SOURCE: West Fraser Timber

West Fraser Timber

April 25, 2016 19:20 ET

West Fraser Announces First Quarter Results

VANCOUVER, BC--(Marketwired - April 25, 2016) -  West Fraser Timber Co. Ltd. reported earnings of $42 million or $0.51 basic earnings per share on sales of $1,077 million in the first quarter of 2016. These results compare with previous periods as shown in the table below.

Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS as described in this News Release reflect the adjustments described in the tables referred to in the section titled "Non-IFRS Measures" of our 2016 first quarter Management's Discussion & Analysis.

($millions except earnings per share ("EPS")) Q1-16   Q4-15     Q1-15
Sales 1,077   1,013     1,014
Adjusted EBITDA1 130   90     173
Operating earnings 79   18     125
Earnings 42   (15 )   49
Basic EPS ($) 0.51   (0.18 )   0.58
Adjusted earnings1 49   30     99
Adjusted basic EPS ($)1 0.60   0.38     1.17

1. In this news release, reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted earnings per share (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 none of these measures should 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. Refer to the tables in the section titled "Non-IFRS Measures" of our 2016 first quarter Management's Discussion & Analysis of our first quarter 2016 results for details of these adjustments.

Operational Results

In the quarter our lumber operations generated operating earnings of $63 million (Q4-15 - $17 million) and Adjusted EBITDA of $100 million (Q4-15 - $55 million). Higher prices and shipments combined with a weaker Canadian dollar contributed to the improved results. Lumber markets improved slightly as generally milder weather conditions produced above normal home building activity in many parts of the U.S.

The panel segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $12 million (Q4-15 - $16 million) and Adjusted EBITDA of $15 million (Q4-15 - $19 million), mostly reflecting weakening plywood and MDF prices.

Pulp and paper operations generated operating earnings in the quarter of $5 million (Q4-15 - $8 million) and Adjusted EBITDA of $14 million (Q4-15 - $17 million). Pulp results benefitted from a weaker Canadian dollar as U.S. dollar-denominated pulp prices were relatively stable in the quarter. This benefit was offset by increased maintenance costs at our Hinton pulp mill, the result of a minor maintenance shutdown during the period.

Outlook

Discussions between Canada and the U.S. regarding a replacement of the Softwood Lumber Agreement are underway. West Fraser supports a reasonable negotiated settlement of this potential dispute but is prepared for alternative outcomes.

Ted Seraphim, our President and CEO, said "We have made significant investments in growth, capital and innovation, and we are starting to see the benefits of the most comprehensive five- year capital plan in our history. We are geographically diversified and have a modern and efficient group of assets which positions us well in addressing any trade sanctions arising from the dispute."

Management's Discussion & Analysis ("MD&A")

The Company's MD&A 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

West Fraser is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips and energy with facilities in western Canada and the southern United States.

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 and are included under the heading "Outlook", 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. 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 2015 annual Management's Discussion & Analysis under "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.

Conference Call

Investors are invited to listen to the quarterly conference call on Tuesday, April 26, 2016 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-866-225-0198 (toll- free North America). The call may also be accessed through West Fraser's website at www.westfraser.com.

West Fraser Timber Co. Ltd.
Condensed Consolidated Balance Sheets
(in millions of Canadian dollars, except where indicated - unaudited)

   
  March 31   December 31
  2016   2015
Assets          
Current assets          
Cash and short-term investments $ 19   $ 13
Receivables   332     298
Income taxes receivable   16     11
Inventories (note 3)   721     631
Prepaid expenses   22     18
    1,110     971
Property, plant and equipment   1,581     1,609
Timber licences   565     570
Goodwill and other intangibles   363     369
Other assets   18     36
Deferred income tax assets   70     80
  $ 3,707   $ 3,635
 
Liabilities          
Current liabilities          
Cheques issued in excess of funds on deposit $ 40   $ 29
Operating loans (note 4)   294     178
Payables and accrued liabilities   354     351
Reforestation and decommissioning obligations   48     48
Current portion of long-term debt (note 4)   2     -
    738     606
Long-term debt (note 4)   395     423
Other liabilities (note 5)   366     269
Deferred income tax liabilities   167     190
    1,666     1,488
 
Shareholders' Equity          
Share capital (note 7)   571     579
Accumulated other comprehensive earnings   132     164
Retained earnings   1,338     1,404
    2,041     2,147
  $ 3,707   $ 3,635
Number of Common shares and Class B Common shares outstanding at April 25, 2016 was 81,397,546.
 
 

West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(in millions of Canadian dollars, except where indicated - unaudited)

  January 1 to March 31  
  2016     2015  
   
Share capital              
Balance - beginning of period $ 579     $ 587  
Common share repurchases   (8 )     -  
Balance - end of period $ 571     $ 587  
   
Accumulated other comprehensive earnings              
Balance - beginning of period $ 164     $ 55  
Translation gain (loss) on foreign operations   (32 )     51  
Balance - end of period $ 132     $ 106  
   
Retained earnings              
Balance - beginning of period $ 1,404     $ 1,387  
Actuarial loss on post-retirement benefits   (60 )     (45 )
Common share repurchases   (42 )     -  
Earnings for the period   42       49  
Dividends   (6 )     (6 )
Balance - end of period $ 1,338     $ 1,385  
   
Shareholders' Equity $ 2,041     $ 2,078  
               
               

West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(in millions of Canadian dollars, except where indicated - unaudited)

  January 1 to March 31  
  2016     2015  
   
Sales $ 1,077     $ 1,014  
   
Costs and expenses              
Cost of products sold   749       657  
Freight and other distribution costs   159       144  
Amortization   49       47  
Selling, general and administration   39       40  
Equity-based compensation   2       1  
    998       889  
Operating earnings   79       125  
Finance expense   (8 )     (8 )
Other (note 8)   (16 )     (47 )
Earnings before tax   55       70  
Tax provision (note 9)   (13 )     (21 )
Earnings $ 42     $ 49  
   
Earnings per share (dollars) (note 10)              
Basic $ 0.51     $ 0.58  
Diluted $ 0.50     $ 0.53  
   
Comprehensive earnings              
Earnings $ 42     $ 49  
Other comprehensive earnings              
Translation gain (loss) on foreign operations   (32 )     51  
Actuarial loss on post-retirement benefits1   (60 )     (45 )
Comprehensive earnings $ (50 )   $ 55  
1. Net of tax recovery of $21 million (three months ended March 31, 2015 - $17 million).
 
 

West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Cash Flows
(in millions of Canadian dollars, except where indicated - unaudited)

  January 1 to March 31  
  2016     2015  
Operating activities              
Earnings $ 42     $ 49  
Adjustments              
  Amortization   49       47  
  Finance expense   8       8  
  Foreign exchange loss (gain) on long-term debt   (26 )     32  
  Foreign exchange loss (gain) on intercompany financing   17       (5 )
  Loss on power agreements, net of settlement costs   11       30  
  Post-retirement expense   17       13  
  Contributions to post-retirement benefit plans   (12 )     (3 )
  Tax provision   13       21  
  Income taxes paid   (9 )     (42 )
  Other   (1 )     10  
Changes in non-cash working capital              
  Receivables   (36 )     (54 )
  Inventories   (96 )     (57 )
  Prepaid expenses   (5 )     (1 )
  Payables and accrued liabilities   5       (2 )
Cash flows from operating activities   (23 )     46  
   
Financing activities              
Proceeds from operating loans   116       49  
Finance expense paid   (1 )     (2 )
Dividends   (6 )     (6 )
Common share repurchases   (50 )     -  
Cash flows from financing activities   59       41  
   
Investing activities              
Additions to capital assets   (49 )     (69 )
Government assistance   4       -  
Cash flows from investing activities   (45 )     (69 )
   
Change in cash   (9 )     18  
Foreign exchange effect on cash   4       5  
Cash - beginning of period   (16 )     (15 )
Cash - end of period $ (21 )   $ 8  
   
Cash consists of              
Cash and short-term investments $ 19     $ 12  
Cheques issued in excess of funds on deposit   (40 )     (4 )
  $ (21 )   $ 8  
               
               

West Fraser Timber Co. Ltd.

Notes to Condensed Consolidated Interim Financial Statements
(figures are in millions of dollars, except where indicated - unaudited)

1. Nature of operations

West Fraser Timber Co. Ltd. ("West Fraser", "we", "us" or "our") is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips and energy with facilities in western Canada and the southern United States. Our executive office is located at 858 Beatty Street, Suite 501, Vancouver, British Columbia. West Fraser was formed by articles of amalgamation under the Business Corporations Act (British Columbia) and is registered in British Columbia, Canada. Our Common shares are listed for trading on the Toronto Stock Exchange under the symbol WFT.

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 International Accounting Standards Board and using the same accounting policies and methods of their application as the December 31, 2015 annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with our 2015 annual consolidated financial statements.

3. Inventories

Inventories at March 31, 2016 were written down by $14 million (December 31, 2015 - $21 million; March 31, 2015 - $7 million) to reflect net realizable value being lower than cost.

4. Long-term debt and operating loans

Long-term debt

    March 31, 2016     December 31, 2015  
US$300 million senior notes due October 2024; interest at 4.35%   $ 389     $ 415  
US$8 million note payable due October 2020; interest at 2%     10       10  
Note payable due in installments; interest at 5.5%     2       2  
      401       427  
Current portion     (2 )     -  
Deferred financing costs     (4 )     (4 )
    $ 395     $ 423  
                 

The fair value of the long-term debt is $381 million (December 31, 2015 - $406 million) based on rates available to us at the balance sheet date for long-term debt with similar terms and remaining maturities.

Operating loans

We have $583 million in revolving lines of credit of which $294 million (net of deferred financing costs of $3 million) were drawn as at March 31, 2016 (December 31, 2015 - $178 million, net of deferred financing costs of $3 million).

Our revolving lines of credit consist of a $500 million revolving credit facility, two demand lines of credit totalling $75 million dedicated to letters of credit, and an $8 million demand line of credit dedicated to our jointly owned newsprint operation. The revolving credit facility matures on September 30, 2020.

Interest on these facilities is payable at floating rates based on Prime, U.S. base, Bankers' Acceptances or LIBOR at our option. As at March 31, 2016, letters of credit in the amount of $51 million have been issued under these facilities.

All debt is unsecured except the $8 million joint operation demand line of credit, which is secured by that joint operation's current assets.

5.  Other liabilities

  March 31, 2016   December 31, 2015
Post-retirement (note 6) $ 227   $ 142
Reforestation   93     76
Decommissioning   29     29
Other   17     22
  $ 366   $ 269
           

6. 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 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:

  March 31, 2015     December 31, 2015  
Projected benefit obligations $ (1,604 )   $ (1,532 )
Fair value of plan assets   1,389       1,409  
Impact of minimum funding requirement   (6 )     (11 )
  $ (221 )   $ (134 )
Represented by              
Post-retirement assets $ 6     $ 8  
Post-retirement liabilities (note 5)   (227 )     (142 )
  $ (221 )   $ (134 )
               

The significant actuarial assumptions used to determine our balance sheet date post-retirement assets and liabilities are as follows:

  March 31, 2016   December 31, 2015   March 31, 2015
Discount rate 3.75%   4.00%   3.50%
Future compensation rate increase 3.50%   3.50%   3.50%
           

The change in the discount rate on obligations and the difference between the actual rate of return and the discount rate on plan assets generated an actuarial loss on post-retirement benefits, included in other comprehensive earnings, as follows:

  January 1 to March 31  
  2016     2015  
Actuarial loss $ (81 )   $ (62 )
Tax recovery on actuarial loss   21       17  
  $ (60 )   $ (45 )
               

7. Share Capital

During the quarter we purchased 1,062,752 Common shares under our normal course issuer bid program, which expires on September 16, 2016, at an average price of $46.96 per share for a total of $50 million.

8. Other

  January 1 to March 31  
  2016     2015  
Foreign exchange gain (loss) on working capital $ (10 )   $ 12  
Foreign exchange gain (loss) on intercompany financing1   (17 )     5  
Foreign exchange gain (loss) on long- term debt   26       (32 )
Loss on power agreements   (19 )     (30 )
Other   4       (2 )
  $ (16 )   $ (47 )
1. Relates to US$200 million of financing provided to our U.S. operations. IAS 21 requires that the exchange gain or loss be recognized through earnings as the financing is not considered part of our permanent investment in our U.S. subsidiaries. The balance sheet amounts and related financing expense are eliminated in these consolidated financial statements.
 

In March 2016 the termination of our three-year power strip agreement was negotiated. In addition, Capital Power Corporation gave notice of its intent to terminate its role as buyer of the Sundance C Power Arrangement effective March 24, 2016. As a result of this termination, our role as a party to the Power Syndicate Agreement (Sundance C) also terminated. These agreements had provided us with a portion of the electricity generated from two power plants in Alberta at substantially predetermined rates. The termination of these agreements resulted in a loss of $19 million in the current quarter.

9. Tax provision

The tax provision differs from the amount that would have resulted from applying the British Columbia statutory income tax rate to earnings before tax as follows:

  January 1 to March 31  
  2016     2015  
Income tax at statutory rate of 26% $ (14 )   $ (18 )
Non-taxable amounts   2       1  
Rate differentials between jurisdictions and on specified activities   (2 )     -  
Unrecognized capital losses   1       (4 )
Tax provision $ (13 )   $ (21 )
               

10. 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.

  January 1 to March 31  
  2016     2015  
Earnings              
  Basic $ 42     $ 49  
  Share option expense (recovery)   2       (2 )
  Equity-settled share option adjustment   (2 )     (2 )
  Diluted $ 42     $ 45  
   
Weighted average number of shares (thousands)              
  Basic   82,281       83,528  
  Share options   955       1,418  
  Diluted   83,236       84,946  
Earnings per share (dollars)              
  Basic $ 0.51     $ 0.58  
  Diluted $ 0.50     $ 0.53  
                 
                 

11. Segmented information

                             
              Pulp &     Corporate        
  Lumber     Panels     paper     & other     Total  
January 1, 2016 to March 31, 2016  
   
Sales                                      
  To external customers $ 729     $ 136     $ 212     $ -     $ 1,077  
  To other segments   29       2       -       -          
  $ 758     $ 138     $ 212     $ -          
   
Operating earnings before amortization $ 100     $ 15     $ 14     $ (1 )   $ 128  
Amortization   (37 )     (3 )     (9 )     -       (49 )
Operating earnings   63       12       5       (1 )     79  
Finance expense   (5 )     (1 )     (2 )     -       (8 )
Other   (5 )     (2 )     (23 )     14       (16 )
Earnings before tax $ 53     $ 9     $ (20 )   $ 13     $ 55  
   
January 1, 2015 to March 31, 2015                                      
   
Sales                                      
  To external customers $ 655     $ 129     $ 230     $ -     $ 1,014  
  To other segments   26       2       -       -          
  $ 681     $ 131     $ 230     $ -          
   
Operating earnings before amortization $ 117     $ 26     $ 30     $ (1 )   $ 172  
Amortization   (33 )     (3 )     (10 )     (1 )     (47 )
Operating earnings   84       23       20       (2 )   $ 125  
Finance expense   (5 )     (1 )     (2 )     -       (8 )
Other   3       (3 )     (20 )     (27 )     (47 )
Earnings before tax $ 82     $ 19     $ (2 )   $ (29 )   $ 70  
                                       

The geographic distribution of external sales is as follows:

  January 1 to March 311
  2016   2015
Canada $ 247   $ 218
United States   620     533
China   116     164
Other Asia   77     80
Other   17     19
  $ 1,077   $ 1,014
1. Sales distribution is based on the location of product delivery.     
 

West Fraser shares trade on the Toronto Stock Exchange under the symbol: "WFT".

Contact Information

  • For more information
    Larry Hughes
    Vice-President, Finance and Chief Financial Officer
    Rodger Hutchinson
    Vice-President, Corporate Controller and Investor Relations
    (604) 895-2700
    www.westfraser.com