "forward-looking statements"
which involve known and unknown risks, uncertainties and other factors that may
cause actual results to be materially different from any future results,
performance or achievements expressed or implied by such statements. Words such
as "expects", "anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are based on management's current expectations and beliefs and
actual events or results may differ materially. There are many factors that
could cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future results
expressed or implied by such statements. Forward-looking statements are based on
current expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as required by law.
CPPI is a leading global supplier of pulp and paper products with operations in
the central interior of British Columbia ("BC") employing approximately 1,200
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. Canfor Pulp is the largest
North American and one of the largest global producers of market NBSK Pulp.
Canfor Pulp also markets 210,000 tonnes of bleached chemi-thermo mechanical pulp
("BCTMP") from the Canfor Taylor BCTMP Mill. CPPI shares are traded on the
Toronto Stock Exchange under the symbol CFX.
Canfor Pulp Products Inc.
First Quarter 2014
Management's Discussion and Analysis
This interim Management's Discussion and Analysis ("MD&A") provides a review of
Canfor Pulp Products Inc.'s ("CPPI" or "the Company") financial performance for
the quarter ended March 31, 2014 relative to the quarters ended December 31,
2013 and March 31, 2013, and the financial position of the Company at March 31,
2014. It should be read in conjunction with CPPI's unaudited interim
consolidated financial statements and accompanying notes for the quarters ended
March 31, 2014 and 2013, as well as the 2013 annual MD&A and the 2013 audited
consolidated financial statements and notes thereto, which are included in
CPPI's Annual Report for the year ended December 31, 2013 (available at
www.canforpulp.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 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 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 weighted average number of shares outstanding during the period).
Operating Income before Amortization, Adjusted Net Income (Loss) and Adjusted
Net Income (Loss) per Share are not a 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 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 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.
Factors that could impact future operations are also discussed. These factors
may be influenced by both known and unknown risks and uncertainties that could
cause the actual results to be materially different from those stated in this
discussion. Factors that could have a material impact on any future oriented
statements made herein include, but are not limited to: general economic, market
and business conditions; product selling prices; raw material and operating
costs; currency exchange rates; interest rates; changes in law and public
policy; the outcome of labour and trade disputes; and opportunities available to
or pursued by CPPI.
All financial references are in millions of Canadian dollars unless otherwise
noted. The information in this report is as at April 29, 2014.
Forward-Looking Statements
Certain statements in this MD&A constitute "forward-looking statements" which
involve known and unknown risks, uncertainties and other factors that may cause
actual results to be materially different from any future results, performance
or achievements expressed or implied by such statements. Words such as
"expects", "anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are based on management's current expectations and beliefs and
actual events or results may differ materially. There are many factors that
could cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future results
expressed or implied by such statements. Forward-looking statements are based on
current expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as required by law.
FIRST QUARTER 2014 OVERVIEW
Selected Financial Information and Statistics
Q1 Q4 Q1
(millions of Canadian dollars, except per share 2014 2013 2013
amounts)
----------------------------------------------------------------------------
Operating income (loss) by segment:
Pulp $ 35.0 $ 24.1 $ 15.4
Paper $ 4.5 $ 3.8 $ 5.9
Unallocated $ (3.1) $ (3.9) $ (2.3)
----------------------------------------------------------------------------
Total operating income $ 36.4 $ 24.0 $ 19.0
Add: Amortization $ 16.0 $ 15.5 $ 18.9
----------------------------------------------------------------------------
Total operating income before amortization $ 52.4 $ 39.5 $ 37.9
Add (deduct):
Working capital movements $ (19.9) $ 27.9 $ (7.2)
Defined benefit pension plan contributions $ (2.5) $ (2.5) $ (2.8)
Other operating cash flows, net $ (6.1) $ 4.2 $ 0.4
----------------------------------------------------------------------------
Cash from operating activities $ 23.9 $ 69.1 $ 28.3
Add (deduct):
Proceeds from issuance of long-term debt $ - $ 50.0 $ -
Repayment of long-term debt $ - $(116.6) $ -
Dividends paid $ (3.5) $ (3.5) $ (3.6)
Finance expenses paid $ (0.8) $ (4.9) $ (0.2)
Capital additions, net(1) $ (10.0) $ (19.9) $ (6.9)
Other, net $ - $ - $ 0.1
----------------------------------------------------------------------------
Change in cash / operating loans $ 9.6 $ (25.8) $ 17.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarterly ROIC - Consolidated(2) 5.8% 4.0% 3.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average exchange rate (US$ per C$1.00)(3) $ 0.906 $ 0.953 $ 0.991
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Additions to property, plant and equipment are shown net of amounts
received under Government funding initiatives.
(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.
(3) Source - Bank of Canada (average noon rate for the period).
Analysis of Specific Material Items Affecting Comparability of Net Income
After-tax impact, net of non-controlling
interests Q1 Q4 Q1
(millions of Canadian dollars, except per share
amounts) 2014 2013 2013
----------------------------------------------------------------------------
Net income, as reported $ 25.7 $ 14.2 $ 10.9
(Gain) loss on derivative financial instruments $ 1.0 $ 0.1 $ (0.5)
Foreign exchange loss on long-term debt $ - $ 3.0 $ 2.0
----------------------------------------------------------------------------
Net impact of above items $ 1.0 $ 3.1 $ 1.5
----------------------------------------------------------------------------
Adjusted net income $ 26.7 $ 17.3 $ 12.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per share (EPS), as reported $ 0.36 $ 0.20 $ 0.15
Net impact of above items per share $ 0.01 $ 0.04 $ 0.02
----------------------------------------------------------------------------
Adjusted net income per share $ 0.37 $ 0.24 $ 0.17
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company reported operating income of $36.4 million for the first quarter of
2014, an increase of $12.4 million from operating income of $24.0 million for
the fourth quarter of 2013, with the Company's pulp segment contributing $10.9
million of the improvement. The increase largely reflected gains in Northern
Bleached Softwood Kraft ("NBSK") pulp sales realizations, which more than offset
the impact of reduced shipments resulting from abnormally severe winter weather
which limited railcar supply to Western Canada, and a 28-day truckers' strike at
Canada's largest port in Vancouver, British Columbia.
Global softwood pulp markets showed a modest improvement in all major regions in
the first quarter of 2014, while global softwood pulp producer inventory levels
remained balanced over the period, increasing 1 day from the end of December
2013, to 28 days' supply in March 2014 (market conditions are generally
considered balanced when inventories are in the 27-30 days of supply range).
Average NBSK pulp list prices saw solid gains in all regions during the first
quarter of 2014, with the North American NBSK pulp list price increasing US$34,
or 3%, from the previous quarter to US$1,017 per tonne (the highest level in
almost three years), while list prices to China and Europe saw gains of 2%.
Current quarter pulp sales realizations were also buoyed by the weaker Canadian
dollar and proportionately higher shipments to the higher-margin U.S. market.
Pulp shipments were down 51,000 tonnes, or 19%, from the prior quarter, largely
reflecting the transportation challenges experienced in the quarter. Pulp
production levels were up 5% from the previous quarter, mainly as a result of an
improvement in operating rates as the quarter progressed and a scheduled
maintenance outage at the Prince George Pulp Mill in the previous quarter. Pulp
unit manufacturing costs were up slightly compared to the previous quarter, with
the favourable impact of increased production more than offset by higher market
prices for sawmill residual chips and higher energy costs, the latter reflecting
both seasonally higher consumption as well as natural gas price increases.
The Company's paper segment results showed a modest improvement from the
previous quarter, with improved unit sales realizations, due principally to the
weaker Canadian dollar, offset in part by higher unit manufacturing costs. Unit
manufacturing costs were up moderately as a result of increased costs for slush
pulp, reflecting higher market pulp prices, mitigated somewhat by higher
productivity and lower unit operating costs.
Compared to the first quarter of 2013, operating income improved by $17.4
million, principally due to higher pulp segment earnings. Higher pulp segment
earnings primarily reflected increased sales realizations, attributable to
improved pulp markets and a 9% weaker Canadian dollar. Partially offsetting
these gains were lower total shipments and higher unit manufacturing costs, with
the latter largely attributable to higher fibre and energy costs coupled with
lower production levels. The first quarter of 2013 results also included a $1.5
million non-cash benefit from scientific research and development tax credits.
OPERATING RESULTS BY BUSINESS SEGMENT
Pulp
Selected Financial Information and Statistics - Pulp
Q1 Q4 Q1
(millions of Canadian dollars unless otherwise 2014 2013 2013
noted)
----------------------------------------------------------------------------
Sales $ 190.7 $ 212.3 $ 180.4
Operating income before amortization $ 50.1 $ 38.8 $ 33.3
Operating income $ 35.0 $ 24.1 $ 15.4
----------------------------------------------------------------------------
Average pulp price delivered to U.S. - US$(4) $ 1,017 $ 983 $ 897
Average price in Cdn$ $ 1,122 $ 1,032 $ 905
----------------------------------------------------------------------------
Production - pulp (000 mt) 258.7 246.1 264.5
Shipments - pulp (000 mt) 222.4 273.3 257.9
Marketed on behalf of Canfor 33.5 56.2 50.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(4) Per tonne, NBSK pulp list price delivered to U.S. (Resource Information
Systems, Inc.).
Overview
Operating income for the pulp segment was $35.0 million for the first quarter of
2014, an improvement of $10.9 million from the previous quarter and up $19.6
million from the first quarter of 2013.
Improved pulp segment results compared to the previous quarter reflected a
moderate increase in pulp sales realizations, resulting from increases in pulp
list prices and a weakening of the Canadian dollar, down 5% from the previous
quarter. Offsetting these gains were reduced shipments due to the aforementioned
transportation challenges experienced in the current quarter. While overall
shipments were down, sales realizations benefitted from reduced volumes to
lower-margin regions, principally China. Unit manufacturing costs were up
slightly compared to the previous quarter, with higher fibre (linked to NBSK
pulp sales realizations) and energy costs largely offset by higher production
volumes, primarily the result of improved operating rates. The current quarter
results also included increased energy revenue with the start-up of the recently
upgraded Northwood Pulp Mill turbines.
Higher operating earnings compared to the first quarter of 2013 principally
reflected the improved pulp markets, with strong gains in NBSK pulp list prices
across all regions coupled with a 9% weaker Canadian dollar. Partially
offsetting these gains were lower total shipments compared to the same period in
2013 which similarly reflected the transportation challenges experienced in the
current quarter. Compared to the first quarter of 2013, higher unit
manufacturing costs reflected higher market-based fibre and energy costs and
lower production levels, offset in part by lower chemical costs.
Markets
Global softwood pulp markets showed a modest improvement in the first quarter of
2014, with solid increases in list prices across all regions through the quarter
and global softwood pulp producer inventory levels remaining in the balanced
range. Global softwood pulp producer inventory levels increased 1 day from the
end of December 2013 to 28 days' supply in March 2014(5), partly reflecting the
aforementioned transportation disruptions. Market conditions are generally
considered balanced when inventories are in the 27-30 days of supply range.
Global shipments of bleached softwood kraft pulp were down 3% in the first
quarter of 2014 compared to the previous quarter and relatively flat compared to
the same period in 2013(6). The decrease in softwood pulp shipments compared to
the fourth quarter of 2013 reflected decreases to almost all regions in part due
to the transportation challenges experienced in North America.
Sales
The Company's pulp shipments in the first quarter of 2014 were 222,000 tonnes, a
decrease of 51,000 tonnes, or 19%, from the previous quarter, and down 36,000
tonnes, or 14% from the same period in 2013, largely reflecting the
transportation challenges in the current quarter. Shipments to China were well
down from both comparative periods, with the decrease relative to the fourth
quarter of 2013 in part reflecting strong buying late in 2013 and the
traditional Chinese Lunar New Year holiday in the current quarter, offset in
part by increased volumes to the U.S. Reduced shipments compared to the previous
quarter also reflected a build in finished goods inventories to target levels
following a significant drawdown related to the higher Chinese purchasing
activity at the end of 2013.
Global softwood pulp markets saw solid price increases through the current
quarter, with the North American NBSK pulp list price reaching the highest level
in almost three years, increasing US$34 per tonne to US$1,017, an increase of 3%
from the fourth quarter of 2013. NBSK pulp list prices to China and Europe
experienced similar solid gains through the quarter, both up 2% from the
previous quarter to US$753 per tonne and US$920 per tonne, respectively. Current
quarter sales realizations further benefitted from the 5% weaker Canadian dollar
as well as increased shipments to the higher-margin U.S. market. Current quarter
sales included higher energy revenue with the start-up of the Company's upgraded
Northwood Pulp Mill turbines combined with additional operating days reflecting
a planned maintenance outage of the Prince George Pulp Mill turbine in the
fourth quarter of 2013.
Compared to the first quarter of 2013, pulp sales realizations saw strong gains
as a result of marked improvements in average pulp list prices in all regions
and the 9% weaker Canadian dollar. The North American NBSK pulp list price
increased US$120 per tonne, or 13%. NBSK pulp list prices to Europe and China
also experienced solid increases, both up 11% compared to the first quarter of
2013. Contributing to the improved NBSK pulp list prices were reduced volumes to
lower-margin regions, principally China, which more than offset the impact of
increased pressure on discounts in North American markets compared to the same
period in 2013. Energy revenue was also up compared to the same period in 2013,
principally attributable to the upgrades to the Northwood Pulp Mill turbines.
(5) 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").
(6) As reported PPPC statistics.
Operations
Pulp production in the current quarter was 259,000 tonnes, up 13,000 tonnes, or
5%, from the previous quarter, and down 6,000 tonnes, or 2%, from the first
quarter of 2013. Increased production compared to the fourth quarter of 2013
reflected an improvement in operating rates as the quarter progressed. The
previous quarter also included a scheduled maintenance outage at the Prince
George Pulp Mill which resulted in reduced market pulp production of 4,000
tonnes. Compared to the first quarter of 2013, production levels were impacted
by slightly lower operating rates and increased transfers of slush pulp to the
paper segment in the current quarter.
Pulp unit manufacturing costs increased slightly from the previous quarter, with
higher energy costs, reflecting market-related price increases as well as
increased consumption in part due to the harsh weather in the quarter, as well
as a modest increase in fibre costs offsetting the favourable impact of higher
production levels and reduced chemical and (timing-based) maintenance spending.
Higher fibre costs principally reflected a market-related increase in prices for
sawmill residual chips, where prices are linked to NBSK pulp sales realizations,
mitigated slightly by seasonal pricing adjustments.
Higher unit manufacturing costs compared to the first quarter of 2013 were
primarily driven by increased fibre costs and to a lesser extent, higher energy
costs and the impact of lower production levels, offset in part by reduced
chemical costs. The increase in energy costs resulted mainly from increased
rates and higher gas usage, in part related to increased electricity generation.
Contributing to the higher fibre costs in the current quarter were higher prices
for sawmill residual chips, reflecting increased market prices, coupled with
higher prices for whole log chips, in part related to pressure on stumpage
rates, offset in part by a small decrease in the proportion of the higher-cost
whole log chips.
Paper
Selected Financial Information and Statistics - Paper
(millions of Canadian dollars unless otherwise Q1 Q4 Q1
noted) 2014 2013 2013
----------------------------------------------------------------------------
Sales $ 34.8 $ 33.2 $ 36.1
Operating income before amortization $ 5.4 $ 4.6 $ 6.9
Operating income $ 4.5 $ 3.8 $ 5.9
----------------------------------------------------------------------------
Production - paper (000 mt) 36.7 30.8 34.8
Shipments - paper (000 mt) 31.3 31.1 35.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Overview
Operating income for the paper segment was $4.5 million for the first quarter of
2014, up $0.7 million from the fourth quarter of 2013 and down $1.4 million from
the first quarter of 2013. The increase in earnings compared to the previous
quarter primarily resulted from improved unit sales realizations due principally
to the weaker Canadian dollar offset in part by higher unit manufacturing costs.
Higher costs for slush pulp, reflecting higher market pulp prices, contributed
to the increase in unit manufacturing costs, which was mitigated somewhat by
higher productivity and lower spending on maintenance and operating costs.
Compared to the first quarter of 2013, lower operating earnings reflected an
increase in unit manufacturing costs, slightly offset by higher Canadian dollar
sales realizations.
Markets
Global kraft paper market demand improved through the first quarter of 2014 with
strong order files. North American demand remained steady throughout the
quarter, as end users ran at full capacity and maintained full order files.
Sales
The Company's paper shipments in the first quarter of 2014 were 31,000 tonnes,
in line with the previous quarter and down 4,000 tonnes, or 11%, from the first
quarter of 2013. The Company's paper segment was also impacted by the
transportation challenges in the quarter, which resulted in higher-than-normal
inventory levels at the end of the period. Prime bleached shipments, which
attract higher prices, were in line with the fourth quarter of 2013 but up 5%
from the first quarter of 2013.
Unit sales realizations for paper products in the current period saw a moderate
increase from both comparative periods of 2013, largely due to the weaker
Canadian dollar relative to both periods.
Operations
Paper production in the first quarter of 2014 was 37,000 tonnes, an increase of
6,000 tonnes, or 19%, from the previous quarter and up 2,000 tonnes, or 5%, from
the first quarter of 2013. The increased production reflected improved operating
rates as well as the scheduled maintenance outage at the Company's paper machine
in the fourth quarter of 2013.
Paper unit manufacturing costs increased moderately from the previous quarter,
mostly reflecting the impact of higher market pulp prices on slush pulp costs
and increased chemical costs, partially offset by the favourable impact of
higher production volumes on unit costs, as well as lower maintenance and
operating costs.
Compared to the first quarter of 2013, unit manufacturing costs saw a more
marked increase, principally due to market driven increases in slush pulp costs
and higher chemical costs. Lower maintenance costs and higher productivity in
the current quarter helped to mitigate these increases.
Unallocated Items
Selected Financial Information
Q1 Q4 Q1
(millions of Canadian dollars) 2014 2013 2013
----------------------------------------------------------------------------
Corporate costs $ (3.1) $ (3.9) $ (2.3)
Finance expense, net $ (1.5) $ (3.2) $ (3.1)
Foreign exchange loss on long-term debt $ - $ (3.4) $ (2.3)
Gain (loss) on derivative financial
instruments $ (1.4) $ (0.1) $ 0.7
Other income, net $ 0.9 $ 2.2 $ 0.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate costs were $3.1 million for the first quarter of 2014, down $0.8
million from the previous quarter and up $0.8 million from the first quarter of
2013. The decrease compared to the previous quarter in part reflected higher
income from green energy attributes which are not allocated to segment results
as well as costs in the previous quarter associated with the wind-up of the
Canfor Pulp Limited Partnership. Compared to the first quarter of 2013, the
higher costs included higher incentive-based compensation costs.
Net finance expense for the first quarter of 2014 was $1.5 million, down $1.7
million from the fourth quarter of 2013 and down $1.6 million from the first
quarter of 2013. The decrease from both comparative periods principally
reflected lower debt levels in the current quarter coupled with lower employee
future benefit net interest costs, due in part to the improved financial
position of most of the Company's defined benefit plans.
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. For the first quarter of 2014, the
Company recorded a net loss of $1.4 million principally reflecting unrealized
losses on US dollar foreign exchange collars and forward contracts as a result
of the weakening of the Canadian dollar through the quarter, as well as realized
and unrealized losses on pulp futures as a result of the improved NBSK pulp list
prices through the quarter.
The following table summarizes the gains (losses) on derivative financial
instruments for the comparable periods:
Q1 Q4 Q1
(millions of Canadian dollars) 2014 2013 2013
----------------------------------------------------------------------------
Foreign exchange collars and forward contracts $ (1.0) $ 0.1 $ 0.7
Crude oil collars $ - $ (0.1) $ 0.1
Interest rate swaps $ (0.1) $ - $ (0.1)
Pulp futures $ (0.3) $ (0.1) $ -
----------------------------------------------------------------------------
$ (1.4) $ (0.1) $ 0.7
----------------------------------------------------------------------------
Other income, net for the first quarter of 2014 of $0.9 million included
favourable exchange movements on US dollar denominated cash, receivables and
payables.
Other Comprehensive Income (Loss)
In the first quarter of 2014, the Company recorded an after-tax charge to the
Statements of Other Comprehensive Income (Loss) of $6.8 million in relation to
changes in the valuation of the Company's employee future benefit plans. The
loss reflects a lower discount rate used to value the net retirement benefit
obligations, offset in part by a modest return on plan assets. Defined benefit
actuarial gains, net of taxes, were recorded in both the comparable periods,
with an after-tax gain of $16.0 million in the fourth quarter of 2013 and an
after-tax gain of $0.2 million in the first quarter of 2013.
SUMMARY OF FINANCIAL POSITION
The following table summarizes CPPI's cash flow and selected ratios for and as
at the end of the following periods:
(millions of Canadian dollars, except for Q1 Q4 Q1
ratios) 2014 2013 2013
----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents $ 3.4 $ (15.2) $ 17.7
Operating activities $ 23.9 $ 69.1 $ 28.3
Financing activities $ (10.5) $ (64.5) $ (3.8)
Investing activities $ (10.0) $ (19.8) $ (6.8)
Ratio of current assets to current liabilities 2.2 : 1 1.8 : 1 1.2 : 1
Net debt to capitalization 7.8% 9.7% 19.5%
Quarterly ROIC - Consolidated 5.8% 4.0% 3.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Changes in Financial Position
Cash generated from operating activities was $23.9 million in the first quarter
of 2014, down $45.2 million from the previous quarter, with higher cash earnings
more than offset by an increase in non-cash working capital and $9.6 million in
income tax payments in the current quarter. The increase in non-cash working
capital balances principally reflected significantly higher finished inventory
levels due to the transportation challenges experienced in the current quarter
coupled with a decrease in accounts payable that mainly reflected the timing of
payments. In the immediately preceding quarter, cash generated from non-cash
working capital reflected a significant reduction in finished goods pulp
inventory levels before year-end. Compared to the first quarter of 2013, cash
generated from operating activities was down $4.4 million due mostly to
increased non-cash working capital balances and income tax payments in the
current quarter, which more than offset the higher operating income in the
current quarter.
Cash used for financing activities was $10.5 million in the first quarter of
2014, down $54.0 million from $64.5 million used in the previous quarter. The
previous quarter financing cash outflows included repayment of the Company's
US$110 million 6.41% interest rate debt less proceeds from completion of a new
$50.0 million floating rate term debt financing. CPPI paid $4.1 million less in
finance costs in the current quarter principally reflecting the timing of the
final interest payment on the Company's US$110 million debt in the fourth
quarter of 2013. Current quarter financing cash flows also included dividend
payments of $3.5 million, which was in line with the previous quarter. Compared
to the first quarter of 2013, cash used for financing activities was up $6.7
million largely comprising payments against the operating loan facility in the
current quarter. At the end of the first quarter of 2014, CPPI had $5.0 million
outstanding on its operating loan facility.
Cash used in investing activities of $10.0 million in the current quarter
primarily related to the Northwood and Intercontinental Pulp Mills' turbine
upgrades. Construction of the Northwood Pulp Mill turbines was substantially
completed in 2013 and the facility commenced selling power in the current
quarter. Completion of the upgrade to the Intercontinental Pulp Mill turbine is
targeted for early 2015.
Liquidity and Financial Requirements
At March 31, 2014, CPPI had cash of $16.9 million, $5.0 million drawn on its
operating loans, and an additional $12.2 million reserved for standby letters of
credit related to energy sales agreements. Total available undrawn operating
loans were $112.8 million.
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 5, 2014, the Company renewed its normal course issuer bid whereby it
can purchase for cancellation up to 3,550,367 common shares or approximately 5%
of its issued and outstanding common shares as of February 28, 2014. The renewed
normal course issuer bid is set to expire on March 4, 2015. There were no shares
purchased by the Company during the first quarter of 2014.
Dividends
On April 29, 2014, the Board of Directors declared a quarterly dividend of
$0.0625 per share, a 25% increase from the previous quarter, with a declaration
date of April 29, 2014, payable on May 20, 2014, to the shareholders of record
on May 12, 2014.
OUTLOOK
Pulp
NBSK pulp markets are projected to face challenges by the middle of the year,
with the annual spring maintenance downtime providing some supply side relief in
the second quarter of 2014. For the month of April 2014, the Company announced
NBSK pulp list prices of US$1,030 per tonne in North America, unchanged from
March 2014, and list prices to China and Europe also remained unchanged. A risk
of price weakness remains due in part to the significant new hardwood pulp
capacity forecast to come online through 2014. The Company anticipates that it
will clear its transportation-related backlog of finished inventories by early
in the third quarter of 2014.
Maintenance outages are planned at the Intercontinental and Prince George Mills
in the second quarter of 2014 with a projected 15,000 tonnes of reduced
production.
The Company anticipates that it will complete the upgrades to the
Intercontinental Pulp Mill turbine and commence selling power under an
Electricity Purchase Agreement early in 2015.
Paper
Paper markets are stable heading into the second quarter of 2014 with solid
order files and demand. Price increases announced in North American and offshore
markets are projected to be fully implemented in the second quarter of 2014,
thereafter new bleached capacity coming online in Europe in the second quarter
of 2014 may put pressure on prices.
OUTSTANDING SHARES
At April 29, 2014, there were 71,007,341 common shares 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 2011, the International Accounting Standards Board ("IASB") issued IFRS
9, Financial Instruments. The required adoption date for IFRS 9 has been
deferred from the original adoption date of January 1, 2015 and is currently
under review by the IASB.
Further details of the new accounting Standard and potential impact on CPPI can
be found in the Company's Annual Report for the year ended December 31, 2013.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended March 31, 2014, 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 2013 annual statutory reports which are available on
www.canforpulp.com or www.sedar.com.
SELECTED QUARTERLY FINANCIAL INFORMATION
----------------------------------------------------------------------------
Q1 2014 Q4 2013 Q3 2013 Q2 2013
----------------------------------------------------------------------------
Sales and income
(millions of Canadian dollars)
Sales $ 226.4 $ 245.6 $ 196.1 $ 227.6
Operating income (loss) $ 36.4 $ 24.0 $ 11.3 $ 19.5
Net income (loss) $ 25.7 $ 14.2 $ 9.1 $ 7.6
Per common share (dollars)
Net income (loss) - basic and diluted $ 0.36 $ 0.20 $ 0.13 $ 0.11
Book value (7) $ 6.39 $ 6.17 $ 5.79 $ 5.67
Dividends declared $ 0.0625 $ 0.0500 $ 0.0500 $ 0.0500
----------------------------------------------------------------------------
Statistics
Pulp shipments (000 mt) 222.4 273.3 212.2 255.0
Paper shipments (000 mt) 31.3 31.1 35.5 37.2
----------------------------------------------------------------------------
Average exchange rate - US$/Cdn$ $ 0.906 $ 0.953 $ 0.963 $ 0.977
----------------------------------------------------------------------------
Average NBSK pulp list price delivered
to U.S. (US$) $ 1,017 $ 983 $ 947 $ 937
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q1 2013 Q4 2012 Q3 2012 Q2 2012
----------------------------------------------------------------------------
Sales and income
(millions of Canadian dollars)
Sales $ 217.5 $ 201.9 $ 177.7 $ 210.8
Operating income (loss) $ 19.0 $ 12.1 $ (8.3) $ 10.3
Net income (loss) $ 10.9 $ 5.4 $ (5.0) $ 3.0
Per common share (dollars)
Net income (loss) - basic and diluted $ 0.15 $ 0.08 $ (0.07) $ 0.04
Book value (7) $ 5.53 $ 5.42 $ 5.37 $ 5.55
Dividends declared $ 0.0500 $ 0.0500 $ - $ 0.0500
----------------------------------------------------------------------------
Statistics
Pulp shipments (000 mt) 257.9 246.6 214.4 230.2
Paper shipments (000 mt) 35.0 32.0 30.6 36.8
----------------------------------------------------------------------------
Average exchange rate - US$/Cdn$ $ 0.991 $ 1.009 $ 1.005 $ 0.990
----------------------------------------------------------------------------
Average NBSK pulp list price delivered
to U.S. (US$) $ 897 $ 863 $ 853 $ 900
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(7) 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.
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 long-term debt, and revaluation of outstanding natural gas swaps
and US dollar forward contracts.
Other material factors that impact the comparability of the quarters are noted
below:
----------------------------------------------------------------------------
After-tax impact, net of non-controlling interests(8)
(millions of Canadian dollars, except
for per share amounts) Q1 2014 Q4 2013 Q3 2013 Q2 2013
----------------------------------------------------------------------------
Net income (loss), as reported(8) $ 25.7 $ 14.2 $ 9.1 $ 7.6
(Gain) loss on derivative financial
instruments $ 1.0 $ 0.1 $ (1.5) $ 2.0
Foreign exchange (gain) loss on long-
term debt $ - $ 3.0 $ (2.0) $ 3.4
Change in substantively enacted tax
rate $ - $ - $ - $ 2.4
Net gain on post retirement plan
amendments $ - $ - $ - $ -
Restructuring charges for management
changes $ - $ - $ - $ -
----------------------------------------------------------------------------
Net impact of above items $ 1.0 $ 3.1 $ (3.5) $ 7.8
----------------------------------------------------------------------------
Adjusted net income (loss)(8) $ 26.7 $ 17.3 $ 5.6 $ 15.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) per share (EPS), as
reported(8) $ 0.36 $ 0.20 $ 0.13 $ 0.11
Net impact of above items per share $ 0.01 $ 0.04 $ (0.05) $ 0.11
----------------------------------------------------------------------------
Adjusted net income (loss) per
share(8) $ 0.37 $ 0.24 $ 0.08 $ 0.22
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
After-tax impact, net of non-controlling interests(8)
(millions of Canadian dollars, except
for per share amounts) Q1 2013 Q4 2012 Q3 2012 Q2 2012
----------------------------------------------------------------------------
Net income (loss), as reported(8) $ 10.9 $ 5.4 $ (5.0) $ 3.0
(Gain) loss on derivative financial
instruments $ (0.5) $ 0.1 $ (1.4) $ 1.1
Foreign exchange (gain) loss on long-
term debt $ 2.0 $ 1.1 $ (3.4) $ 1.9
Change in substantively enacted tax
rate $ - $ - $ - $ -
Net gain on post retirement plan
amendments $ - $ (4.0) $ - $ -
Restructuring charges for management
changes $ - $ - $ 1.3 $ -
----------------------------------------------------------------------------
Net impact of above items $ 1.5 $ (2.8) $ (3.5) $ 3.0
----------------------------------------------------------------------------
Adjusted net income (loss)(8) $ 12.4 $ 2.6 $ (8.5) $ 6.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) per share (EPS), as
reported(8) $ 0.15 $ 0.08 $ (0.07) $ 0.04
Net impact of above items per share $ 0.02 $ (0.04) $ (0.05) $ 0.04
----------------------------------------------------------------------------
Adjusted net income (loss) per
share(8) $ 0.17 $ 0.04 $ (0.12) $ 0.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(8) 2012 amounts exclude the impact of non-controlling interest in the
Partnership. Amounts are attributable to controlling interest in the
Partnership.
Canfor Pulp Products Inc.
Condensed Consolidated Balance Sheets
As at As at
March 31, December 31,
(millions of Canadian dollars, unaudited) 2014 2013
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 16.9 $ 13.5
Accounts receivable - Trade 65.4 71.0
- Other 12.7 10.3
Inventories (Note 2) 149.4 128.0
Prepaid expenses and other assets 3.3 7.2
----------------------------------------------------------------------------
Total current assets 247.7 230.0
----------------------------------------------------------------------------
Property, plant and equipment 520.4 528.1
Retirement benefit surplus (Note 4) 4.4 8.2
Other long-term assets 1.8 2.3
----------------------------------------------------------------------------
Total assets $ 774.3 $ 768.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current liabilities
Operating loans (Note 3) $ 5.0 $ 10.6
Accounts payable and accrued liabilities 107.5 118.4
----------------------------------------------------------------------------
Total current liabilities 112.5 129.0
----------------------------------------------------------------------------
Long-term debt 50.0 50.0
Retirement benefit obligations (Note 4) 80.8 75.8
Other long-term provisions 3.3 3.0
Deferred income taxes, net 74.3 72.8
----------------------------------------------------------------------------
Total liabilities $ 320.9 $ 330.6
----------------------------------------------------------------------------
EQUITY
Share capital $ 523.4 $ 523.4
Retained earnings (deficit) (70.0) (85.4)
----------------------------------------------------------------------------
Total equity $ 453.4 $ 438.0
----------------------------------------------------------------------------
Total liabilities and equity $ 774.3 $ 768.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subsequent Event (Note 11)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
APPROVED BY THE BOARD
Director, S.E. Bracken-Horrocks
Director, M.J. Korenberg
Canfor Pulp Products Inc.
Condensed Consolidated Statements of Income
3 months ended March 31,
(millions of Canadian dollars,
except per share data, unaudited) 2014 2013
----------------------------------------------------------------------------
Sales $ 226.4 $ 217.5
Costs and expenses
Manufacturing and product costs 138.5 143.3
Freight and other distribution costs 28.9 30.9
Amortization 16.0 18.9
Selling and administration costs 6.6 5.4
----------------------------------------------------------------------------
190.0 198.5
----------------------------------------------------------------------------
Operating income 36.4 19.0
Finance expense, net (1.5) (3.1)
Foreign exchange loss on long-term debt - (2.3)
Gain (loss) on derivative financial instruments
(Note 5) (1.4) 0.7
Other income, net 0.9 0.7
----------------------------------------------------------------------------
Net income before income taxes 34.4 15.0
Income tax expense (Note 6) (8.7) (4.1)
----------------------------------------------------------------------------
Net income $ 25.7 $ 10.9
----------------------------------------------------------------------------
Net income per common share: (in Canadian dollars)
Attributable to equity shareholders of the Company
- Basic and diluted (Note 7) $ 0.36 $ 0.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Pulp Products Inc.
Condensed Consolidated Statements of Other Comprehensive Income (Loss)
3 months ended March 31,
(millions of Canadian dollars, unaudited) 2014 2013
---------------------------------------------------------------------------
Net income $ 25.7 $ 10.9
Other comprehensive income (loss)
Items that will not be recycled through net
income:
Defined benefit plan actuarial gains (losses)
(Note 4) (9.2) 0.3
Income tax recovery (expense) on defined benefit
plan actuarial losses (gains) (Note 6) 2.4 (0.1)
---------------------------------------------------------------------------
Other comprehensive income (loss), net of tax (6.8) 0.2
---------------------------------------------------------------------------
Total comprehensive income $ 18.9 $ 11.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Statements of Changes in Equity
3 months ended March 31,
(millions of Canadian dollars, unaudited) 2014 2013
----------------------------------------------------------------------------
Share capital
----------------------------------------------------------------------------
Balance at beginning and end of period $ 523.4 $ 525.3
----------------------------------------------------------------------------
Retained earnings (deficit)
Balance at beginning of period $ (85.4) $ (138.7)
Net income 25.7 10.9
Defined benefit plan actuarial gains (losses), net
of tax (6.8) 0.2
Dividends declared (3.5) (3.6)
----------------------------------------------------------------------------
Balance at end of period $ (70.0) $ (131.2)
----------------------------------------------------------------------------
Total equity $ 453.4 $ 394.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Pulp Products Inc.
Condensed Consolidated Statements of Cash Flows
3 months ended March 31,
(millions of Canadian dollars, unaudited) 2014 2013
----------------------------------------------------------------------------
Cash generated from (used in):
Operating activities
Net income $ 25.7 $ 10.9
Items not affecting cash:
Amortization 16.0 18.9
Income tax expense 8.7 4.1
Foreign exchange loss on long-term debt - 2.3
Changes in mark-to-market value of derivative
financial instruments 1.2 (0.6)
Employee future benefits 1.2 1.4
Net finance expense 1.5 3.1
Other, net 1.6 (1.8)
Defined benefit pension plan contributions (2.5) (2.8)
Income taxes paid, net (9.6) -
----------------------------------------------------------------------------
43.8 35.5
Net change in non-cash working capital (Note 8) (19.9) (7.2)
----------------------------------------------------------------------------
23.9 28.3
----------------------------------------------------------------------------
Financing activities
Change in operating bank loans (6.2) -
Finance expenses paid (0.8) (0.2)
Dividends paid (3.5) (3.6)
----------------------------------------------------------------------------
(10.5) (3.8)
----------------------------------------------------------------------------
Investing activities
Additions to property, plant and equipment, net (10.0) (6.9)
Other, net - 0.1
----------------------------------------------------------------------------
(10.0) (6.8)
----------------------------------------------------------------------------
Increase in cash and cash equivalents(i) 3.4 17.7
Cash and cash equivalents at beginning of period(i) 13.5 (1.2)
----------------------------------------------------------------------------
Cash and cash equivalents at end of period(i) $ 16.9 $ 16.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Cash and cash equivalents include cash on hand less unpresented cheques.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Pulp Products Inc.
Notes to the Condensed Consolidated Financial Statements
(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 March 31, 2014, Canfor Corporation
("Canfor") held a 50.4% 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, 2013, available at
www.canforpulp.com or www.sedar.com.
The currency of presentation for these financial statements is the Canadian dollar.
Accounting Standards Issued and Not Applied
In May 2011, the International Accounting Standards Board ("IASB") issued IFRS
9, Financial Instruments. The required adoption date for IFRS 9 has been
deferred from the original adoption date of January 1, 2015 and is currently
under review by the IASB.
Further details of the new accounting Standard and potential impact on CPPI can
be found in the Company's Annual Report for the year ended December 31, 2013.
2. Inventories
As at As at
March 31, December 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Pulp $ 74.2 $ 52.8
Paper 19.8 15.7
Wood chips 8.8 14.1
Materials and supplies 46.6 45.4
----------------------------------------------------------------------------
$ 149.4 $ 128.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3. Operating Loans
Available Operating Loans
As at
As at December
March 31, 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Available Operating Loans:
Operating loan facility $ 110.0 $ 110.0
Facility for letters of credit related to energy
agreements 20.0 20.0
----------------------------------------------------------------------------
Total operating loans 130.0 130.0
Drawn (5.0) (10.6)
Energy letters of credit (12.2) (12.2)
----------------------------------------------------------------------------
Total available operating loans $ 112.8 $ 107.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The terms of the Company's operating loan facility include interest payable at
floating rates that vary depending on the ratio of net 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 that stipulate maximum net debt to
total capitalization ratios and minimum net worth amounts based on shareholders'
equity. The maturity date of this facility is January 31, 2018.
The Company has a separate facility with a maturity date of June 30, 2015 to
cover energy-related letters of credit. At March 31, 2014, $9.4 million of
energy-related letters of credit were covered under this facility with the
balance of $2.8 million covered under the Company's general operating loan
facility.
As at March 31, 2014 the Company was in compliance with all covenants relating
to its operating loans.
4. Employee Future Benefits
For the three months ended March 31, 2014, a loss of $9.2 million (before tax)
was recognized in other comprehensive income in relation to changes in the
valuation of the Company's employee future benefit plans. The loss reflects a
lower discount rate used to value the net retirement benefit obligations, offset
in part by a modest return on plan assets. For the three months ended March 31,
2013, a gain of $0.3 million (before tax) was recognized in other comprehensive
income.
For the Company's defined 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 $13.7 million.
The discount rate assumptions used to estimate the changes in net retirement
benefit obligations were as follows:
----------------------------------------------------------------------------
Pension Benefit Plans
Discount rate
March 31, 2014 4.40%
December 31, 2013 4.80%
March 31, 2013 4.10%
December 31, 2012 4.20%
----------------------------------------------------------------------------
Other Benefit Plans
Discount rate
March 31, 2014 4.50%
December 31, 2013 4.90%
March 31, 2013 4.30%
December 31, 2012 4.40%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Financial Instruments
CPPI's cash and cash equivalents, accounts receivable, loans and advances,
operating loans, accounts payable and accrued liabilities, and long-term debt
are measured at amortized cost subsequent to initial recognition. At March 31,
2014, the fair value of the Company's long-term debt approximates its amortized
cost of $50.0 million (December 31, 2013 - $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 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.
At March 31, 2014, the fair value of derivative financial instruments was a net
liability of $1.4 million (December 31, 2013 - net liability of $0.1 million).
The fair value of these financial instruments was determined based on prevailing
market rates for instruments with similar characteristics.
The following table summarizes the gain (loss) on level 2 derivative financial
instruments for the three month periods ended March 31, 2014 and 2013:
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Foreign exchange collars and forward contracts $ (1.0) $ 0.7
Crude oil collars - 0.1
Interest rate swaps (0.1) (0.1)
Pulp futures (0.3) -
----------------------------------------------------------------------------
Gain (loss) on derivative financial
instruments $ (1.4) $ 0.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. Income Taxes
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Current $ (5.0) $ (5.3)
Deferred (3.7) $ 1.2
----------------------------------------------------------------------------
Income tax expense $ (8.7) $ (4.1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The reconciliation of income taxes calculated at the statutory rate to the
actual income tax provision is as follows:
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Income tax expense at statutory rate 2014 - 26.0%
(2013 - 25.0%) $ (8.9) $ (3.8)
Add (deduct):
Permanent difference from capital gains and
other non-deductible items (0.1) (0.3)
Entities with different income tax rates and
other tax adjustments 0.3 -
----------------------------------------------------------------------------
Income tax expense $ (8.7) $ (4.1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In addition to the amounts recorded in net income, a tax recovery of $2.4
million was recorded to other comprehensive income for the three month period
ended March 31, 2014 (three months ended March 31, 2013 - expense of $0.1
million) in relation to the actuarial gains (losses) on defined benefit employee
compensation plans.
7. Earnings per Share and Normal Course Issuer Bid
Basic net income per share is calculated by dividing the net income available to
common shareholders by the weighted average number of common shares outstanding
during the period.
3 months ended March 31,
2014 2013
----------------------------------------------------------------------------
Weighted average number of common shares 71,007,341 71,269,790
----------------------------------------------------------------------------
----------------------------------------------------------------------------
On March 5, 2014, the Company renewed its normal course issuer bid whereby it
can purchase for cancellation up to 3,550,367 common shares or approximately 5%
of its issued and outstanding common shares as of February 28, 2014. The renewed
normal course issuer bid is set to expire on March 4, 2015. There were no shares
purchased by the Company during the first quarter of 2014.
8. Net Change in Non-Cash Working Capital
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Accounts receivable $ 0.5 $ (14.1)
Inventories (21.4) (0.3)
Prepaid expenses and other assets 2.3 1.2
Accounts payable and accrued liabilities (1.3) 6.0
----------------------------------------------------------------------------
Net increase in non-cash working capital $ (19.9) $ (7.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. Segment Information
The Company has two reportable segments which operate as separate business units
and represent separate product lines.
Sales between 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 Elimination
dollars) Pulp Paper Unallocated Adjustment Consolidated
----------------------------------------------------------------------------
3 months ended March
31, 2014
Sales to external
customers $ 190.7 34.8 0.9 - $ 226.4
Sales to other
segments $ 24.5 - - (24.5) $ -
Operating income
(loss) $ 35.0 4.5 (3.1) - $ 36.4
Amortization $ 15.1 0.9 - - $ 16.0
Capital
expenditures(1) $ 9.9 0.1 - - $ 10.0
Identifiable assets $ 675.4 59.6 39.3 - $ 774.3
----------------------------------------------------------------------------
3 months ended March
31, 2013
Sales to external
customers $ 180.4 36.1 1.0 - $ 217.5
Sales to other
segments $ 18.1 - - (18.1) $ -
Operating income
(loss) $ 15.4 5.9 (2.3) - $ 19.0
Amortization $ 17.9 1.0 - - $ 18.9
Capital
expenditures(1) $ 6.6 0.2 0.1 - $ 6.9
Identifiable assets $ 671.5 64.4 40.0 - $ 775.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Capital expenditures represent cash paid for capital assets during the
periods net of capital expenditures that were partially financed by government
grants.
10. Related Party Transactions
The Company depends on Canfor to provide approximately 63% (2013 - 63%) 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, 2013 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, pulp and
administrative services. These are summarized below:
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Transactions
Purchase of wood chips and other $ 35.0 $ 31.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at As at
March 31, December 31,
(millions of Canadian dollars) 2014 2013
----------------------------------------------------------------------------
Balance Sheet
Included in accounts payable and accrued
liabilities $ 14.8 $ 18.9
Included in trade and other accounts receivable $ 1.9 $ 9.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. Subsequent Event
On April 29, 2014, the Board of Directors declared a quarterly dividend of
$0.0625 per share with a declaration date of April 29, 2014, payable on May 20,
2014, to shareholders of record on May 12, 2014.
FOR FURTHER INFORMATION PLEASE CONTACT:
Media Contact:
Christine Kennedy
Canfor's Vice President,
Public Affairs & Corporate Communications
(604) 661-5225
Christine.Kennedy@canfor.com
Investor Contact:
Pat Elliott
Canfor's Vice President & Treasurer
(604) 661-5441
Patrick.Elliott@canfor.com
Rick Remesch
Corporate Controller
(604) 661-5221
Rick.Remesch@canforpulp.com
Imasight (Tier2) (TSXV:IAS)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Imasight (Tier2) (TSXV:IAS)
Historical Stock Chart
Von Jul 2023 bis Jul 2024
