VANCOUVER, Feb. 21, 2019 /CNW/ - Canfor Pulp Products Inc.
("CPPI") (TSX: CFX) today reported 2018 and fourth quarter of 2018
results and quarterly dividend:
2018 and Fourth Quarter Highlights
- Record 2018 operating income of $247
million; net income of $184
million, or $2.83 per share
and a return on invested capital of 37%
- Record-high annual sales of $1.4
billion in 2018, surpassing previous record by 15%
- Fourth quarter operating income of $16
million and sales of $290
million; net income of $14
million, or $0.21 per
share
Financial Results
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
Q4
|
|
Q3
|
|
YTD
|
|
Q4
|
|
YTD
|
(millions of Canadian
dollars, except per share amounts)
|
|
2018
|
|
2018
|
|
2018
|
|
2017
|
|
2017
|
Sales
|
$
|
289.7
|
$
|
328.5
|
$
|
1,374.3
|
$
|
257.8
|
$
|
1,197.9
|
Operating income
before amortization
|
$
|
36.1
|
$
|
80.7
|
$
|
326.2
|
$
|
42.1
|
$
|
229.0
|
Operating
income
|
$
|
15.6
|
$
|
60.5
|
$
|
246.6
|
$
|
22.9
|
$
|
154.6
|
Net income
|
$
|
14.2
|
$
|
42.9
|
$
|
184.4
|
$
|
45.2
|
$
|
102.1
|
Net income per share,
basic and diluted
|
$
|
0.21
|
$
|
0.66
|
$
|
2.83
|
$
|
0.69
|
$
|
1.55
|
Adjusted net
income1
|
$
|
14.2
|
$
|
42.9
|
$
|
184.4
|
$
|
48.0
|
$
|
104.9
|
Adjusted net income
per share, basic and diluted1
|
$
|
0.21
|
$
|
0.66
|
$
|
2.83
|
$
|
0.73
|
$
|
1.59
|
1 Adjusted
for $2.8 million increase in tax expense that was recognized in the
fourth quarter of 2017, as a result of an increase in the corporate
tax rate that was substantively enacted by the Provincial
Government of British Columbia during the fourth quarter of
2017.
|
Canfor Pulp had an exceptionally strong year in 2018, reporting
record-high operating income of $246.6
million, net income of $2.83
per share and a return on invested capital of 37%.
For the fourth quarter of 2018, the Company reported operating
income of $15.6 million, a decrease
of $44.9 million from $60.5 million reported for the third quarter of
2018. Results for the current quarter reflected repairs to
one of the Company's Northwood Pulp Mill ("Northwood") recovery
boilers, and operational disruptions resulting from a third-party
natural gas explosion in Prince
George early in the quarter, combined with their respective
effects on production volumes, shipments and manufacturing
costs.
Reflecting weaker demand from China, global softwood pulp market demand was
down in the fourth quarter of 2018, with global softwood pulp
producer inventory levels remaining above normal through the
quarter. US-dollar Northern Bleached Softwood Kraft ("NBSK")
pulp list prices to China averaged
US$805 per tonne, down 9% from the
prior quarter, with prices ending the year at US$725 per tonne. The Company's average
NBSK unit sales realizations, however, were broadly in line with
the prior quarter as the lower US-dollar pricing to China was largely offset by higher US-dollar
pricing to North America,
proportionately higher shipments to North
America, and a 1 cent, or 1%,
weaker Canadian dollar. Bleached Chemi-Thermo Mechanical Pulp
("BCTMP") US-dollar pricing came under modest downward pressure
during the current quarter; however, the Company's sales
realizations remained steady quarter-over-quarter reflecting the
timing of shipments (versus orders) and a weaker Canadian
dollar.
Pulp production was down 61,400 tonnes, or 22%, from the
previous quarter. This lower production primarily reflected
the continuation of the scheduled maintenance outage at Northwood
from the previous quarter, the aforementioned recovery boiler
extended downtime at Northwood, as well as unscheduled downtime
taken as a result of a third-party natural gas pipeline explosion,
which impacted the Company's three NBSK pulp mills and, to a lesser
extent, several other operational challenges during the current
quarter. Combined, these scheduled and unscheduled outages
impacted NBSK pulp production by approximately 90,000 tonnes.
In addition, in late December, the Company curtailed production at
its Taylor BCTMP mill for seven days in the face of reduced
residual fibre availability resulting from various sawmill
curtailments in the region, which impacted BCTMP production by
approximately 5,000 tonnes. In the third quarter of 2018, a
scheduled maintenance outage at Northwood and ramp up at
Taylor following the commissioning
of the energy reduction project, reduced pulp production by
approximately 30,000 tonnes.
Pulp shipments were down 31,700 tonnes, or 12%, from the
previous quarter reflecting the impact of the aforementioned
downtime partly offset by a drawdown of pulp inventories through
the period. The anticipated benefit of a slipped vessel
shipment from the previous quarter into the fourth quarter was
offset by a delayed vessel shipment over the year end.
NBSK pulp unit manufacturing costs were up significantly from
the previous quarter, in large measure due to reduced productivity
in the current quarter as well as higher related maintenance,
energy and chemical costs, associated with the unscheduled
outages. Fibre costs were broadly in line with the third
quarter of 2018.
Operating income for the paper segment remained broadly in line
with the prior quarter reflecting a solid operating performance at
the Company's Prince George paper
machine and steady paper unit sales realizations, with the weaker
Canadian dollar offsetting a modest decline in US-dollar
prices.
At the end of December, the Company experienced kiln-related
operational disruptions at two of its NBSK pulp mills. While these
challenges have now been resolved, the related production loss was
approximately 20,000 tonnes early in the first quarter of 2019.
Notwithstanding high inventory levels, global softwood kraft
pulp markets are projected to be steady through the first half of
2019, reflecting an anticipated pick-up in demand from China and reduced supply during the
traditional spring maintenance period. The BCTMP market is
projected to be steady in the first half of 2019.
CPPI's Chief Executive Officer, Don
Kayne, said, "With several months of significant operational
challenges now behind us, we are very focused on getting our
production performance back on track in the coming months."
The Company has no maintenance outages planned for the first
quarter of 2019. Maintenance outages are currently planned at
the Intercontinental NBSK pulp mill in the second quarter of 2019
with a projected 12,000 tonnes of reduced NBSK pulp production.
Additional maintenance outages are scheduled at the Prince George
NBSK pulp mill and the Taylor BCTMP mill in the third and fourth
quarters of 2019 with a projected 6,000 tonnes of reduced NBSK pulp
production and projected 5,000 tonnes of reduced BCTMP production,
respectively. No scheduled maintenance outages are planned for the
Company's Northwood NBSK pulp mill in 2019.
Bleached kraft paper demand is expected to remain solid through
the first quarter of 2019. A maintenance outage is currently
planned at the Company's paper machine during the third quarter of
2019 with a projected 4,000 tonnes of reduced paper production.
On February 21, 2019, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on March 13, 2019 to the shareholders of record on
March 6, 2019.
Refer to the Company's annual Management's Discussion and
Analysis for further discussion on the Company's results for the
fourth quarter of 2018 on page 16.
Additional Information and Conference Call
A
conference call to discuss the fourth quarter's financial and
operating results will be held on Friday,
February 22, 2019 at 8:00 AM Pacific
time. To participate in the call, please dial Toll-Free
888-390-0546. For instant replay access until March 8, 2019, please dial 888-390-0541 and enter
participant pass code 194657#. The conference call will be webcast
live and will be available at www.canfor.com. This news release,
the attached financial statements and a presentation used during
the conference call can be accessed via the Company's website at
http://www.canfor.com/investor-relations/webcasts.
Non-IFRS Measures and Forward Looking
Statements
Operating Income (Loss) before Amortization and
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share
are not generally accepted earnings measures and should not be
considered as an alternative to net income (loss) or cash flows as
determined in accordance with IFRS. Refer to the Company's
Annual Management's Discussion and Analysis for a reconciliation of
Operating Income (Loss) before Amortization to Operating Income
(Loss) and Adjusted Net Income (Loss) to Net Income (Loss) reported
in accordance with IFRS.
Certain statements in this press release constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words
such as "expects", "anticipates", "projects", "intends", "plans",
"will", "believes", "seeks", "estimates", "should", "may", "could",
and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements
are based on management's current expectations and beliefs and
actual events or results may differ materially. There are
many factors that could cause such actual events or results
expressed or implied by such forward-looking statements to differ
materially from any future results expressed or implied by such
statements. Forward-looking statements are based on current
expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as
required by law.
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 ("NBSK") 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.
Condensed Consolidated
Balance Sheets
(millions of Canadian
dollars, unaudited)
|
As
at December
31, 2018
|
As at
December 31,
2017
|
ASSETS
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
$
|
6.9
|
$
|
76.7
|
Accounts
receivable
|
-
Trade
|
|
107.6
|
|
101.5
|
|
-
Other
|
|
11.4
|
|
14.3
|
Income taxes
receivable
|
|
5.4
|
|
-
|
Inventories (Note
2)
|
|
207.1
|
|
165.5
|
Prepaid expenses and
other
|
|
11.9
|
|
7.0
|
Total current
assets
|
|
350.3
|
|
365.0
|
Property, plant
and equipment and intangible assets
|
|
578.2
|
|
526.7
|
Other long-term
assets
|
|
3.5
|
|
0.5
|
Total
assets
|
$
|
932.0
|
$
|
892.2
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
182.0
|
$
|
161.5
|
Total current
liabilities
|
|
182.0
|
|
161.5
|
Retirement benefit
obligations (Note 4)
|
|
80.0
|
|
85.2
|
Other long-term
provisions
|
|
6.6
|
|
6.5
|
Deferred income
taxes, net
|
|
66.8
|
|
67.6
|
Total
liabilities
|
$
|
335.4
|
$
|
320.8
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Share
capital
|
$
|
480.9
|
$
|
480.9
|
Retained
earnings
|
|
115.7
|
|
90.5
|
Total
equity
|
$
|
596.6
|
$
|
571.4
|
Total liabilities
and equity
|
$
|
932.0
|
$
|
892.2
|
Subsequent
Event (Note 11)
|
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
|
APPROVED BY THE
BOARD
|
|
"S.E.
Bracken-Horrocks"
|
"C.A.
Pinette"
|
Director, S.E.
Bracken-Horrocks
|
Director,
C.A.Pinette
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Income
|
3 months ended
December 31,
|
12 months ended
December 31,
|
(millions of
Canadian dollars, except per share data, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
289.7
|
$
|
322.9
|
$
|
1,374.3
|
$
|
1,197.9
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
Manufacturing and
product costs
|
|
212.8
|
|
191.7
|
|
870.9
|
|
786.7
|
Freight and other
distribution costs
|
|
32.5
|
|
38.7
|
|
145.4
|
|
155.0
|
Amortization
|
|
20.5
|
|
18.8
|
|
79.6
|
|
74.4
|
Selling and
administration costs
|
|
8.3
|
|
6.9
|
|
31.8
|
|
27.2
|
|
|
274.1
|
|
256.1
|
|
1,127.7
|
|
1,043.3
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
15.6
|
|
66.8
|
|
246.6
|
|
154.6
|
|
|
|
|
|
|
|
|
|
Finance expense,
net
|
|
(0.9)
|
|
(1.9)
|
|
(4.2)
|
|
(7.2)
|
Other income (expense),
net
|
|
4.8
|
|
-
|
|
8.7
|
|
(6.5)
|
Net income before
income taxes
|
|
19.5
|
|
64.9
|
|
251.1
|
|
140.9
|
Income tax expense
(Note 3)
|
|
(5.3)
|
|
(19.7)
|
|
(66.7)
|
|
(38.8)
|
Net
income
|
$
|
14.2
|
$
|
45.2
|
$
|
184.4
|
$
|
102.1
|
|
|
|
|
|
|
|
|
|
Net income per
common share: (in Canadian dollars)
|
|
|
|
|
|
|
|
|
Attributable to equity
shareholders of the Company
|
|
|
|
|
|
|
|
|
- Basic and
diluted (Note 5)
|
$
|
0.21
|
$
|
0.69
|
$
|
2.83
|
$
|
1.55
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
Canfor Pulp Products Inc.
Condensed Consolidated
Statements of Comprehensive Income
|
3
months ended December 31,
|
12 months ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
14.2
|
$
|
45.2
|
$
|
184.4
|
$
|
102.1
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
Items that will not
be recycled through net income:
|
|
|
|
|
|
|
|
|
Defined benefit plan
actuarial gains (Note 4)
|
|
1.5
|
|
29.8
|
|
5.5
|
|
25.2
|
Income tax expense on
defined benefit plan actuarial gains (Note 3)
|
|
(0.4)
|
|
(7.5)
|
|
(1.5)
|
|
(6.3)
|
Other comprehensive
income, net of tax
|
|
1.1
|
|
22.3
|
|
4.0
|
|
18.9
|
Total
comprehensive income
|
$
|
15.3
|
$
|
67.5
|
$
|
188.4
|
$
|
121.0
|
Condensed Consolidated Statements of Changes in
Equity
|
3 months ended
December 31,
|
12
months ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
480.9
|
$
|
481.0
|
$
|
480.9
|
$
|
491.6
|
Share purchases (Note
5)
|
|
-
|
|
(0.1)
|
|
-
|
|
(10.7)
|
Balance at end of
period
|
$
|
480.9
|
$
|
480.9
|
$
|
480.9
|
$
|
480.9
|
|
|
|
|
|
|
|
|
|
Retained earnings
(deficit)
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
251.3
|
$
|
27.1
|
$
|
90.5
|
$
|
(6.9)
|
Net income
|
14.2
|
|
45.2
|
|
184.4
|
|
102.1
|
Defined benefit plan
actuarial gains, net of tax
|
|
1.1
|
|
22.3
|
|
4.0
|
|
18.9
|
Dividends declared
(Note 10)
|
|
(150.9)
|
|
(4.1)
|
|
(163.2)
|
|
(16.5)
|
Share purchases (Note
5)
|
|
-
|
-
|
-
|
|
-
|
|
(7.1)
|
Balance at end of
period
|
$
|
115.7
|
$
|
90.5
|
$
|
115.7
|
$
|
90.5
|
Total
equity
|
$
|
596.6
|
$
|
571.4
|
$
|
596.6
|
$
|
571.4
|
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
December 31,
|
12 months ended
December 31,
|
(millions of
Canadian dollars, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Cash generated
from (used in):
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net income
|
$
|
14.2
|
$
|
45.2
|
$
|
184.4
|
$
|
102.1
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
Amortization
|
|
20.5
|
|
18.8
|
|
79.6
|
|
74.4
|
Income tax
expense
|
|
5.3
|
|
19.7
|
|
66.7
|
|
38.8
|
Employee future
benefits expense
|
|
0.7
|
|
0.4
|
|
4.0
|
|
4.3
|
Finance expense,
net
|
|
0.9
|
|
1.9
|
|
4.2
|
|
7.2
|
Other, net
|
|
0.8
|
|
1.3
|
|
(1.1)
|
|
0.4
|
Defined benefit plan contributions
|
|
(1.6)
|
|
(2.2)
|
|
(6.6)
|
|
(7.0)
|
Income taxes paid, net
|
|
(36.3)
|
|
(1.5)
|
|
(90.4)
|
|
(19.1)
|
|
|
4.5
|
|
83.6
|
|
240.8
|
|
201.1
|
Net change in non-cash working capital (Note 6)
|
|
(9.4)
|
|
(5.2)
|
|
(25.6)
|
|
(6.4)
|
|
|
(4.9)
|
|
78.4
|
|
215.2
|
|
194.7
|
Financing
activities
|
|
|
|
|
|
|
|
|
Repayment of long-term
debt
|
|
-
|
|
(50.0)
|
|
-
|
|
(50.0)
|
Finance expenses
paid
|
|
(0.8)
|
|
(1.0)
|
|
(3.3)
|
|
(3.3)
|
Dividends paid (Note
10)
|
|
(150.9)
|
|
(4.1)
|
|
(163.2)
|
|
(16.5)
|
Share purchases (Note
5)
|
|
-
|
|
-
|
|
(0.1)
|
|
(17.7)
|
|
|
(151.7)
|
|
(55.1)
|
|
(166.6)
|
|
(87.5)
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment and
intangible assets, net
|
|
(42.5)
|
|
(28.1)
|
|
(120.5)
|
|
(83.1)
|
Other, net
|
|
0.6
|
|
0.2
|
|
2.1
|
|
0.7
|
|
|
(41.9)
|
|
(27.9)
|
|
(118.4)
|
|
(82.4)
|
Increase
(decrease) in cash and cash equivalents*
|
|
(198.5)
|
|
(4.6)
|
|
(69.8)
|
|
24.8
|
Cash and cash
equivalents at beginning of period*
|
|
205.4
|
|
81.3
|
|
76.7
|
|
51.9
|
Cash and cash
equivalents at end of period*
|
$
|
6.9
|
$
|
76.7
|
$
|
6.9
|
$
|
76.7
|
|
*Cash and
cash equivalents include cash on hand less unpresented
cheques.
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
Canfor Pulp Products Inc.
Notes to the Condensed
Consolidated Financial Statements
Three and twelve months
ended December 31, 2018 and 2017
(millions of Canadian dollars unless otherwise noted,
unaudited)
1. Basis of
Preparation
These condensed consolidated financial statements (the
"financial statements") include the accounts of Canfor Pulp
Products Inc. ("CPPI") and its subsidiary entities, hereinafter
referred to as "CPPI" or "the Company". At December 31, 2018 and February 21, 2019, Canfor Corporation ("Canfor")
held a 54.8% interest in CPPI.
These financial statements do not include all of the disclosures
required by International Financial Reporting Standards ("IFRS")
for interim and 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, 2018, available at www.canfor.com or
www.sedar.com.
Effective January 1, 2018, the
Company has adopted IFRS 15 Revenue from Contracts with
Customers. IFRS 15 supersedes IAS 18 Revenue, IAS 11
Construction Contracts and related interpretations. The
standard establishes a framework based on transfer of control for
determining how much and when revenue is recognized and includes
expanded disclosure requirements. The adoption of IFRS 15 has had
no significant impact on the Company's financial statements.
Effective January 1, 2018, the
Company has adopted IFRS 9 Financial Instruments. IFRS 9
supersedes IAS 39 Financial Instruments: Recognition and
Measurement. The standard includes requirements for
recognition, measurement, impairment and derecognition of financial
assets and liabilities, as well as general hedge accounting. The
adoption of IFRS 9 has had no significant impact on the Company's
financial statements.
These financial statements were authorized for issue by the
Company's Board of Directors on February 21,
2019.
Certain comparative amounts for the prior period have been
reclassified to conform to the current period's presentation.
Accounting Standards Issued and Not Applied
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. IFRS 16
introduces a single, on-balance sheet lease accounting model for
lessees. A lessee recognizes a right-of-use asset representing its
right to use the underlying asset and a lease liability
representing its obligation to make lease payments. In addition,
the nature of expenses related to those leases will change as IFRS
16 replaces straight-line operating lease expense with an
amortization expense for right-of-use assets and interest expense
on lease liabilities.
IFRS 16 may be applied retrospectively to each prior period
presented (full retrospective approach), or with the cumulative
effect of adoption recognized at initial application (modified
retrospective approach). The Company has elected to apply the
modified retrospective approach upon adoption at January 1, 2019, measuring the right-of-use asset
at its carrying amount had the standard been applied at
commencement of the lease. The short-term and low-value recognition
exemptions available under the standard will be utilized, along
with certain practical expedients.
Based on lease data as at December 31,
2018, IFRS 16 will have the following financial statement
impact on the Company's consolidated balance sheet at transition on
January 1, 2019, with no material
impact to 2019 net income:
(millions of Canadian
dollars, unaudited)
|
|
|
As at
January 1,
2019
|
Right-of-use asset,
net of accumulated amortization
|
Increase in
assets
|
$
|
1.4
|
Lease
obligation
|
Increase in
liabilities
|
|
1.5
|
Retained
earnings
|
Decrease in
equity
|
|
0.1
|
The full quantification of the new standard will be disclosed in
the condensed consolidated interim financial statements for the
first quarter of 2019.
2. Inventories
(millions of Canadian
dollars, unaudited)
|
|
As
at
December
31,
2018
|
|
As at
December 31,
2017
|
Pulp
|
$
|
83.2
|
$
|
78.5
|
Paper
|
|
22.2
|
|
14.9
|
Wood chips and
logs
|
|
48.3
|
|
19.9
|
Materials and
supplies
|
|
53.4
|
|
52.2
|
|
$
|
207.1
|
$
|
165.5
|
Inventory balances are stated at the lower of cost or net
realizable value. During the three and twelve months ended
December 31, 2018, no inventory
write-downs were recognized (three and twelve months ended
December 31, 2017 – nil).
3. Income Taxes
|
3 months ended
December 31,
|
12
months ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Current
|
$
|
(0.1)
|
$
|
(19.2)
|
$
|
(69.0)
|
$
|
(39.3)
|
Deferred
|
|
(5.2)
|
|
(0.5)
|
|
2.3
|
|
0.5
|
Income tax
expense
|
$
|
(5.3)
|
$
|
(19.7)
|
$
|
(66.7)
|
$
|
(38.8)
|
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months ended
December 31,
|
12
months ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Income tax expense at
statutory rate – 27% (2017 – 26%)
|
$
|
(5.3)
|
$
|
(16.8)
|
$
|
(67.8)
|
$
|
(36.6)
|
Add:
|
|
|
|
|
|
|
|
|
Entities with different
income tax rates and other tax adjustments
|
|
-
|
|
-
|
|
0.2
|
|
0.7
|
Permanent difference
from capital gains and losses and other non-
|
|
|
|
|
|
|
|
|
deductible
items
|
|
-
|
|
(0.1)
|
|
0.9
|
|
(0.1)
|
Change in substantively
enacted legislation
|
|
-
|
|
(2.8)
|
|
-
|
|
(2.8)
|
Income tax
expense
|
$
|
(5.3)
|
$
|
(19.7)
|
$
|
(66.7)
|
$
|
(38.8)
|
In the fourth quarter of 2017, the Provincial Government of
British Columbia passed
legislation increasing the provincial corporate tax rate from 11%
to 12% effective January 1, 2018.
Accordingly, a $2.8 million increase
to income tax expense was recorded in net income in the fourth
quarter of 2017 to record the impact on deferred taxes, with an
additional $0.3 million being
recorded in other comprehensive income as an income tax recovery on
defined benefit plan actuarial losses.
In addition, a tax expense of $0.4 million related to actuarial gains on
the Company's defined benefit plans was recorded in other
comprehensive income for the three months ended December 31, 2018 (three months ended
December 31, 2017 - expense of
$7.8 million, before the tax rate
adjustment). For the twelve months ended December 31, 2018, a tax expense of $1.5 million was recorded in other comprehensive
income relating to actuarial gains (twelve months ended
December 31, 2017 – expense of
$6.6 million, before the tax rate
adjustment).
4. Employee Future Benefits
The Company, in participation with Canfor, has several funded
and unfunded defined benefit pension plans, defined contribution
plans, and other non-pension post-retirement benefit plans that
provide benefits to substantially all salaried employees and
certain hourly employees. The defined benefit pension plans are
based on years of service and final average salary. CPPI's other
non-pension post-retirement benefit plans are non-contributory and
include a range of health care and other benefits.
Annuity contracts
The Company purchased buy-in annuities through its defined
benefits pension plans, increasing total annuities purchased in the
year ended December 31, 2018 to
$8.9 million, and the cumulative
total amount purchased to $86.0
million (December 31, 2017 -
$77.1 million). Future cash flows
from the annuities will match the amount and timing of benefits
payable under the plans, substantially mitigating the exposure to
future volatility in the related pension obligations.
In the three and twelve months ended December 31, 2018, transaction costs of
$0.7 million, related to this
purchase (three and twelve months ended December 31, 2017 – costs of $0.5 million and $1.6
million) were recognized in other comprehensive income,
principally reflecting the difference between the annuity rate
compared to the discount rate used to value the obligations on a
going concern basis.
Significant assumptions
The actuarial assumptions used in measuring CPPI's benefit plan
provisions and benefit costs are as follows:
|
December 31,
2018
|
December 31,
2017
|
|
Defined
Benefit
Pension Plans
|
Other Benefit
Plans
|
Defined Benefit
Pension Plans
|
Other Benefit
Plans
|
Discount
rate
|
3.6
%
|
3.6%
|
3.4 %
|
3.4%
|
Rate of compensation
increases
|
3.0
%
|
n/a
|
3.0 %
|
n/a
|
Initial medical cost
trend rate
|
n/a
|
5.5%
|
n/a
|
6.5%
|
Ultimate medical cost
trend rate
|
n/a
|
4.5%
|
n/a
|
4.5%
|
|
n/a
|
2022
|
n/a
|
2022
|
5. 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
December 31,
|
12 months ended
December 31,
|
|
2018
|
2017
|
2018
|
2017
|
Weighted average
number of common shares
|
65,250,759
|
65,258,751
|
65,250,763
|
65,887,110
|
On March 5, 2018, the Company
renewed its normal course issuer bid whereby up to 6,439,764 common
shares or approximately 5% of its issued and outstanding common
shares as of March 1, 2018 could be
purchased for cancellation. The renewed normal course issuer bid is
set to expire on March 6, 2019.
During the fourth quarter of 2018, the Company did not purchase
any common shares. For the twelve months ended December 31, 2018, the Company purchased 500
shares at an average of $13.01 per
common share, and paid $0.1 million
in relation to shares purchased in the prior year.
As at December 31, 2018, and
February 21, 2019, there were
65,250,759 common shares of the Company outstanding and Canfor's
ownership interest in CPPI was 54.8%.
6. Net Change in Non-Cash Working
Capital
|
3 months
ended December 31,
|
12
months ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Accounts
receivable
|
$
|
7.9
|
$
|
(14.8)
|
$
|
(2.4)
|
$
|
(24.4)
|
Inventories
|
|
(15.5)
|
|
(4.3)
|
|
(41.6)
|
|
0.6
|
Prepaid expenses and
other
|
|
2.0
|
|
3.2
|
|
(2.9)
|
|
4.8
|
Accounts payable and
accrued liabilities
|
|
(3.8)
|
|
10.7
|
|
21.3
|
|
12.6
|
Increase in non-cash
working capital
|
$
|
(9.4)
|
$
|
(5.2)
|
$
|
(25.6)
|
$
|
(6.4)
|
7. Segment Information
The Company has two reportable segments, pulp and paper, which
operate as separate business units and represent separate product
lines. Sales between the pulp and paper segments are accounted for
at prices that approximate fair value. These include sales of slush
pulp from the pulp segment to the paper segment. Information
regarding the operations of each reportable segment is included in
the following table:
(millions of Canadian
dollars, unaudited)
|
Pulp
|
Paper
|
Unallocated
|
Elimination
Adjustment
|
Consolidated
|
3 months ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Sales from
contracts with customers
|
$
|
243.5
|
$
|
46.1
|
$
|
0.1
|
$
|
-
|
$
|
289.7
|
Sales to other
segments
|
|
32.1
|
|
-
|
|
-
|
|
(32.1)
|
|
-
|
Operating income
(loss)
|
|
15.2
|
|
3.5
|
|
(3.1)
|
|
-
|
|
15.6
|
Amortization
|
|
19.5
|
|
0.9
|
|
0.1
|
|
-
|
|
20.5
|
Capital
expenditures1
|
|
40.8
|
|
0.4
|
|
1.3
|
|
-
|
|
42.5
|
3 months ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Sales from contracts
with customers
|
$
|
277.3
|
$
|
45.6
|
$
|
-
|
$
|
-
|
$
|
322.9
|
Sales to other
segments
|
|
25.8
|
|
-
|
|
-
|
|
(25.8)
|
|
-
|
Operating income
(loss)
|
|
62.4
|
|
7.4
|
|
(3.0)
|
|
-
|
|
66.8
|
Amortization
|
|
17.7
|
|
1.0
|
|
0.1
|
|
-
|
|
18.8
|
Capital
expenditures1
|
|
26.8
|
|
1.3
|
|
-
|
|
-
|
|
28.1
|
12 months ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Sales from
contracts with customers
|
$
|
1,192.9
|
$
|
180.9
|
$
|
0.5
|
$
|
-
|
$
|
1,374.3
|
Sales to other
segments
|
|
119.7
|
|
-
|
|
-
|
|
(119.7)
|
|
-
|
Operating income
(loss)
|
|
248.9
|
|
11.0
|
|
(13.3)
|
|
-
|
|
246.6
|
Amortization
|
|
75.3
|
|
4.2
|
|
0.1
|
|
-
|
|
79.6
|
Capital
expenditures1
|
|
113.3
|
|
3.7
|
|
3.5
|
|
-
|
|
120.5
|
Identifiable
assets
|
|
841.7
|
|
66.1
|
|
24.2
|
|
-
|
|
932.0
|
12 months ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Sales from contracts
with customers
|
$
|
1,024.5
|
$
|
173.0
|
$
|
0.4
|
$
|
-
|
$
|
1,197.9
|
Sales to other
segments
|
|
92.0
|
|
-
|
|
-
|
|
(92.0)
|
|
-
|
Operating income
(loss)
|
|
140.5
|
|
26.0
|
|
(11.9)
|
|
-
|
|
154.6
|
Amortization
|
|
70.4
|
|
3.9
|
|
0.1
|
|
-
|
|
74.4
|
Capital
expenditures1
|
|
81.3
|
|
1.8
|
|
-
|
|
-
|
|
83.1
|
Identifiable
assets
|
|
751.3
|
|
55.2
|
|
85.7
|
|
-
|
|
892.2
|
1Capital
expenditures represent cash paid for capital assets during the
periods and include capital expenditures that were partially
financed by government grants.
|
8. 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 next generation biofuels and biochemicals. Licella is a
subsidiary of Ignite Energy Resources Ltd. ("IER") an Australian
energy technology development company.
Under IFRS 11, Joint Arrangements, the joint venture is
classified as a joint operation and CPPI recognizes its assets,
liabilities and transactions, including its share of those incurred
jointly, in its financial statements. For the three months ended
December 31, 2018, the Company's
share of the joint venture's expenses was $0.6 million (three months ended December 31, 2017 - $0.3
million), which have been recognized in manufacturing and
product costs. For the twelve months ended December 31, 2018, the Company's share of the
joint venture's expenses was $2.1
million (twelve months ended December
31, 2017 - $1.1 million). The
Company is required to contribute the first $20.0 million of any funding requirements,
including cash and non-cash contributions, to the joint venture, of
which $3.8 million has been
contributed as at December 31,
2018.
In March 2017, the Canadian
Federal Government through its Sustainable Development Technology
Canada program announced the funding over several years of
approximately $13.2 million,
contingent on future spending. Advance funding of $1.9 million was received in April 2018 for the period October 1, 2017 through to the time at which the
terms of funding have been met, which is currently estimated as
March 31, 2019. Of this amount,
$0.2 million has been recognized as
an offset to manufacturing and product costs for the three months
ended December 31, 2018. For the
twelve months ended December 31,
2018, an offset of $0.7
million has been recognized.
9. Contingencies
In the ordinary course of its business activities, the Company
may be subject to, or enter into, legal actions and claims with
customers, unions, suppliers or others. During the fourth
quarter of 2017, the Company settled an outstanding claim with one
of its suppliers and recognized a recovery of $2.8 million in manufacturing and product
costs.
In circumstances where the Company is not able to determine the
outcome of a legal action and claim, no amount is recognized in the
financial statements, with an amount accrued only when a reliable
estimate of the obligation can be made. Although there can be
no assurance as to the disposition of a legal action and claim, it
is the opinion of the Company's management, based upon the
information available at this time, that the expected outcome of a
legal action and claim, individually or in aggregate, is unlikely
to have a material adverse effect on the operating results and
financial condition of the Company as a whole.
10. Special Dividend
On October 24, 2018, the Board of
Directors declared a special dividend of $2.25 per share, paid to the shareholders of
record on November 13, 2018. The
special dividend was paid as a result of strong cash generated by
the business over the last year.
11. Subsequent Event
On February 21, 2019, the Board of
Directors declared a quarterly dividend of $0.0625 per share, payable on March 13, 2019, to the shareholders of record on
March 6, 2019.
SOURCE Canfor Pulp Products Inc.