First Quarter Highlights
- Sales of
$1.195 billion , up 6% on prior quarter. - Adjusted EBITDA of
$127 million ,$47 million higher than prior quarter. - Improved prices, favourable foreign exchange rate movements, and lower fibre costs resulted in improved Adjusted EBITDA for the quarter.
- Quarter-end liquidity of
$294 million and net debt to capital ratio at 33%. - On
April 9, 2020 , secured an additional two-year$150 million committed revolving credit facility. - Progress on
Dudley, Georgia sawmill on track.
Results Compared to Previous Periods
($ millions except earnings per share ("EPS"))
Q1-20 | Q4-19 | Q1-19 | |
Sales | 1,195 | 1,129 | 1,241 |
Adjusted EBITDA1 | 127 | 80 | 110 |
Operating earnings | 13 | (31) | 10 |
Earnings | 12 | (42) | (5) |
Basic EPS ($) | 0.18 | (0.61) | (0.07) |
Adjusted Earnings1 | 28 | (11) | 22 |
Adjusted basic EPS ($)1 | 0.42 | (0.16) | 0.32 |
1. | In this news release, reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS (collectively "these measures"). We believe that, in addition to earnings, these measures are useful performance indicators. None of these measures is a generally accepted earnings measure under International Financial Reporting Standards ("IFRS") and none has a standardized meaning prescribed by IFRS. Investors are cautioned that these measures should not be considered as an alternative to earnings, EPS or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating any of these measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of any of these measures may not be directly comparable to similarly titled measures used by other entities. Reconciliations of our Non-IFRS measures to our earnings statement are shown in the various tables of our quarterly Management's Discussion & Analysis. |
COVID-19
The impact of the novel Coronavirus ("COVID-19") pandemic has been swift, requiring unprecedented actions to control the spread of the virus and has resulted in governments and businesses worldwide enacting emergency measures and restrictions to combat the spread of COVID-19. These measures and restrictions, which include the implementation of travel bans, mandated or voluntary business closures, and self-imposed and mandatory quarantine periods, isolation orders and social distancing have caused material disruptions to businesses globally resulting in an economic slowdown and have led to disruptions to our workforce and operating facilities, customers, production, sales and operations, and supply chain. Governments and central banks have reacted with significant monetary and fiscal interventions and other measures designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak are unknown at this time, as is the effectiveness of governments and central banks measures to stabilize the economy and limit the spread of COVID-19. At this time, it is not possible to reliably estimate the length and severity of these developments and the impact on our operations, the markets for our products, and our financial results and condition.
As a result of the far-reaching impact of COVID-19, we have made a number of adjustments to our operating schedules late in the first quarter of 2020. The impact of these adjustments on our first quarter production was a reduction of approximately 50 MMfbm for lumber and 10 MMsf for plywood. The "Outlook" section below includes commentary on potential future operating schedules.
Operational results
Our lumber segment generated operating earnings of
Our panels segment generated operating earnings in the quarter of
Our pulp & paper segment generated operating earnings of $nil (Q4-19 -
Subsequent Event
On
Outlook
We expect production to continue to be negatively affected over the coming months due to the COVID-19 pandemic's impact on the supply chain and market demand. As previously announced, we have been operating below capacity in SPF, SYP and plywood. We also announced four weeks of downtime at our Cariboo Pulp joint operation starting
We continue to review our operations and financial position and develop plans for the potential long-term impacts of the COVID-19 pandemic, including reviewing our capital expenditure plans and managing our working capital.
Risks and Uncertainties
As of the date of this news release, given the ongoing and dynamic nature of the COVID-19 outbreak, it is difficult to predict the severity of the impact on our business, and the full extent of the effects of COVID-19 are unknown. The extent of such impact will depend on future developments, which are highly uncertain, including new information, which may emerge concerning the spread and severity of the coronavirus and actions taken to address its impact, among others. It is difficult to predict how this virus may affect our business in the future, including the effect it may have (positive or negative; long or short term) on the demand and price for our products. It is possible that COVID-19 could have a material adverse effect on our business, financial condition, liquidity, and operating results.
Our first quarter 2020 Management Discussion and Analysis has additional information regarding COVID-19 risks and uncertainties.
Management's Discussion & Analysis
The Company's first quarter 2020 management's discussion & analysis is available on the Company's website: www.westfraser.com and on the System for Electronic Document Analysis and Retrieval at www.sedar.com under the Company's profile.
The Company
Forward-Looking Statements
This news release contains historical information, descriptions of current circumstances and statements about potential future developments. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader, but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. Forward-looking statements are included under the headings "Coronavirus (regarding its duration and impact, government measures and operating schedule adjustments)," "Outlook (regarding future production, schedule adjustments and downtime and our ability to manage the impacts of COVID-19)," and "Risks and Uncertainties (regarding the impact of COVID-19)." Actual outcomes and results will depend on a number of factors that could affect the ability of the Company to execute its business plans, including those matters described in the 2019 annual MD&A under "Risks and Uncertainties" and in our first quarter 2020 MD&A under the heading "Risks and Uncertainties", and may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements, and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws. All dollar amounts in this news release are expressed in Canadian dollars.
Conference Call
Investors are invited to listen to the quarterly conference call on
Condensed Consolidated Balance Sheets | ||||
(in millions of Canadian dollars, except where indicated - unaudited) | ||||
2020 | 2019 | |||
Assets | ||||
Current assets | ||||
Cash and short-term investments | $ | 94 | $ | 16 |
Receivables | 325 | 258 | ||
Income taxes receivable | 125 | 135 | ||
Inventories (note 5) | 943 | 729 | ||
Prepaid expenses | 14 | 9 | ||
1,501 | 1,147 | |||
Property, plant and equipment | 2,233 | 2,140 | ||
Timber licences | 488 | 493 | ||
811 | 772 | |||
Export duty deposits (note 14) | 96 | 80 | ||
Other assets | 25 | 26 | ||
Deferred income tax assets | 11 | 10 | ||
$ | 5,165 | $ | 4,668 | |
Liabilities | ||||
Current liabilities | ||||
Cheques issued in excess of funds on deposit | $ | - | $ | 16 |
Operating loans (note 6) | 682 | 374 | ||
Payables and accrued liabilities | 436 | 396 | ||
Current portion of long-term debt (note 6) | 10 | 10 | ||
Current portion of reforestation and decommissioning obligations | 44 | 41 | ||
1,172 | 837 | |||
Long-term debt (note 6) | 710 | 650 | ||
Other liabilities (note 7) | 381 | 454 | ||
Deferred income tax liabilities | 273 | 253 | ||
2,536 | 2,194 | |||
Shareholders' Equity | ||||
Share capital | 484 | 483 | ||
Accumulated other comprehensive earnings | 198 | 132 | ||
Retained earnings | 1,947 | 1,859 | ||
2,629 | 2,474 | |||
$ | 5,165 | $ | 4,668 | |
Number of Common shares and Class |
Condensed Consolidated Statements of Changes in Shareholders' Equity | ||||
(in millions of Canadian dollars, except where indicated - unaudited) | ||||
2020 | 2019 | |||
Share capital | ||||
Balance - beginning of period | $ | 483 | $ | 491 |
Issuance of Common shares | 1 | 1 | ||
Repurchase of Common shares | - | (5) | ||
Balance - end of period | $ | 484 | $ | 487 |
Accumulated other comprehensive earnings | ||||
Balance - beginning of period | $ | 132 | $ | 170 |
Translation gain (loss) on foreign operations | 66 | (17) | ||
Balance - end of period | $ | 198 | $ | 153 |
Retained earnings | ||||
Balance - beginning of period | $ | 1,859 | $ | 2,235 |
Actuarial gain (loss) on post-retirement benefits | 90 | (36) | ||
Repurchase of Common shares | - | (45) | ||
Earnings for the period | 12 | (5) | ||
Dividends | (14) | (14) | ||
Balance - end of period | $ | 1,947 | $ | 2,135 |
Shareholders' Equity | $ | 2,629 | $ | 2,775 |
Condensed Consolidated Statements of Earnings and Comprehensive Earnings | ||||
(in millions of Canadian dollars, except where indicated - unaudited) | ||||
2020 | 2019 | |||
Sales | $ | 1,195 | $ | 1,241 |
Costs and expenses | ||||
Cost of products sold | 846 | 903 | ||
Freight and other distribution costs | 168 | 170 | ||
Export duties (note 14) | 35 | 32 | ||
Amortization | 70 | 65 | ||
Selling, general and administration | 54 | 58 | ||
Equity-based compensation | 9 | 3 | ||
1,182 | 1,231 | |||
Operating earnings | 13 | 10 | ||
Finance expense | (16) | (11) | ||
Other (note 10) | 12 | (5) | ||
Earnings before tax | 9 | (6) | ||
Tax recovery (note 11) | 3 | 1 | ||
Earnings | $ | 12 | $ | (5) |
Earnings per share (dollars) (note 12) | ||||
Basic | $ | 0.18 | $ | (0.07) |
Diluted | $ | (0.11) | $ | (0.12) |
Comprehensive earnings | ||||
Earnings | $ | 12 | $ | (5) |
Other comprehensive earnings | ||||
Translation gain (loss) on foreign operations | 66 | (17) | ||
Actuarial gain (loss) on post-retirement benefits | 90 | (36) | ||
Comprehensive earnings | $ | 168 | $ | (58) |
Condensed Consolidated Statements of Cash Flows | ||||
(in millions of Canadian dollars, except where indicated - unaudited) | ||||
Cash provided by (used in) | 2020 | 2019 | ||
Operating activities | ||||
Earnings | $ | 12 | $ | (5) |
Adjustments | ||||
Amortization | 70 | 65 | ||
Finance expense | 16 | 11 | ||
Exchange loss (gain) on long-term financing | (6) | 1 | ||
Exchange loss (gain) on export duty deposits | (7) | 2 | ||
Export duty deposits | (8) | (5) | ||
Post-retirement expense | 25 | 21 | ||
Contributions to post-retirement benefit plans | (13) | (17) | ||
Tax recovery | (3) | (1) | ||
Income taxes paid | (1) | (77) | ||
Reforestation and decommissioning obligations | 24 | 17 | ||
Other | 5 | 2 | ||
Changes in non-cash working capital | ||||
Receivables | (65) | (49) | ||
Inventories | (195) | (180) | ||
Prepaid expenses | (4) | (4) | ||
Payables and accrued liabilities | 28 | (9) | ||
(122) | (228) | |||
Financing activities | ||||
Proceeds from operating loans | 308 | 266 | ||
Finance expense paid | (9) | (5) | ||
Repurchase of Common shares | - | (50) | ||
Dividends | (14) | (14) | ||
Other | (1) | - | ||
284 | 197 | |||
Investing activities | ||||
Additions to capital assets | (59) | (108) | ||
Proceeds from disposal of capital assets | 6 | - | ||
(53) | (108) | |||
Change in cash | 109 | (139) | ||
Foreign exchange effect on cash | (15) | (4) | ||
Cash - beginning of period | - | 147 | ||
Cash - end of period | $ | 94 | $ | 4 |
Cash consists of | ||||
Cash and short-term investments | $ | 94 | $ | 34 |
Cheques issued in excess of funds on deposit | - | (30) | ||
$ | 94 | $ | 4 |
Notes to Condensed Consolidated Interim Financial Statements
(figures are in millions of dollars, except where indicated - unaudited)
1. Nature of operations
2. Basis of presentation and statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting as issued by the
3. Use of estimates and judgments and Coronavirus (COVID-19)
The preparation of financial statements requires management to use accounting estimates and to make judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and underlying assumptions are based on historical experience and other factors, including expectations of future events that are considered to be reasonable under the circumstances.
The COVID-19 pandemic has led to the closure of non-essential businesses worldwide, has depressed the markets for our products, and interrupted supply chains. It is difficult to estimate the nature, timing, and extent of the business and economic impact on supply chain, market pricing, customer demand, distribution networks and consequently, our financial and operating performance. This uncertainty could materially affect our operations and financial condition. The uncertainty could also materially affect estimates, including valuation of inventories, allowance for expected credit losses, fair value measurements, the valuation of long-lived assets, and cash flow projections used for impairment testing. Actual results may materially differ from these estimates.
4. Seasonality of operations
Our operating results are subject to seasonal fluctuations that impact quarter-to-quarter operating results. Log availability has a direct impact on our operations. We build up log inventory in
5. Inventories
Inventories at
Manufactured products | $ | 381 | $ | 341 |
Logs and other raw materials | 391 | 226 | ||
Processing materials and supplies | 171 | 162 | ||
$ | 943 | $ | 729 |
6. Operating loans and long-term debt
Operating loans
Our revolving lines of credit consist of a
Interest on the facilities is payable at floating rates based on Prime, Base Rate Advances, Bankers' Acceptances or LIBOR Advances at our option plus an applicable margin.
In addition, we have credit facilities totalling
All debt is unsecured except the
Long-term debt
interest at 4.35% | $ | 426 | $ | 390 |
floating interest rate | 284 | 260 | ||
interest at 2% | 10 | 10 | ||
Notes payable | 3 | 3 | ||
723 | 663 | |||
Less: deferred financing costs | (3) | (3) | ||
Less: current portion related to the | ||||
note payable due | (10) | (10) | ||
$ | 710 | $ | 650 |
The fair value of the long-term debt at
On
On
7. Other liabilities
Post-retirement (note 8) | $ | 212 | $ | 314 |
Long-term portion of reforestation | 95 | 74 | ||
Long-term portion of decommissioning | 35 | 31 | ||
Other | 39 | 35 | ||
$ | 381 | $ | 454 |
8. Post-retirement benefits
We maintain defined benefit and defined contribution pension plans covering a majority of our employees. The defined benefit plans generally do not require employee contributions and provide a guaranteed level of pension payable for life based either on length of service or on earnings and length of service, and in most cases do not increase after the commencement of retirement. We also provide group life insurance, medical and extended health benefits to certain employee groups.
The status of the defined benefit pension plans and other retirement benefit plans, in aggregate, is as follows:
Projected benefit obligations | $ | (1,499) | $ | (1,693) |
Fair value of plan assets | 1,292 | 1,385 | ||
$ | (207) | $ | (308) | |
Represented by | ||||
Post-retirement assets | $ | 5 | $ | 6 |
Post-retirement liabilities | (212) | (314) | ||
$ | (207) | $ | (308) |
The significant actuarial assumptions used to determine our balance sheet date post-retirement assets and liabilities are as follows:
Discount rate | 4.00% | 3.00% | ||
Future compensation rate increase | 3.50% | 3.50% |
For the three months ended
The actuarial gain on post-retirement benefits, included in other comprehensive earnings, is as follows:
2020 | 2019 | |||
Actuarial gain (loss) | $ | 121 | $ | (49) |
Tax recovery (provision) | (31) | 13 | ||
$ | 90 | $ | (36) |
9. Share Capital
We are authorized under our Normal Course Issuer Bid ("NCIB"), which expires on
10. Other
2020 | 2019 | |||
Exchange gain (loss) on working capital | $ | 6 | $ | (3) |
Exchange gain (loss) on intercompany financing1 | 66 | (15) | ||
Exchange gain (loss) on long-term debt | (60) | 14 | ||
Exchange gain (loss) on export duty deposits | ||||
receivable | 7 | (2) | ||
Other | (7) | 1 | ||
$ | 12 | $ | (5) |
1. | Relates to |
11. Tax provision
The tax provision differs from the amount that would have resulted from applying the
2020 | 2019 | |||
Income tax expense at statutory rate of 27% | $ | (2) | $ | 2 |
Non-taxable amounts | 6 | (1) | ||
Other | (1) | - | ||
Tax recovery | $ | 3 | $ | 1 |
12. Earnings per share
Basic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using the weighted average number of Common shares and Class B Common shares outstanding.
Diluted earnings per share is calculated based on earnings available to Common shareholders adjusted to remove the actual share option expense (recovery) charged to earnings and after deducting a notional charge for share option expense assuming the use of the equity-settled method, as set out below. The diluted weighted average number of shares is calculated using the treasury stock method. When earnings available to Common shareholders for diluted earnings per share are greater than earnings available to Common shareholders for basic earnings per share, the calculation is anti-dilutive, and diluted earnings per share are deemed to be the same as basic earnings per share.
2020 | 2019 | |||
Earnings | ||||
Basic | $ | 12 | $ | (5) |
Share option recovery | (18) | - | ||
Equity-settled share option adjustment | (2) | (3) | ||
Diluted | $ | (8) | $ | (8) |
Weighted average number of shares (thousands) | ||||
Basic | 68,665 | 69,432 | ||
Share options | 132 | 398 | ||
Diluted | 68,797 | 69,830 | ||
Earnings per share (dollars) | ||||
Basic | $ | 0.18 | $ | (0.07) |
Diluted | $ | (0.11) | $ | (0.12) |
13. Segmented information
The table below provides a reconciliation of our non-IFRS measure Adjusted EBITDA. This measurement is used by management to evaluate the operating and financial performance of our operating segments, generate future operating plans, and make strategic decisions, including those relating to operating earnings.
Lumber | Panels | Pulp & Paper | Corporate & | Total | ||||||
Sales | ||||||||||
To external customers | $ | 836 | $ | 138 | $ | 221 | $ | - | $ | 1,195 |
To other segments | 28 | 2 | - | (30) | - | |||||
$ | 864 | $ | 140 | $ | 221 | $ | (30) | $ | 1,195 | |
Cost of products sold | (609) | (110) | (157) | 30 | (846) | |||||
Freight and other distribution costs | (110) | (15) | (43) | - | (168) | |||||
Selling, general and administration | (39) | (7) | (10) | 2 | (54) | |||||
Adjusted EBITDA | $ | 106 | $ | 8 | $ | 11 | $ | 2 | $ | 127 |
Export duties | (35) | - | - | - | (35) | |||||
Equity-based compensation | - | - | - | (9) | (9) | |||||
Amortization | (52) | (4) | (11) | (3) | (70) | |||||
Operating earnings | $ | 19 | $ | 4 | $ | - | $ | (10) | $ | 13 |
Finance expense | (13) | (1) | (2) | - | (16) | |||||
Other | 16 | - | 4 | (8) | 12 | |||||
Earnings before tax | $ | 22 | $ | 3 | $ | 2 | $ | (18) | $ | 9 |
Sales | ||||||||||
To external customers | $ | 821 | $ | 152 | $ | 268 | $ | - | $ | 1,241 |
To other segments | 36 | 3 | - | (39) | - | |||||
$ | 857 | $ | 155 | $ | 268 | $ | (39) | $ | 1,241 | |
Cost of products sold | (621) | (117) | (204) | 39 | (903) | |||||
Freight and other distribution costs | (111) | (15) | (44) | - | (170) | |||||
Selling, general and administration | (41) | (8) | (9) | - | (58) | |||||
Adjusted EBITDA | $ | 84 | $ | 15 | $ | 11 | $ | - | $ | 110 |
Export duties | (32) | - | - | - | (32) | |||||
Equity-based compensation | - | - | - | (3) | (3) | |||||
Amortization | (50) | (4) | (10) | (1) | (65) | |||||
Operating earnings | $ | 2 | $ | 11 | $ | 1 | $ | (4) | $ | 10 |
Finance expense | (7) | (1) | (3) | - | (11) | |||||
Other | (3) | - | - | (2) | (5) | |||||
Earnings before tax | $ | (8) | $ | 10 | $ | (2) | $ | (6) | $ | (6) |
The geographic distribution of external sales is as follows1:
2020 | 2019 | |||
$ | 237 | $ | 261 | |
750 | 701 | |||
140 | 169 | |||
Other | 59 | 98 | ||
Other | 9 | 12 | ||
$ | 1,195 | $ | 1,241 |
1. | Sales distribution is based on the location of product delivery. |
14. Countervailing ("CVD") and antidumping ("ADD") duty dispute
On
Developments in CVD and ADD rates
On
The CVD and ADD rates apply retroactively for each Period of Investigation ("POI"). We record CVD as export duty expense at the cash deposit rate until an AR finalizes a new applicable rate for each POI. We record ADD as export duty expense by estimating the rate to be applied for each POI by using our actual results and the same calculation methodology as the USDOC and adjust when an AR finalizes a new applicable rate for each POI. The difference between the cash deposits and export duty expense is recorded on our balance sheet as export duty deposits receivable.
On
On
Effective dates for CVD | Cash Deposit | Revised Rate2 ( | AR1 Preliminary ( |
AR1 POI | |||
24.12% | 17.99% | 7.07% | |
- | - | - | |
17.99% | 17.99% | 7.07% | |
17.99% | 17.99% | 7.51% | |
AR2 POI | |||
17.99% | 17.99% | n/a4 | |
AR3 POI | |||
17.99% | 17.99% | n/a5 |
1. | On |
2. | On |
3. | On |
4. | The CVD rate for the AR2 POI will be adjusted when AR2 is complete and the USDOC finalizes the rate, which is not expected until 2021. |
5. | The CVD rate for the AR3 POI will be adjusted when AR3 is complete and the USDOC finalizes the rate, which is not expected until 2022. |
Effective dates for ADD | Cash Deposit | Revised Rate2 ( | AR1 ( |
|
AR1 POI | ||||
6.76% | 5.57% | 1.57% | 1.46%6 | |
5.57% | 5.57% | 1.57% | 1.46%6 | |
5.57% | 5.57% | 1.57% | 1.46% | |
AR2 POI | ||||
5.57% | 5.57% | n/a4 | 4.65% | |
AR3 POI | ||||
5.57% | 5.57% | n/a5 | 0.77% |
1. | On |
2. | On |
3. | On |
4. | The ADD rate for the AR2 POI will be adjusted when AR2 is complete and the USDOC finalizes the rate, which is not expected until 2021. |
5. | The ADD rate for the AR3 POI will be adjusted when AR3 is complete and the USDOC finalizes the rate, which is not expected until 2022. |
6. | In fiscal 2017, our Estimated ADD was recorded at a rate of 0.9%. AR1 covers both the 2017 and 2018 periods. In 2018 we recorded ADD such that the cumulative rate for the periods covered by AR1 would be 1.46%. |
Duty expense and cash deposits
Export duties incurred in the period | 2020 | 2019 | ||
Countervailing duties | $ | 32 | $ | 28 |
Antidumping duties | 11 | 9 | ||
Total | $ | 43 | $ | 37 |
Recognized in the financial statements as | 2020 | 2019 | ||
Export duties recognized as expense in | ||||
consolidated statements of earnings | $ | 35 | $ | 32 |
Export duties recognized as export duty deposits | ||||
receivable in consolidated balance sheets | 8 | 5 | ||
Total | $ | 43 | $ | 37 |
We have recorded long-term duty deposits receivable related to CVD for the excess of deposits made at the Cash Deposit Rate of 24.12% compared to the
Export duty deposits receivable | 2020 | January 1 to December 31 | ||
Beginning balance | $ | 80 | $ | 75 |
Export duties recognized as long-term duty | ||||
deposits receivable in consolidated | ||||
balance sheets | 8 | 5 | ||
Interest recognized on the long-term duty | ||||
deposits receivable | 1 | 4 | ||
Exchange on the long-term duty deposits | 7 | (4) | ||
Ending balance | $ | 96 | $ | 80 |
As at
AR2 and AR3
AR2 covers the POI from
Appeals
We, together with other Canadian forest product companies and the Canadian federal and provincial governments (the "Canadian Interests"), categorically deny the allegations by the coalition of
SOURCE
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