Markets
May 25, 2017 - Despite uncertainty surrounding the short-term future of the Canadian market, most speakers at two softwood lumber conferences held in Vancouver in early May presented optimistic views about long-term prospects. For many, the inevitability of short-term instability provides an opportunity for innovation, diversification, and expansion into new markets.


 
PWC Global Forest, Paper & Packaging Conference

In an analysis of global geopolitical risk, Alexander Kazan with Eurasia Group wasted no time in pointing to the U.S. as a major source of uncertainty and potential risk. President Trump is more interested in bilateral agreements than pursuing a global multilateral agenda, and the U.S. is definitively out of the TPP. While withdrawal from NAFTA is unlikely, it will be renegotiated. However, the U.S. has less leverage than they think due to the increasing availability of other markets. As global trade deals shift, we can expect to see the leverage of the U.S. dollar wane and a shift towards a multi-currency global economy.

In Europe, despite Marine Le Pen’s defeat in the French election, the populist threat will continue through the decade leading to ongoing political unrest. While Russia remains a significant source of instability from a security perspective, economically, they continue to be a single resource country failing at diversification and playing only a minor role in the global economy.

Presently, China is limiting itself to domestic concerns and is not ready for a global leadership role. Over the next few years, we can expect to see an increase in trade retaliation between the U.S. and China, likely in the form of escalating duties.

Emerging markets in Southeast Asia, Eastern Europe, and South America hold positive economic outlooks, but Kazan warns that numerous countries are going through elections in the next two years, and just as in the U.S. and Europe, there exists dissatisfaction and political uncertainty.

Speaking about market performance, Ken Peacock, chief economist and vice-president of the Business Council of British Columbia, shared a forecast for U.S. and Canadian economies. The U.S. economy has shown slow and steady growth and is expected to strengthen through 2017-2018, despite ongoing political uncertainty. Canada’s economy is also poised to do better after two years of ~one per cent growth. The long-term economic outlook for Western Canada is especially positive due to population growth and an increased global demand for Canadian resources.

IMG 0239 Kevin Mason, managing director of ERA Forest Products Research, outlined current and future U.S. and Canadian paper industry trends. Newsprint is in decline, disrupted by changing news sources and the rise of social media. Uncoated woodfree is more stable due in part to the adjustable retail pricing of its end product. Coated woodfree prices are at a 12-year low despite facing less of a decline in demand than most other paper grades; this is due largely to companies who prioritise volume over profits disrupting the market. The tissue and speciality market is increasingly risky, with lots of inexperienced companies jumping in due to the decline of paper. While there is excess capacity, it is an increasingly destabilised market. Containerboard prices continue upward with producers continuing to push excess tonnes offshore to keep the market snug. In the OSB markets, there are few companies, with the potential for incredible pricing in 2017. The short-term future of the lumber market remains less certain due to tension surrounding the SLA. With 30 per cent of the U.S. South capacity now owned by B.C. companies, Mason described opening Canadian sawmills south of the border as an, “if you can’t beat ‘em, join ‘em,” approach.

During the Executive Perspectives panel, CEO of West Fraser Ted Seraphim provided an optimistic outlook for the future of the industry. Despite an almost guaranteed short-term decline in the Canadian market, Seraphim emphasized the need for ongoing innovation: “We're only just starting to realize the potential for wood building as a renewable resource.” He emphasized the need for reinvestment and recruitment at a time when the industry is increasingly high-tech and entry-level positions require more specific training.

Head of strategy for DS Smith Alex Manisty added that in addition to innovation, having a detailed understanding of clients’ changing needs and an integrated system approach to meeting them makes a business more competitive.

Chief executive officer of the Forest Products Association of Canada, Derek Nighbor, gave a political perspective of the forestry sector, stating that as a major sustainable contributor to the national economy, and one that provides employment in remote and northern communities, there is a huge amount of support from government for ongoing forestry innovation. One of the key challenges Canada will face moving forward is developing infrastructure that supports the industry. Regarding the SLA, Nighbor seemed unphased, stating that the forestry industry has been in an economic climate like this before.

In an interview with Kevin Bromley, Canadian leader of forest, paper and packaging practice for PWC, he expressed a similar sentiment to Nighbor, stating, “I was heavily involved in the last [SLA] in 2001, so I think we’re going down the same path as last time.” Even with a very different U.S. government, Bromley says he’s not seeing a lot of differences. He acknowledges that, like last time, it is small companies that will be hit hardest. Despite this, he says the U.S. will remain our largest market, as “they just don’t produce enough.” When asked his advice for Canadian forest product companies going forward, Bromley says there needs to be more innovation, and, “a greater focus on using the organizations that exist, like COFI and FPAC, to have a greater voice in what’s going on.”

Global Softwood Log & Lumber Conference

President of International Wood Markets Group Inc. Russ Taylor opened the conference with a global overview of the softwood market. He predicts continued growth in global consumption. Global production will also continue to trend upward at ~two per cent growth/year, as will global exports. Foreign markets will continue to expand, with China, Japan, and South Korea continuing to increase log imports. Canadian exports to the U.S. are forecasted to drop by 10-15 per cent in 2018 as a result of the SLA. There will be mill reductions over the next five years, but the expectation is that by 2020/2021, the U.S. will need the Canadian industry at full capacity once again.

In the European Market, president of Sweden-based Bergs Timber Peter Nilsson predicts that consumption will continue to increase faster than production. He cited Brexit, the uncertain future of the EU, and the stability of North African markets as primary sources of concern for European sawmills.

In an analysis of the Russian softwood industry, Roman Romanovsky, vice-president of business development of Russian Forest Products Group, said that the Russian share of the Chinese import market is in decline. Their competitiveness is not limited by cost position, but by export duties and wood availability issues due to limited infrastructure development. Despite this, overall Russian export volumes have increased 47 per cent over the last ten years. Due to high-interest rates on loans for Russian companies, more are looking to form partnerships with foreign investors.

Business manager for LuLi Group York Guan discussed the diversification of the Chinese market. Formerly dependent almost entirely on Russia for softwood imports, New Zealand, the U.S., and other countries now have a bigger role. Canadian imports to China are expected to remain stable in the next few years.

New Zealand’s industry is well established, with infrastructure in place at all levels. As forest economist for Resource Management Services Andres Katz, summarized, 2016 was a record year for logging exports and the market will continue to grow despite demand from China slowing for the remainder of 2017.

In the Special Topics & Regions session, Yuichi Shinohara, president of Shinohara Shoten Co., gave an outlook of the Japanese lumber and log markets. In Japan, the majority of log imports come from North America, along with a large portion of their lumber. While the population is in decline, wooden houses were up 57 per cent compared to non-wooden houses in 2016. Wood remains a traditional element in Japanese building and there are rapidly expanding remodelling and non-residential markets with growing needs for custom products.

In a presentation on global timberland trends, senior vice-president of timberlands for Brookfield Canada Mark Bishop said that despite an increase from Latin American markets in private timberland transactions, U.S. timberlands still account for the dominant share of private global transactions. With the U.S. market remaining attractive and potential investment capital increasing, pricing is expected to rise.

session 4
In a session titled, “Plight of Secondary B.C. Wood Processors,” Russ Cameron, president of the International Wood Products Association (IWPA) of B.C., gave a bleak perspective on the future of independent wood processors in Canada. Cameron described independent wood processors as having essentially been priced out of their own market. From the IWPA’s perspective, a quota-based SLA is an opportunity to restore independent wood processors’ access to the market.

Hamir Patel, a forest products analyst from CIBC, stated more wage growth for young Canadians is needed. Higher wages will lead to housing growth, and presently, Canada is underbuilt. As far as the SLA is concerned, Patel believes a quota agreement is likely.

ERA Forest Products Research's Mason concurs with Patel’s prediction of a volume-based deal. Yet, with U.S. production remaining unpredictable, it is difficult to gauge the impact any agreement will have on the Canadian industry. The faster U.S. production ramps up, the less Canadian wood they’ll need in the short-term. In the long-term, they will gradually become dependent on Canadian imports once again.

In the final panel session on log and lumber supply chains, talk returned to the need for innovation: Canadian mills were built and designed for 2x4, 2x6, and wood chips, but presently, anything varying from that is complicated. As global markets look for a wider variety of products, the Canadian industry will have to adapt in order to compete.
May 24, 2017 - Sales of newly built, single-family homes in April dropped for the first time in 2017, falling 11.4 per cent to a seasonally adjusted annual rate of 569,000 units, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Sales numbers for the first three months of the year were all upwardly revised, and the March sales pace was the highest since October 2007. 

"Despite some slowness this month, total new home sales in 2017 are up more than 11 per cent from this time last year and builders are optimistic about future market conditions," said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. "We should see further gains in the months ahead as more prospective home buyers enter the market."

"New home sales were strong in the first three months of 2017, so some pullback in April is to be expected," said NAHB chief economist Robert Dietz. "However, our forecast calls for new home sales to increase throughout the year, buoyed by rising household formations, continued job growth and tight existing home inventory."

The inventory of new home sales for sale was 268,000 in April, which is a 5.7-month supply at the current sales pace. The median sales price of new houses sold was $309,200.

Regionally, new home sales decreased 4.0 per cent in the South, 7.5 per cent in the Northeast, 13.1 per cent in the Midwest and 26.3 per cent in the West.
May 16, 2017 - Conifex Timber Inc. has reported results for the first quarter ended March 31, 2017. Adjusted EBITDA* in the first quarter of 2017 was $6.1 million, compared to $9.3 million in the fourth quarter of 2016 and $6.8 million in the first quarter of 2016. Compared to the previous quarter, lumber segment adjusted EBITDA declined by $1.0 million and bioenergy segment adjusted EBITDA by $1.6 million. Compared to the first quarter of 2016, lumber segment adjusted EBITDA improved by $0.6 million and bioenergy segment adjusted EBITDA declined by $1.4 million.

Selected financial and operating highlights for each of the comparison periods are provided below.

  Q1

  Q4

  Q1

 
  2017

  2016

  2016

 
Financial Highlights

(millions of dollars except share and per share amounts and as otherwise noted)

 
Sales - lumber segment

$

93.5

  $

94.4

  $

91.8

 
Sales - bioenergy segment

  6.8

    7.6

    7.7

 
  $

100.3

  $

102.0

  $

99.5

 
Adjusted EBITDA

$

6.1

  $

9.3

  $

6.8

 
Operating income

$

1.5

  $

6.7

  $

3.0

 
Net income (loss)

$

(1.4

)

$

5.1

  $

28.5

 
Net income (loss) per share - basic

$

(0.06

)

$

0.24

  $

1.35

 
Net income (loss) per share - basic and diluted(1)

$

(0.06

)

$

0.24

  $

1.24

 
Shares outstanding - weighted average (millions)

  22.5

    21.2

    21.1

 
                   
Operating Highlights

                 
Lumber production (MMfbm)

  123.7

    118.7

    135.8

 
Lumber shipments - Conifex produced (MMfbm)

  110.7

    124.4

    127.0

 
Lumber shipments - wholesale (MMfbm)

  41.0

    40.5

    40.7

 
Electricity production (GWh)

  46.3

    53.0

    54.9

 
Average exchange rate - US$/Cdn$(2)

  0.756

    0.750

    0.727

 
Average WSPF 2x4 #2&Btr lumber price (US$)(3)

$

345

  $

316

  $

272

 
                   
Reconciliation of adjusted EBITDA to Net Income (Loss)

                 
Net income (loss)

$

(1.4

)

$

5.1

  $

28.5

 
Add: Finance costs

$

2.6

  $

2.1

  $

2.5

 
Amortization

$

4.9

  $

4.6

  $

4.8

 
EBITDA(4)

$

6.1

  $

11.8

  $

35.8

 
Less: Gain on sale of asset

$

-

  $

-

  $

(29.0

)

Less: Net proceeds from insurance settlement

$

-

  $

(2.5

)

$

-

 
Adjusted EBITDA*

$

6.1

  $

9.3

  $

6.8

 
   
Notes:

(1)

Diluted net income per share excludes the assumed conversion of convertible notes and/or the exercise of warrants if the effect on net income per share is anti-dilutive.

(2)

Source: Bank of Canada, www.bankofcanada.ca.

(3)

Source: Random Lengths Publications Inc.

(4)

The Company's EBITDA calculation represents earnings before finance costs, taxes, depreciation and amortization.

*Adjusted EBITDA is calculated to exclude unusual items or items that are not ongoing and do not reflect ongoing operations of the Company. The Company's adjusted EBITDA calculation represents earnings before finance costs, taxes, depreciation and amortization, and gains or losses from asset sales, disposals or revaluation and the net proceeds from our business interruption insurance claim settlement. The Company discloses EBITDA, adjusted EBITDA and adjusted EBITDA margin as they are measures used by analysts and by Conifex's management to evaluate the Company's performance. As EBITDA, adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures, it may not be comparable to EBITDA, adjusted EBITDA and adjusted EBITDA margin calculated by others and is not a substitute for net earnings.

Overview

Revenues of $100.3 million in the first quarter of 2017 were generally consistent with the comparative quarters.

First quarter lumber segment operating income of $1.8 million represented a decline of $1.1 million from the prior quarter and an improvement of $0.6 million over the first quarter of 2016. The bioenergy segment contributed operating earnings of $1.3 million in the current quarter compared to $5.2 million in the previous quarter and $2.6 million in the same quarter last year. Bioenergy segment operating income for the previous quarter included net proceeds of $2.5 million from the settlement of a business interruption insurance claim. Corporate costs of $1.6 million were similar to the prior quarter and increased by $0.8 million over the first quarter of 2016, during which we recorded a positive adjustment related to compensation related provisions. Excluding the gain from the net proceeds of the insurance settlement in 2016, operating earnings were $1.5 million for the current quarter compared to $4.2 million in the previous quarter and $3.0 million in the first quarter of 2016. 

Net loss for the first quarter of 2017 was $1.4 million, or $0.06 per basic share, compared to net income of $5.1 million or $0.24 per basic and diluted share in the previous quarter and net income of $28.5 million or $1.35 per basic and $1.24 diluted share in the first quarter of 2016. Net income for the first quarter of 2016 included a net gain on the sale of assets of $29.0 million resulting from the redemption of our outstanding payment-in-kind note. Excluding this unusual item and the aforementioned gain on settlement of the insurance claim, normalized net income was $2.6 million in the previous quarter and net loss was $0.5 million in the first quarter of 2016.

Lumber Segment

Lumber segment adjusted EBITDA was $5.1 million in the first quarter of 2017 compared to $6.1 million in the previous quarter and $4.5 million in the first quarter of 2016.

Prices for the bell-weather WSPF #2 & Btr product averaged US$345 during the first quarter of 2017, an improvement of 9% over the previous quarter and 27% over the first quarter of 2016.(1) The Canadian dollar strengthened against the U.S. dollar during the first quarter of 2017 and averaged US$0.756, an appreciation of 1% over the previous quarter and 4% over the same quarter last year.(2)

Revenue from Conifex produced lumber was $56.7 million in the first quarter of 2017. The decline of 8% from the previous quarter was mostly attributable to 11% lower shipment volumes which were somewhat offset by an improvement in sales realizations. Lumber shipments were hampered by lower production volumes and challenging weather conditions which constrained availability of railcars and trucks in Western Canada. The gain in sales realizations generally reflected stronger benchmark lumber prices. Lumber revenues were relatively flat compared to the same quarter last year as an improvement in sales realizations of 14% was largely offset by lower shipment volumes. The higher sales realizations in the most recent quarter were due primarily to stronger benchmark prices which were somewhat offset by a stronger Canadian currency.

The increase in wholesale lumber revenues of approximately 14% over the comparative quarters was largely attributable to gains in sales realizations as shipment volumes were similar in each quarter. The improvement in sales realization is attributable to higher lumber prices and favorable variation in product mix.

Lumber production totalled 124 million board feet during the first quarter of 2017 and represented an annualized operating rate of 94% compared to 90% in the previous quarter and 103% in the same quarter last year. Production in the first quarter of 2017 and the previous quarter was reduced by planned downtime taken in late December at the Mackenzie sawmill for an upgrade of the log line, and the completion and ramp up of the new log line in the current quarter and to a lesser extent, was hampered by inclement weather conditions.

Unit log costs increased by 4% over the previous quarter and 15% over the same quarter last year. The higher log costs were mainly attributable to higher market based stumpage and purchased log costs. 

Unit cash conversion costs increased by 6% from the previous quarter as the benefits of an improved operating rate were more than offset by higher energy, labour and weather related maintenance costs. An increase in unit cash conversion costs of 17% over the first quarter of 2016 was due primarily to lower operating rates and higher energy costs. 

The lumber segment recorded operating income of $1.8 million in the first quarter of 2017 compared to $2.9 million in the previous quarter and $1.2 million in the first quarter of 2016. 

Compared to the previous quarter, lumber segment operating results were impeded by lower shipment volumes and higher unit manufacturing costs which outweighed the benefit of improved sales realizations from higher benchmark lumber prices. Compared to the first quarter of 2016, current quarter operating results were adversely impacted by higher unit manufacturing costs and lower revenues from residual sales. The impact of revenues from Conifex produced lumber were neutral as improved sales realizations largely offset the impact of lower shipment volumes.

(1) As quoted in Random Lengths Publications Inc.

(2) Source: Bank of Canada, www.bankofcanada.ca

Bioenergy Segment

Our power generation plant (the "Mackenzie Plant") sold 46.3 gigawatt hours of electricity under our Electricity Purchase Agreement with BC Hydro ("EPA") and operated at approximately 85% of targeted operating rates in the first quarter of 2017, compared to 97% in the previous quarter and 100% in the first quarter of 2016. Electricity sales and plant operating costs in the first quarter of 2017 were adversely impacted by several unplanned outages and challenging weather conditions earlier in the quarter, which impacted feedstock quality and deliverability. The unplanned outages contributed to increased maintenance related expenses, including the use of outside service contractors.

Electricity revenues were lower by $0.8 million compared to the previous quarter and $0.9 million compared to the first quarter of 2016, and cash operating costs were higher by $0.8 million and $0.5 million, respectively. Bioenergy segment adjusted EBITDA was lower by $1.6 million compared to the previous quarter and $1.4 million compared to the same quarter last year and reflected adjusted EBITDA margin of 41% compared to approximately 56% in the comparative quarters. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of sales.

Dispatch Notice

The EPA, similar to other electricity purchase agreements, provides BC Hydro with the option to "turn down" electricity purchased from independent power producers during periods of low demand by issuing a "dispatch order" outlining the requested dispatch period. In April 2017, BC Hydro issued a dispatch order with respect to, among others, the Plant advising of a dispatch period of 122 days, encompassing the months of April, June, July and August. Last year, the Mackenzie Plant, among others, was dispatched for 61 days in the second quarter. During the dispatch period, we will only produce electricity to fulfill volume commitments under our Load Displacement Agreement with BC Hydro. We will continue to be paid revenues based upon a reduced rate and on volumes that are generally reflective of contracted amounts. Although the dispatch period is similar to the dispatch period in the same quarter of 2016, we expect year-over-year operating results to be somewhat lower in the second quarter of 2017 due to planned maintenance days. We expect an improvement in year-over-year operating results in the third quarter of 2017, as operating results in the third quarter of last year were hampered by maintenance downtime. 

The Mackenzie Plant achieved average hourly production of 105% of our operating target over the first twelve months of commercial operations. We expect the improvements to be made during the planned maintenance days in June 2017 will result in operating rates approaching historic levels.

Commenting on our first quarter results, Conifex's President and Chief Executive Officer, Ken Shields, said, "Our first quarter of 2017 results do not reflect normal ongoing operations. Our results were held back by a major capital project installation and ramp up which reduced lumber production and shipments, and reduced the availability of quality feedstock for our power generation business. Power generation and lumber production targets are being achieved in the second quarter."

Liquidity and Capital Resources

Our net debt to capitalization ratio was 41% at March 31, 2017 compared to 38% at December 31, 2016. Net debt at March 31, 2017 was $131.6 million, an increase of $22.8 million from December 31, 2016. The quarter over quarter increase was due primarily to a seasonal increase in non-cash working capital of $14.4 million and capital expenditures related to the El Dorado Mill, partially offset by net proceeds from our early financings completed in the quarter. 

Excluding the effects of borrowings by our subsidiary, Conifex Power Limited Partnership, which are non-recourse to our other operations, the net debt to capitalization ratio was 24% compared to 16% at December 31, 2016.

In January, 2017, we completed the $130 million secured revolving credit facility (the "Credit Facility") with a syndicate of institutional lenders. The Credit Facility is available for a term of 5 years and is secured by substantially all of our assets, other than our bioenergy segment assets. The Credit Facility bears interest at CDOR or LIBOR plus a margin of between 2.5% and 3.0%, depending upon our leverage ratio.

The Credit Facility provides for calculation of availability on an expanded borrowing base, relative to our previous lumber segment revolving credit facilities, which enhances liquidity. Total liquidity was $61.6 million at March 31, 2017 compared to $22.2 million at December 31, 2016.

Market Outlook

Through the remainder of 2017, we expect benchmark lumber prices for Western SPF to average approximately 10% higher than the levels achieved in the first quarter of 2017. We expect the imposition of duties on U.S. lumber shipments will lead to greater volatility in pricing and erode a portion of the increase in mill nets resulting from higher prices. We expect prices on the premium grade and lower grade products shipped to Japan and China, respectively, will be primarily determined by traditional supply and demand factors and will not be materially impacted by duties imposed by the U.S. We expect demand and pricing to continue to remain solid in the Japanese and Chinese markets through the balance of the year. We expect our mill net price realizations from the sale of construction grade lumber to the Canadian and other non-U.S. markets will be somewhat discounted as a result of the duty impositions on U.S. exports.

In the lumber segment, we expect a sequential improvement in lumber shipments as weather related transportation delays are largely alleviated and lumber inventories return to normalized levels. We expect higher operating rates for the balance of the year due to the completion in the current quarter of the ramp up phase of the new log line at Mackenzie and improved weather conditions. We expect productivity gains to result in lower quarter-over-quarter unit conversion costs. Overall in 2017, we expect higher log costs and modest improvements in unit cash conversion costs and grade outturns. 

El Dorado Mill Capital Project

Upon completion of the Credit Facility in January 2017, we commenced the construction phase of our capital project to modernize and re-start our El Dorado Mill (the "Project"). Upon completion, the Project is planned to incorporate significant capital upgrades to the log processing yard and sawmill and planer and add two continuous dry kilns. The Project has been designed to maximize both log recovery and lumber grade yield and quality. Upon completion, the El Dorado Mill is expected to have approximately 180 million board feet of annual lumber capacity on a two-shift basis. We expect to complete the Project by or about the end of the third quarter or early in the fourth quarter of this year.

We currently estimate that the Project will require capital expenditures of approximately US$50 million, consisting of approximately US$27 million for equipment and materials, US$16 million in subcontract costs and US$7 million for indirect costs, including engineering, construction management, freight and project contingency. At March 31, 2017, approximately 57% of budgeted expenditures had been committed. The Project is currently within management's budgeted amounts and progressing as scheduled.
May 12, 2017 - Fortress Paper Ltd. ("Fortress Paper" or the "Company") reported 2017 first quarter operating EBITDA of $7.5 million, an increase of $6.4 million relative to the comparative prior year period and an increase of $1.1 million over the previous quarter. The Dissolving Pulp Segment generated operating EBITDA of $8.3 million and the Security Paper Products Segment generated operating EBITDA of $1.5 million. Corporate costs included in operating EBITDA were $2.3 million.

Yvon Pelletier, chief executive officer, commented: "Management is pleased to report one of the best consolidated quarterly operating EBITDA results since the restart of our Fortress Specialty Cellulose mill as a dissolving pulp mill. We are particularly pleased to have been able to achieve this result during one of our seasonally slower winter quarters. Contributing to this positive result were stabilized results in our Security Paper Products Segment as well as increased uptime and improved production at our dissolving pulp operation. Management continues to have a positive outlook for the 2017 fiscal year with material improvement in consolidated operating EBITDA." 

First Quarter 2017 Results by Segment

Dissolving Pulp Segment operating EBITDA was $8.3 million for the first quarter of 2017, representing an increase of $7.0 million over the prior year comparative period and an increase of $1.6 million when compared to the fourth quarter of 2016. The results of the first quarter of 2017 were positively impacted by improvements in production rates and quality, particularly during the normally slower winter season, as well as better pricing relative to the prior year comparative period. Improved operations, increased uptime and the resolution of a technical issue also positively impacted power generation and cogeneration revenue. Production rates per operating day in the quarter improved by 4.3% relative to the prior year comparative period and 7.6% compared to the previous quarter. The Fortress Specialty Cellulose mill ("FSC") produced 37,102 air dried metric tonnes ("ADMT") of dissolving pulp in the first quarter of 2017, significantly higher than the prior year comparative period and the previous quarter as both comparative periods were impacted by shut downs.

The Company sold 37,833 ADMT of dissolving pulp in the first quarter of 2017, an increase of 19.1% and 22.2% from the previous year comparative period and the previous quarter, respectively. Costs per ADMT in the quarter were $945 which, although above medium and long term goals, compare favorably to costs of $1,033 per ADMT in the prior year comparative period primarily due to improved uptime. Ongoing initiatives to reduce operational costs are focused primarily in the following areas: productivity improvement, reducing fuel consumption, increasing power generation, and chemical cost optimization. Separately, the fifth digester project is scheduled to be completed in the first quarter of 2018.

Security Paper Products Segment operating EBITDA was $1.5 million for the first quarter of 2017, representing a decrease of $0.3 million compared to the prior year comparative period and a decrease of $0.1 million compared to the fourth quarter of 2016. Quarterly rent of approximately $0.9 million has been incurred since the sale and leaseback of the land and buildings transaction closed in July 2016. Adjusting for rent, the first quarter of 2017 compares favourably to the prior year comparative quarter. The Landqart mill continues to implement new initiatives to improve efficiencies and profitability. The build-out and installation of the second finishing machine, scheduled to be operational in the third quarter of 2017, is expected to de-bottle-neck the mill and provide more production flexibility. The Landqart mill sold 2,836 tonnes of security paper in the first quarter of 2017, compared to 2,474 tonnes in the fourth quarter of 2016 and 2,655 in the prior year comparative period. Results in the first quarter of 2017 were impacted primarily by product mix. 

Management's Outlook

Dissolving Pulp Segment

Despite some seasonal weakness, dissolving pulp and viscose staple fibre ("VSF") prices have increased by US$20 per tonne and US$334 per tonne, respectively, when compared to this time last year. Management continues to believe that demand is positive and growing, and expects full year 2017 pricing to compare favorably to full year 2016 pricing. Assuming stable pricing and exchange rates, operating results for the Dissolving Pulp Segment are anticipated to be materially higher in the second quarter relative to the prior year comparative period.

Management continues to focus on positioning the FSC mill further down the global cost curve. The Lean Six Sigma program, implemented at the mill, is expected to continue to drive production costs down with a number of active projects showing positive signals.

Security Paper Products Segment

The Landqart mill continues to build on a strong order book for 2017 and 2018 comprised of a mix of new and repeat orders including for Durasafe®. Operating EBITDA at the Landqart mill for the quarter ended March 31, 2017 was comparable to the fourth quarter of 2016, which is in line with management expectations. Operating EBITDA in the second quarter is expected to be similar when compared to the first quarter with improved results anticipated in the second half of the year, assuming expectations relating to improved product mix and cost reduction initiatives.

Based on multiple Durasafe® trials being conducted at various stages, management continues to anticipate additional orders in the near, medium and long term.

Corporate and Cash

Corporate expenses in the fourth quarter increased by $0.4 million compared to the previous quarter to $2.3 million. In the short term, corporate quarterly expenses are expected to be modestly lower.

Cash and restricted cash ended the first quarter at $57.8 million, up from $37.1 million at the 2016 fiscal year end. Management anticipates that the cash balance, excluding any potential new growth initiatives, will continue to build in 2017 both from operations as well as assuming the positive outcome of pursuing opportunities to reduce working capital.

Management remains pleased with this increased liquidity profile and believes that cash on hand and anticipated cash generated from operations and other initiatives will be sufficient to meet all debt obligations and to contribute to future business growth initiatives.

For a summary of significant developments please refer to the Management's Discussion and Analysis for the three month period ended March 31, 2017 (available on SEDAR at www.sedar.com).

Selected Financial Information 

The selected financial information presented herein is qualified in its entirety by, and should be read in conjunction with, the Company's unaudited condensed consolidated financial statements as at and for the three month period ended March 31, 2017 and the related notes thereto and Management's Discussion and Analysis, which are available on SEDAR.

Reference is made in this news release to operating EBITDA (defined as net income before interest, income taxes, depreciation, amortization, non-operating income and expenses and stock-based compensation), which the Company considers to be an indicative measure of operating performance and a metric to evaluate profitability. Operating EBITDA is not a generally accepted earnings measure and should not be considered as an alternative to net loss or cash flows as determined in accordance with IFRS. As there is no standardized method of calculating this measure, the Company's operating EBITDA may not be directly comparable with similarly titled measures used by other companies. Reconciliation of operating EBITDA to net loss reported in accordance with IFRS is included below.

Selected Financial Information and Statistics

(thousands of dollars, except shipments, unaudited)

Q1 2017

  Q4 2016

  Q1 2016

 
             
Sales

92,460

  80,863

  80,012

 
Operating EBITDA(1)

7,489

  6,352

  1,055

 
Net loss

(2,745

)

(7,274

)

(13,041

)

Adjusted net loss

(2,999

)

(6,980

)

(12,189

)

Paper shipments (tonnes)

2,836

  2,474

  2,655

 
Pulp shipments (ADMT)

37,833

  30,962

  31,762

 
(1)

See Net Loss to Operating EBITDA Reconciliation.


Financial Reconciliations

Net Loss to Operating EBITDA Reconciliation:

(thousands of dollars, unaudited)

Q1 2017

  Q4 2016

  Q1 2016

 
             
Net loss

(2,745

)

(7,274

)

(13,041

)

Income tax expense

21

  (44

)

5

 
Foreign exchange (gain) loss

(254

)

294

  852

 
Net finance expense

1,846

  4,706

  5,179

 
Amortization

8,522

  8,518

  7,882

 
(Gain) loss on financial instruments

(26

)

78

  137

 
Stock-based compensation

125

  74

  41

 
Operating EBITDA

7,489

  6,352

  1,055

 
May 8, 2017 - Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) today reported a net loss for the quarter ended March 31, 2017, of $47 million, or $0.52 per share, compared to a net loss of $8 million, or $0.09 per share, in the same period in 2016. Sales were $872 million in the quarter, down $5 million, or 1%, from the first quarter of 2016. Excluding special items, the company reported a net loss of $30 million, or $0.33 per share, compared to a net loss, excluding special items, of $22 million, or $0.25 per share, in the first quarter of 2016.

"While we continued to face strong headwinds in our paper businesses this quarter, our three other segments (pulp, tissue and wood products) recorded stronger results than in the fourth quarter," said Richard Garneau, president and chief executive officer. "We saw key achievements in the quarter, particularly in our tissue segment. Our Calhoun tissue machine started-up one month ahead of schedule in structured mode, a first for this technology which allowed us to manufacture premium products right from the start. Those achievements were overshadowed by the imposition of countervailing duties on our softwood lumber exports from Canada to the United States. We firmly believe that central Canadian forestry regimes are market-based and we should expect nothing less than unencumbered and free access to the U.S. lumber market."

Non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are explained and reconciled below. 

Operating Income Variance Against Prior Period 

Consolidated

The company recorded an operating loss of $6 million in the quarter, compared to an operating loss of $18 million in the fourth quarter of 2016. Compared to the same period, adjusted EBITDA declined by $2 million, to $61 million. 

The company's operating results were positively impacted by a reduction in maintenance expenses mostly associated with reduced repairs when compared to the last quarter of 2016, as well as an overall increase in product pricing. Those improvements were offset by adjustments to selling, general and administrative expenses, seasonally higher energy costs and reductions in volumes, mainly newsprint.

As more fully described below, in the quarter the company changed its presentation of pension and OPEB costs to present the amortization of prior service credits component as a special item adjustment used in its non-GAAP performance measures, including adjusted EBITDA. As such, adjusted EBITDA in the first quarter of 2017 would have been $65 million without this change, compared to the $67 million previously disclosed for the fourth quarter of 2016. The amortization of prior service credits component of pension and OPEB costs is now allocated solely to "corporate and other" in its segment presentation of operating income.

Market Pulp

Operating income in the market pulp segment was $7 million, $3 million more than the fourth quarter of the prior year. After falling during the fourth quarter of 2016, our realized pricing gradually increased during the quarter reaching an average of $593 per metric ton. Shipments to third parties fell by 15,000 metric tons compared to the fourth quarter, partly due to the planned annual outage at Catawba (South Carolina) at the end of March. The operating cost per unit (the "delivered cost"), was down by $4 per metric ton, falling to $575 per metric ton, resulting mostly from lower maintenance spending due to reduced repairs. EBITDA per unit was $42 per metric ton compared to $35 per metric ton in the fourth quarter of 2016. Finished goods inventory increased by 1,000 metric tons to 92,000 metric tons.  

Tissue

Our tissue segment reported a break-even position on operating income. The overall transaction price declined by $130 per short ton, as shipments of parent rolls rose by 2,000 short tons. The delivered cost increased by $68 per short ton, due to a favorable depreciation and amortization adjustment in the last quarter of 2016. EBITDA per unit increased to $71 per short ton, reaching $1 million for the segment. Finished goods inventory rose by 3,000 short tons to 8,000 short tons due to the start-up of the Calhoun (Tennessee) tissue machine.

Wood Products

The wood products segment recorded operating income of $20 million for the quarter, an improvement of $3 million against the previous quarter. Shipments rose, reaching 505 million board feet, despite adverse weather conditions causing logistical challenges during the quarter. Supported by better U.S. housing starts and market expectations on softwood lumber duties, the average transaction price rose by $23 per thousand board feet to $350. The delivered cost increased to $310 per thousand board feet, resulting from higher log costs and production curtailments. EBITDA for the segment was $29 million, a $4 million increase compared to the previous quarter and equivalent to $57 per thousand board feet, an increase of $7 per thousand board feet. Finished goods inventory rose by 19% to 147 million board feet, mostly as a result of this year's challenging winter conditions and market volatility caused by the anticipated U.S. trade barriers.    

Newsprint

The newsprint segment incurred an operating loss of $4 million in the quarter, compared to operating income of $1 million in the fourth quarter of 2016. Pricing for our products fell only marginally to $510 per metric ton, pressured by continued weaknesses in export markets. Shipments decreased by 50,000 metric tons, resulting from the combination of the indefinite idling of our paper mill in Thorold (Ontario) and the permanent closure of our newsprint mill in Mokpo (South Korea) as well as continued structural demand decline. The delivered cost in the segment rose by $6 per metric ton compared to the previous quarter. This was mostly as a result of lower volumes and higher distribution and energy costs, which were partially offset by lower maintenance and a reduction in fixed costs. EBITDA was $12 million for the quarter, equivalent to $27 per metric ton, compared to $39 in the previous quarter. Finished goods inventory was substantially unchanged from the end of the fourth quarter at 107,000 metric tons.  

Specialty Papers

Operating income in the specialty papers segment was $4 million in the first quarter, up by $1 million from the fourth quarter of 2016. The average transaction price was lower by $6 per short ton, mainly due to demand decreases in supercalendered and coated grades. Despite continuing structural market weakness, shipments increased by 9,000 short tons compared to the fourth quarter of 2016, rising to 364,000 short tons. The delivered cost in the quarter improved by $11 per short ton, supported by lower maintenance and chemical costs, partially offset by seasonally higher steam costs. EBITDA for the segment reached $16 million in the quarter, equivalent to $44 per short ton, up from $39 per short ton for the last quarter of 2016. Finished goods inventory rose to 100,000 short tons, a 9% increase compared to the fourth quarter of 2016.

Consolidated Quarterly Operating Income Variance Against Year-Ago Period

The company recorded an operating loss of $6 million for the first quarter, compared to a break-even position in the first quarter of 2016. The difference is mostly explained by closure costs associated with our newsprint mill in Mokpo, start-up costs related to the Calhoun tissue facility and the unfavorable impact of the stronger Canadian dollar. These elements were partially offset by improved pricing and reduced manufacturing costs, particularly due to our asset optimization initiatives.

Gains of $17 million in pricing, excluding impact from foreign exchange, are mostly the result of increases in our wood products and newsprint segments, which rose by 14% and 3% respectively. On the other hand, the average transaction price for tissue fell by 7%, specialty papers by 3%, and market pulp by 1%.

Changes in sales volumes had a minimal impact on results. Strong improvements in wood products shipments, which recorded an increase of 115 million board feet compared to the first quarter of 2016, were offset by declines in newsprint (15%), specialty papers (7%), and tissue (7%), while market pulp was substantially unchanged.

Corporate and Finance

The company invested $69 million in fixed assets during the quarter, $51 million of which was spent on the Calhoun tissue project. We anticipate that the total project cost will be about $295 million. A net amount of $118 million was drawn on our revolving credit facilities primarily to support the completion of the tissue project and an increase in inventories in our wood products segment. Total liquidity remained healthy at $380 million.

In the first quarter of 2017, we changed our presentation of segment operating income to reallocate the amortization of prior service credits component of pension and OPEB costs from the reportable segments to "corporate and other". Current service costs will continue to be allocated to the reportable segments. The company now also treats the amortization of prior service credits component of pension and OPEB costs as a special item to be adjusted for purposes of establishing its non-GAAP performance measures, such as adjusted EBITDA and adjustments to earnings for special items. The change was applied retroactively to comparative financial information, including the information presented in this earnings release.

During the first quarter, the company reached an agreement with the province of Ontario with respect to capacity reduction contributions under that province's special funding relief regulations. We are no longer required to make any further contributions in respect of capacity reductions that occurred  after April 15, 2014. Consequently, contributions to the affected pension plans will be lower by approximately $12 million in 2017 and $6 million in 2018.

In addition, estimated contributions to our Quebec pension plans from 2017 to 2020 are expected to be lower than previously disclosed by approximately $30 million, including $6 million for this year, based on the exchange rate in effect on March 31, 2017.

Outlook

Mr. Garneau added: "As our long-term strategy continues to unfold, we expect to gradually increase the relative contribution of our pulp, tissue and lumber segments to our overall results. However, we will continue to position our network to compete effectively. We believe that upward trends in pulp pricing will continue until at least mid-year, and possibly into the second half given the residual impact of already announced increases, including those of May. In wood products, we expect steady increases in housing starts for the foreseeable future. However, we anticipate short-term volatility in the market caused by U.S. trade barriers. In tissue, the key to our success will be in our marketing and sales efforts. We can now offer a full complement of our integrated tissue and towel products. We believe that customers will be increasingly receptive to our offering."  
May 8, 2017 - Stella-Jones Inc. (TSX:SJ) ("Stella-Jones" or the "Company") has announced financial results for its first quarter ended March 31, 2017.

"As anticipated, results for the first quarter of 2017 reflected both lower sales volume and weaker pricing in the railway tie category. Utility poles showed improved performance, reflecting sales synergies directly related to Stella-Jones' expansion in the southeastern United States over the past two years. During the quarter, our new treating facility in Cameron, Wisconsin became fully operational, providing us with additional capacity to service the utility pole market," said Brian McManus, President and Chief Executive Officer. 

Financial highlights

Quarters ended March 31,

(in millions of Canadian dollars, except per share data)

2017

2016

Sales

396.9

421.0

Operating income

40.8

54.6

Net income for the period

25.9

35.0

  Per share - basic and diluted ($)

0.37

0.51

Weighted average shares outstanding (basic, in '000s)

69,306

69,138













FIRST QUARTER RESULTS

Sales reached $396.9 million, versus $421.0 million last year. Acquisitions contributed sales of approximately $22.8 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, had a negative impact of $11.3 million on the value of U.S. dollar denominated sales. Excluding these factors, sales decreased approximately $35.5 million, or 8.4%.

Railway tie sales amounted to $158.5 million, compared with sales of $200.3 million in last year's first quarter. Excluding the conversion effect, railway tie sales decreased approximately $35.9 million, or 17.9%, primarily as a result of lower year-over-year industry demand and lower pricing. Last year's railway tie sales also benefitted from the timing of deliveries that had been pushed from the fourth quarter of 2015 into the first quarter of 2016 by certain customers.

Utility pole sales reached $151.0 million in the first quarter of 2017, representing an increase of 14.5% over sales of $131.8 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales increased approximately $1.0 million, reflecting sales synergies from acquisitions in the southeastern United States concluded in 2015 and 2016.

Sales in the residential lumber category totalled $38.6 million, versus $41.9 million a year earlier. The variation mainly reflects unfavourable weather conditions earlier this year compared to last in the northwestern United States, the Company's main U. S. customer base.

Industrial product sales reached $21.9 million, compared with $26.7 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales decreased 18.5%, mainly due to the timing of orders for rail-related products in the United States. Logs and lumber sales amounted to $26.9 million, versus $20.2 million in the first quarter of last year. The variation reflects the timing of lumber purchase and resale activities as well as the timing of timber harvesting.

Operating income stood at $40.8 million, or 10.3% of sales, compared with $54.6 million, or 13.0% of sales in the first quarter of the previous year. The decrease in absolute dollars essentially reflects lower business activity, as explained above, and the effect of currency translation, partially offset by the contribution from acquisitions. The decrease as a percentage of sales reflects lower business activity, weaker pricing for railway ties and a less favourable geographical mix in the utility pole category.

Net income for the first quarter of 2017 was $25.9 million, or $0.37 per diluted share, down from $35.0 million, or $0.51 per diluted share, in the first quarter of 2016.

SOLID FINANCIAL POSITION

As at March 31, 2017, the Company's long-term debt, including the current portion, stood at $698.5 million compared with $694.4 million three months earlier. The increase mainly reflects higher working capital requirements, as per normal seasonal demand patterns, partially offset by the effect of local currency translation on U.S. dollar denominated long-term debt. As at March 31, 2017, Stella-Jones' total debt to total capitalization ratio of 0.40:1 was stable compared with three months earlier.

QUARTERLY DIVIDEND OF $0.11 PER SHARE

On May 3, 2017, the Board of Directors declared a quarterly dividend of $0.11 per common share, payable on June 27, 2017 to shareholders of record at the close of business on June 5, 2017.

OUTLOOK

"Given first-quarter results, we continue to expect sales to be weaker in the first half of 2017 when compared to 2016, with an expected year-over-year increase in the second half of the year. Over the short term, operating margins will remain affected by lower railway tie selling prices and a less favourable geographical sales mix for utility poles. The Company is taking the necessary steps to adjust production levels, maximize operating efficiencies and minimize costs throughout the organization. We will also continue to study any expansion opportunity that offers strategic value in our main product categories. This strategy has helped Stella-Jones become a consistent force in its industry, while steadily enhancing shareholder value," concluded Mr. McManus.
May 8, 2017 - As previously reported, Western Forest Products Inc. (TSX:WEF) ("Western" or the "Company") suffered a tragic loss on April 20 when five employees were injured, three fatally, during a rail incident at our TFL 37 Englewood Operation near Woss, British Columbia.

"I would like to express our deepest concerns and condolences to the families, friends and coworkers affected by this tragedy. Our focus at this time remains on caring for the families impacted by this loss and providing support to help employees, their family members and the community cope during this extremely difficult time. The well-being and safety of our employees is of paramount importance," said Don Demens, President and Chief Executive Officer. "I would like to thank the emergency responders throughout northern Vancouver Island that responded to the incident. We are humbled by the support we have received from them, the community and the industry."

Western reported adjusted EBITDA of $34.0 million in the first quarter of 2017, compared to adjusted EBITDA of $35.7 million in the first quarter of 2016, and $33.8 million reported in the fourth quarter of 2016. Accelerating log and lumber pricing largely offset the impacts of poor coastal winter weather which drove higher costs for timberlands and manufacturing. Improved average price realizations for log and lumber of 16% and 8%, respectively, were supported by strong specialty log and lumber markets, constrained supply and the continued gradual improvement in lumber demand, as compared to the same quarter of 2016.

The Company successfully grew revenue to $287.7 million in the first quarter of 2017, as compared to $269.8 million in the first quarter of 2016, and $293.0 million in the fourth quarter of 2016. Growing demand and accelerating pricing for the Company's log and lumber products as compared to the same quarter last year, drove the Company's first quarter revenue growth.

Q1 2017 HIGHLIGHTS

  • Delivered adjusted EBITDA of $34.0 million notwithstanding poor coastal winter harvest conditions
  • Improved specialty sales mix to 57% of lumber shipments from 54% in the same quarter of 2016
  • Achieved Company record quarterly average realized lumber price of $985 per thousand board feet
  • Returned $7.9 million to shareholders via the Company's quarterly dividend program
  • Reduced net debt by $15.4 million in the quarter to zero and increased liquidity to $268.7 million
"We grew specialty lumber shipments and capitalized on accelerating lumber pricing to overcome weather constrained log supply and deliver another strong adjusted EBITDA result," said Don Demens, President and Chief Executive Officer. "We're disappointed in the US Department of Commerce's decision to implement a duty on Canadian lumber, especially as it pertains to our specialty, appearance lumber. We are confident that Western's robust balance sheet, lack of debt, and global market positioning will help overcome any market uncertainty from the US duty."

Net income of $16.2 million ($0.04 per diluted share) was reported for the first quarter of 2017, as compared to $17.3 million ($0.04 per diluted share) for the first quarter of 2016. Improved price realizations largely offset the impacts of difficult winter weather conditions on operating costs.

FINANCIAL SUMMARY

    As at and for the three months ended

 
    March 31,

 
(millions of dollars except per share amount and where otherwise noted)

    2017

      2016

 
   
Revenue

  $

287.7

    $

269.8

 
Adjusted EBITDA

    34.0

      35.7

 
Adjusted EBITDA margin

    11.8

%

    13.2

%

Operating income prior to restructuring items and other income

    23.9

      26.3

 
Net income from continuing operations

    16.2

      17.3

 
Net income for the period

    16.2

      17.3

 
Basic and diluted earnings per share (in dollars)

  $

0.04

    $

0.04

 
Net Debt

    -

      47.9

 
Liquidity

    268.7

      183.9

 
First Quarter 2017

In the first quarter of 2017 we generated adjusted EBITDA of $34.0 million, a 5% decrease from the same quarter in 2016 due to difficult winter weather conditions which impacted operations and limited log availability. Improved log and lumber pricing, a 2% increase in lumber shipments and a stronger specialty lumber sales mix partially offset the weather-related impacts on our operations.

First quarter lumber revenue was $225.6 million in 2017, an increase of 9% from the same quarter of 2016. We realized an average lumber price of $985 per thousand board feet in the first quarter of 2017. Specialty lumber mix increased to 57% from 54% in the same quarter of last year, while we grew lumber shipments by 2% to capitalize on accelerating pricing through the quarter. We realized improved Western Red Cedar ("WRC") pricing notwithstanding cutting a lower quality grade mix of logs.

WRC lumber shipments remained stable despite a 25% reduction in total coastal cedar log harvest, as reported by the Province of BC's Harvest Billing system. We increased volumes to Japan and improved Niche shipments as compared to the same quarter last year. While commodity lumber sales volume declined, we directed volume from the US market to China to meet strong demand and to mitigate potential US-Canada softwood lumber duty exposure.

First quarter log revenue was $45.5 million in 2017, a decrease of $0.8 million from the same period in 2016. Strong price realizations offset a 17% decline in sales volume due to reduced opening log inventories and poor harvest volumes.

By-product revenue was $16.6 million in the first quarter of 2017, as compared to $17.3 million in the same period in 2016. By-product revenue declined commensurate with reduced lumber production.

Lumber production was 214 million board feet, a decrease of 3% from the first quarter of 2016. Stronger operating performance from our Saltair and Ladysmith sawmills largely offset log related downtime at our Somass and Alberni Pacific sawmills. Beginning in early February 2017, the Somass sawmill was fully curtailed and operations at our Alberni Pacific division were reduced to one shift. Operating curtailments and reduced log supply contributed to an increase in manufacturing costs.

Timberlands log harvest decreased by 12% as compared to the same quarter of 2016, as prolonged winter weather limited harvest production. Log supply was supplemented by sawlog purchases of 231,000 cubic metres, a reduction from 268,000 in the same quarter last year due to reduced coastal supply. Harvest costs increased by 6% in the first quarter of 2017 due to the reduced harvest volume and storm damage costs.

Increased China shipments coupled with higher lumber sales volumes resulted in a $5.1 million increase in first quarter freight costs as compared to the same period of 2016.

Selling and administration expense in the first quarter of 2017 increased to $8.4 million from $6.8 million in the same period of 2016. A significant relative increase in the value of the Company's common share price, period-over-period, and more outstanding share units were the primary drivers for a $1.0 million increase in mark-to-market, performance and share-based compensation. The Company's common share price appreciated by 15% in the first quarter of 2017, as compared 2% in the same period last year. In addition, the Company incurred incremental costs as a result of ongoing system and process improvement initiatives.

Net income for the first quarter of 2017 was $16.2 million, compared to $17.3 million for the same period of 2016. A decrease in operating income was partially offset by lower finance costs and reduced tax expense.

Finance Costs

First quarter finance costs were $0.7 million in 2017, a reduction of $0.4 million from the same quarter of 2016. All drawings on the Company's debt facilities were fully repaid in the first quarter of 2017 resulting in lower interest expense.

Income Taxes

During the first quarter of 2017, current income tax expense of $0.2 million and deferred income tax expense of $6.1 million was recognized on net income, primarily relating to operating earnings.

Strategy and Outlook

Western's long-term business objective is to create superior value for shareholders by building a margin- focused log and lumber business of scale to compete successfully in global softwood markets. We believe this will be achieved by maximizing utilization of our forest tenures, operating efficient, low-cost manufacturing facilities and producing high-value softwood lumber and logs for global markets. We seek to manage our business with a focus on operating cash flow and maximizing the value of our fibre resource through the production cycle, from the planning of our logging operations to the production, marketing and sale of our log and lumber products.

The following strategic initiatives will continue to guide our focus:

Strengthen the Foundation

We have developed a track record for consistently delivering positive operating income and positioning the balance sheet to maximize flexibility in the face of uncertainty.

We have announced or implemented $101.9 million of strategic capital investments to strengthen our operating platform and position Western as the only company on the coast of BC capable of consuming the profile of the coastal forest and competitively manufacturing a diverse product mix. Recent capital investment information is presented below under Strategic Capital Program Update.

Recently completed and activated strategic capital investments have facilitated the consolidation of our manufacturing operations. By advancing the recapitalization and consolidation of our coastal operating base, we have improved the financial performance and stability of our business.

We continue to invest in people and systems to create a platform for growth and to facilitate the acceleration of our pursuit of margin-focused growth opportunities.

Grow the Base

We grew annual revenue to $1,187.3 million in 2016, more than double the revenue reported in 2009.

We continue to optimize our operations and invest in our mills and timberlands to reduce costs, improve margins, and grow our business through increased production.

The success of our business relationships with First Nations communities continues to grow incremental log supply and has enabled Western to grow specialty lumber production. We continue to pursue opportunities for long-term, mutually beneficial relationships with coastal First Nations.

We have implemented a non-capital margin improvement program to optimize our supply chain and further consolidate our business.

From a product marketing perspective, we are delivering on a strategy that drives increased market share through the sale of targeted products of scale to selected customers who value our product offerings.

Explore Opportunities

We are evaluating all opportunities to grow market share in targeted products and drive shareholder value.

Our ongoing reinvestment in and consolidation of our coastal operating base, steady improvements in our operating performance and a strong balance sheet have positioned Western to actively pursue external growth opportunities.

Market Outlook

We remain confident that over the mid to long term, growth in the US new home construction and repair and renovation markets, as well as increasing demand from China, combined with reduced supply from the BC Interior as a result of Mountain Pine Beetle, will deliver an improved pricing environment for our products.

In the near-term, we expect US lumber prices to increase as a result of improved market conditions and the application of duties on Canadian lumber. Higher US lumber prices are expected to impact global softwood flows by motivating US lumber and log exporters to redirect supply to their domestic market and by attracting European supply to the US market. We believe these global market dynamics will create opportunities for Western.

A combination of reduced supply and improved demand from an active repair and renovation segment has driven WRC lumber prices higher. As annualized lumber consumption peaks in the second quarter we anticipate that pricing will continue to rise. Demand and pricing for our Niche products should remain stable.

We expect lumber demand in Japan to remain robust as we close out the first half of 2017. We believe strong demand, coupled with rising freight costs for European suppliers, will support pricing for our lumber in the second quarter.

China imported a record amount of softwood logs and lumber in 2016. Demand from China continued to grow in the first quarter and we expect that trend to continue through the second quarter, supporting higher pricing.

Strong demand in export and domestic log markets and constrained supply is expected to deliver further price improvements. The pulp log market is expected to improve modestly as pulp log inventories remain low, also due to reduced coastal harvest.

Updated on Softwood Lumber Dispute

In November 2016, a petition was filed by a coalition of US lumber producers to the US Department of Commerce ("DoC") and International Trade Commission ("ITC") requesting an investigation into alleged subsidies provided to Canadian lumber producers. The Canadian industry and Canadian governments strongly deny these assertions which have previously been disproven in international courts.

On April 24, 2017, the DoC announced a countervailing duty ("CVD") of 19.88% for "all other" Canadian lumber producers including Western. The DoC also made a preliminary determination on critical circumstances that resulted in 90-day retroactive application of CVD.

Cash deposits for CVD were required for lumber imports to the US effective April 28, 2017, and we have estimated that the 90-day retroactive duty obligations arising from the DoC's April 24, 2017 preliminary finding of critical circumstances is USD $8.8 million.

Preliminary findings of the anti-dumping investigation are expected in late June 2017. We intend to maintain our strong balance sheet and diversified product and geographic mix as we await the outcome of the trade discussions.

Strategic Capital Program Update

We continue to implement a strategic capital program that is designed to position Western as the only company on the coast of BC capable of sustainably consuming the complete profile of the coastal forest and competitively manufacturing a diverse product mix for global markets.

Our strategic capital program is focused on the installation of proven technology that will deliver top quartile performance and improve our ability to manufacture the products that yield the best margin. In addition to investments in our manufacturing assets, we also allocate capital to strategic, high-return projects involving our information systems, timberlands assets, and forest inventories.

In the first quarter of 2017, we continued the strategic investment in our Chemainus sawmill with the commencement of a timber deck expansion project, and advanced the Duke Point planer modernization. The Chemainus sawmill timber deck expansion and Duke Point planer modernization are scheduled for completion in 2017.

We have announced plans for $101.9 million of our $125 million strategic capital program. Through the first quarter of 2017, we have implemented and capitalized $90.0 million under that program. Uncertainty arising from the softwood lumber trade dispute has caused us to defer the commencement of additional potentially significant capital projects plans, however a number of high-return, low-cost strategic capital projects are in the late stages of planning or ready for implementation.

Non-Core Assets Update

On March 29, 2017, we entered into a conditional agreement for the sale of our former South Vancouver Island Remanufacturing operation for $3.2 million. The South Island Remanufacturing plant was indefinitely curtailed in March 2016. Material conditions of this agreement were removed on April 21, 2017 and the completion date is August 19, 2017. Net of closing costs, proceeds are estimated to be $3.0 million and we expect to recognize a gain on disposition in the third quarter of 2017.

We continue to evaluate the timing of sale of non-core assets and expect to accelerate the marketing and disposition of certain non-core assets.
May 8, 2017 - Acadian Timber Corp. ("Acadian" or the "Company") (TSX:ADN) has reported financial and operating results1 for the three months ended March 25, 2017 (the "first quarter").

"Acadian generated strong free cash flow during the first quarter resulting in a payout ratio down to 62% inclusive of the impact of our recent 10% dividend increase" said Mark Bishop, Chief Executive Officer of Acadian. "Our operations benefited from favorable winter conditions which supported seasonally strong log production".

Acadian maintained its momentum and posted strong performance for the three-month period ending March 25, 2017. For the quarter we generated Adjusted EBITDA1 of $8.0 million up from $7.0 million in the prior year, as our operations benefitted from favourable winter harvest conditions driving a 10% increase in harvest volumes compared to the same quarter of 2016.

Demand for most of our products continues to be solid, with our average log selling price remaining in line with the end of last year.

During the first quarter of 2017, Acadian generated $7.4 million of Free Cash Flow1 and declared dividends of $4.6 million to our shareholders. This represents a payout ratio of 62%, which is comfortably below our long term annual target of 95% but in-line with expectations given the seasonality of our operations.

1 This news release makes reference to Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow which are key performance measures in evaluating Acadian's operations and are important in enhancing investors' understanding of Acadian's operating performance. Acadian's management defines Adjusted EBITDA as earnings before interest, taxes, fair value adjustments, recovery of or impairment of land and roads, unrealized exchange gain/loss on debt, depreciation and amortization and Adjusted EBITDA margin as Adjusted EBITDA as a percentage of its total revenue. Free Cash Flow is defined as Adjusted EBITDA less interest paid, current income tax expense, and capital expenditures plus net proceeds from the sale of fixed assets (selling price less gains or losses included in Adjusted EBITDA). As these performance measures do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"), they may not be comparable to similar measures presented by other companies. As a result, we have provided in this news release reconciliations of net income, as determined in accordance with IFRS, to Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow.

Review of Operations

Financial and Operating Highlights

       
Three Months Ended

(CAD thousands, except per share information)

March 25, 2017

  March 26, 2016

Sales volume (000s m3)

  356.0

    301.6

Net sales

$

23,072

  $

21,447

Net income / (loss)

  4,758

    4,342

Adjusted EBITDA

  8,030

    7,044

Free Cash Flow

  7,388

    6,170

Dividends declared

  4,601

    4,183

Payout ratio

  62%

    68%

Per share (fully diluted)

         
  Net income / (loss)

  0.28

    0.26

  Free Cash Flow

  0.44

    0.37

  Dividends declared

  0.27

    0.25

           
For the first quarter, Acadian generated net sales of $23.1 million compared to $21.4 million in the comparable period of 2016, driven primarily by favourable winter harvest conditions, particularly for spruce and fir stands. Total sales volumes were 18% higher than the same period in the prior year, driven by a 34% increase in softwood sawlog sales volumes. Sales volumes for other non-biomass products were in-line with the same period in the prior year. The increase in sales volumes was partially offset by a 6% decrease in the weighted average log selling price due to a year-on-year decline in the U.S. dollar exchange rate, unfavorable mix and weaker pricing for hardwood products.

Adjusted EBITDA for the first quarter was $8.0 million compared to $7.0 million during the comparable period in 2016. Adjusted EBITDA margin for the quarter was 35%, up from 33% in the same period last year, as the decrease in average selling price was more than offset by operating leverage from higher sales volumes and the benefit of higher and better use (HBU) land sales in Maine. 

Net income totaled $4.8 million, or $0.28 per share, for the first quarter, compared to $4.3 million, or $0.26 per share, for the same period in 2016. The increase is primarily due to the aforementioned sales volumes increase and partially offset by higher fair value adjustments due to higher harvest volumes.

Acadian's balance sheet continues to be solid with $100.5 million of net liquidity as at March 25, 2017, including funds available under Acadian's Revolving Facility and our stand-by equity commitment with Brookfield.

Total dividends declared to shareholders during the three months ended March 25, 2017 were $4.6 million, or $0.275 per share, up from $4.2 million or $0.25 per share, in 2016.

New Brunswick Timberlands

The table below summarizes operating and financial results for New Brunswick Timberlands.

  Three Months Ended March 25, 2017

Three Months Ended March 26, 2016

  Harvest
(000s m
3)

Sales
(000s m
3)

Sales
Mix


Results
($000s)


Harvest
(000s m3)

Sales
(000s m3)

Sales
Mix

Results
($000s)

Softwood

135.3

126.5

47%

$

7,258

111.0

80.5

40%

$

4,359

Hardwood

115.3

94.7

36%

  7,602

109.6

90.0

44%

  7,559

Biomass

45.3

45.3

17%

  965

33.3

33.3

16%

  1,338

  295.9

266.5

100%

  15,825

253.9

203.8

100%

  13,256

Other sales

        488

        675

Net sales

      $

16,313

      $

13,931

Adjusted EBITDA

      $

6,128

      $

4,958

Adjusted EBITDA margin

        38%

        36%

                     
Three months ended March 25, 2017:

Net sales totaled $16.3 million compared to $13.9 million for the same period last year. Log sales volumes excluding biomass increased 30% to 221 thousand m3 from 170 thousand m3 in the prior year, reflecting more favourable harvest conditions for spruce and fir stands and strong demand for softwood sawlogs. Furthermore, in the prior year, sales volumes for the quarter were lower as our operations carried higher than typical inventories at quarter end due to an inventory management program with one of the operation's major customers that was not in place in the current year.

The weighted average log selling price for the quarter was $67.18 per m3, down from $69.87 per m3 in the prior year. Strength in softwood sawlog selling prices, which were up 4% compared to the prior year, was more than offset by the impact of sales mix and weaker pricing for hardwood products.

Strong local demand for biomass products resulted in a 36% increase in sales volumes compared to the same period in the prior year. Overall, the gross margin earned on our biomass products decreased 36% compared to the first quarter of 2016, reflecting lower sales to export markets.

Adjusted EBITDA and costs for the quarter were $6.1 million and $10.2 million, respectively, compared to $5.0 million and $9.0 million, respectively, in the first quarter of 2016 due primarily to the aforementioned increase in log sales volumes. Adjusted EBITDA margin for the quarter increased to 38% from 36% in the same period in the prior year due to the increase in log sales as well as a 13% reduction in variable costs per m3 due to shorter hauling distances.

Safety

There were no recordable safety incidents among employees and one lost time incident among contractors during the first quarter of 2017.

Maine Timberlands

The table below summarizes operating and financial results for Maine Timberlands.

  Three Months Ended March 25, 2017

Three Months Ended March 26, 2016

  Harvest
(000s m
3)

Sales
(000 m
3)

Sales
Mix

Results
($000s)


Harvest
(000s m3)

Sales
(000s m3)

Sales
Mix

Results
($000s)

Softwood

62.8

62.6

70%

$

4,751

65.2

64.9

66%

$

5,142

Hardwood

29.4

25.7

29%

  1,892

29.8

27.4

28%

  2,298

Biomass

1.2

1.2

1%

  2

5.5

5.5

6%

  37

  93.4

89.5

100%

  6,645

100.5

97.8

100%

  7,477

Other sales

        114

        39

Net sales

      $

6,759

      $

7,516

Adjusted EBITDA

      $

2,156

      $

2,281

Adjusted EBITDA margin

        32%

        30%

                     
Three months ended March 25, 2017:

Net sales totaled $6.8 million compared to $7.5 million for the same period last year as log sales volumes decreased to 88 thousand m3 from 92 thousand m3 in the prior year. This decrease is driven primarily by a decrease in the number of operating days in the first quarter of 2017, as compared to the same quarter of 2016. Adjusting for this difference, log sales volumes were in-line with the prior year.

The weighted average log selling price in Canadian dollar terms was $75.26 per m3, down from $80.63 per m3 in the same period of 2016. The weighted average log selling price in U.S. dollar terms was $56.86 per m3, down 3% year-over-year, reflecting a 2% increase in softwood sawlog pricing offset by a 9% decline in hardwood pulp pricing reflecting high customer inventories.

Adjusted EBITDA for the quarter was $2.2 million, compared to $2.3 million in the prior year. Costs for the first quarter were $5.1 million, compared to $5.3 million during the same period in 2016, due to the decrease in sales volumes and a 5% decrease in variable costs per m3 in Canadian dollar terms. Adjusted EBITDA margin for the quarter increased to 32% from 30% due primarily to the benefit of HBU land sales and the above noted decrease in variable costs per m3.

Safety

There were no recordable safety incidents among employees or contractors during the first quarter of 2017.

Market Outlook

The following contains forward-looking statements about Acadian Timber Corp.'s market outlook for the remainder of fiscal 2017. Reference should be made to the "Forward-looking Statements" section of this news release. For a description of material factors that could cause actual results to differ materially from the forward-looking statements in the following, please see the Risk Factors section of our management's discussion and analysis of Acadian's most recent Annual Report and Annual Information Form available on our website at www.acadiantimber.com or filed with SEDAR at www.sedar.com.

Acadian's key markets include softwood sawtimber, hardwood sawtimber and hardwood pulpwood. Northeast North American softwood dimension sawmills represent over one third of Acadian's end-use market and are the primary market for our softwood sawtimber. Economic forecasters continue to call for steady growth in housing starts, with year-over-year improvements averaging over 7% in each of 2017 and 2018. As a result, North American sawtimber demand is expected to grow at over 3% per year over the next few years to support expanding domestic construction needs.

Despite the expectation for steadily improving lumber consumption, the near to medium term outlook for softwood sawtimber pricing remains uncertain in the face of expected punitive duties to be imposed by the U.S. Government on imports of Canadian softwood lumber. Preliminary countervailing duties (CVD) averaging 19.9% were announced last week, and anti-dumping duties (ADD) are scheduled to be announced in late June. Lumber prices jumped significantly through the first quarter in anticipation of high duty levels expected to be applied retroactively. As in past disputes, we have been anticipating relatively high initial combined duties, which are likely to be reduced over time during the litigation period. We anticipate a highly politicized process may obscure visibility on progress towards a negotiated settlement for at least most of 2017.

During past U.S./Canada softwood lumber disputes, Canada's Atlantic lumber producers, along with Québec border mills, experienced lower relative CVD & ADD duties than the rest of Canada and were ultimately exempted in past negotiated settlements due to the significantly greater proportion of private timberlands in the Atlantic region relative to the rest of Canada as well as a long history of active cross-border log exports within the Northeast region. However, there is little current visibility as to where final duty determination will land for the region at the end of this year, and in fact whether the region will be exempted from any final settlement as in the past. 

Hardwood sawtimber markets, typically oriented to millwork and higher value specialty markets, are expected to remain at healthy current levels throughout the upcoming year. While hardwood pulpwood markets remain historically very strong, we expect seasonally high consumer inventories will continue to impact pricing through mid-year, and in any case, remain vulnerable in the current strong U.S. dollar environment. While continued oversupply of softwood sawmill residuals and softwood pulpwood markets remains a concern, we anticipate regional timberland owners will continue to target reduced pulpwood harvest levels through 2017. Biomass is also an important market for Acadian. We anticipate domestic biomass markets will remain stable in New Brunswick and expect a gradual recovery in export volumes during the second half of the year. Maine's biomass market appears positioned for a gradual recovery as state subsidies and higher natural gas pricing have supported the restart of three previously idled biomass generation facilities. 

Additionally, we expect that the Maine recreational real estate market will remain favorable through the year and therefore anticipate conditions will support the sale of additional properties throughout the remainder of 2017.
April 28, 2017 - Canfor Corporation reported net income attributable to shareholders (“shareholder net income”) of $66.1 million, or $0.50 per share, for the first quarter of 2017, compared to shareholder net income of $38.0 million, or $0.29 per share, for the fourth quarter of 2016 and a net income attributable to shareholders of $26.0 million, or $0.20 per share, for the first quarter of 2016.

The company’s adjusted shareholder net income for the first quarter of 2017 was $59.3 million, or $0.45 per share, compared to an adjusted shareholder net income of $37.7 million, or $0.29 per share, for the fourth quarter of 2016, and adjusted shareholder net income of $20.9 million, or $0.16 per share for the first quarter of 2016.

The company reported operating income of $106.8 million for the first quarter of 2017, up $34.8 million from adjusted operating income of $72.0 million for the fourth quarter of 2016. Higher earnings in the first quarter of 2017 reflected improved operating income in both the lumber and pulp and paper segments. Lumber segment results primarily reflected higher Western Spruce/Pine/Fir (“SPF”) and Southern Yellow Pine (“SYP”) sales realizations, offset in part by higher market-based stumpage and increased log costs resulting from extreme weather conditions in Western Canada towards the end of 2016 and into early 2017. Pulp and paper segment results were mostly attributable to higher pulp shipment volumes during the current quarter.

North American lumber demand was solid in the first quarter of 2017, with US housing starts in line with the previous quarter, averaging 1,253,000 units on a seasonally adjusted basis. Canadian housing construction activity was strong in the first quarter of 2017, up 13% compared to the previous quarter, at an average of 225,000 units on a seasonally adjusted basis. Offshore lumber demand from China, Japan and other regions also improved through the first quarter, particularly for the Company’s higher-value lumber products.

Western SPF lumber unit sales realizations increased compared to the previous quarter reflecting higher average Western SPF lumber prices, offset in part by a 1% stronger Canadian dollar. The average benchmark North American Random Lengths Western SPF 2x4 #2&Btr price was up US$33 per Mfbm, or 10%, compared to the fourth quarter of 2016, with more pronounced price increases in the Western SPF 2x6 #2&Btr price, and more modest price increases across wider-width dimensions. The improving benchmark prices were supported by strong underlying North American and offshore demand, in addition to uncertainty surrounding possible countervailing duties being imposed on Canadian lumber shipments destined to the US. SYP unit sales realizations also showed a modest improvement compared to the prior quarter as improved benchmark SYP lumber prices were supported by seasonally stronger demand and concerns around the effects of potential duties on Western SPF supply.

Total lumber production, at 1.3 billion board feet, was up 5% compared to the prior quarter, largely reflecting improved productivity and additional operating days in the current quarter. Total lumber shipments were in line with the previous quarter, as a tightening supply of railcars and trucks in North America, largely due to challenging weather conditions, placed constraints on shipments from Western Canada. Lumber unit manufacturing costs in the first quarter of 2017 were in line with the previous quarter as gains in productivity were offset by higher marketbased stumpage and increased log costs resulting from the challenging weather conditions.

Northern Bleached Softwood Kraft (“NBSK”) pulp average list prices to China, as published by RISI, moved up by US$50 per tonne as a result of successive price increases implemented through the first quarter, however, the Company’s overall NBSK pulp unit sales realizations were relatively unchanged from the previous quarter, reflecting shipments of a higher proportion of orders taken in late 2016 and early in 2017, as well as further pressure on customer discounts and a stronger Canadian dollar. Higher Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) unit sales realizations in the first quarter of 2017 reflected a continued improvement in BCTMP demand and prices in the current quarter. Energy revenues were up in the current quarter reflecting slightly higher energy prices combined with seasonally higher power generation.

Pulp shipment and production volumes were up 22% and 4%, respectively, from the previous quarter, with the increase in the former primarily reflecting increased shipments to China and North America, combined with the impact of the delayed vessel to Asia over the year end, and, to a lesser extent, improved productivity. Pulp unit manufacturing costs saw a modest decrease in the current quarter, largely reflecting improved productivity, offset in part by seasonally higher energy consumption.

Commenting on the company’s first quarter results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “Despite the weather-related challenges in Western Canada, our lumber and pulp businesses recorded solid financial and operating performances in the first quarter of 2017, with operating income for both segments well up from the last quarter of 2016.”

On November 25, 2016, a petition was filed by the US Lumber Coalition to the US Department of Commerce (“DOC”) and the US International Trade Commission (“ITC”) alleging certain subsidies and administered fees below the fair market value of timber that favour Canadian lumber producers, an assertion the Canadian industry and Provincial and Federal Governments strongly deny and have successfully disproven in international courts in the past. Canfor was selected by the DOC as a “mandatory respondent” to the countervailing and anti-dumping investigations and is subject to company specific countervailing and anti-dumping duties. On April 24, 2017, the DOC announced its preliminary countervailing duty of 20.26% specific to Canfor, and an industry average of 19.88%, to be posted by cash deposits or bonds on the exports of softwood lumber to the US on or after approximately May 1, 2017 for a period of 120 days, in accordance with US law.

The DOC is expected to announce its preliminary anti-dumping duty determination on June 23, 2017. The final countervailing and anti-dumping duty determinations will be aligned for DOC administrative purposes. This alignment could result in the suspension of preliminary countervailing duty cash deposit requirements after the initial four month period has expired and until an aligned final determination decision is established. Canfor continues to cooperate with the Provincial and Federal Governments of Canada who have indicated they will vigorously defend the interests of the industry.

Looking ahead, the US housing market is forecast to continue its gradual recovery through the balance of 2017. North American lumber consumption is forecast to improve reflecting steady demand in the residential construction market and continued strength from the repair and remodelling sector. Wide-width SYP and speciality lumber prices are anticipated to improve through the second and third quarter of 2017 reflecting stronger seasonal demand. Absent a new Softwood Lumber Agreement, there remains a risk of material anti-dumping duties being imposed on Canadian lumber shipments destined to the US in addition to the preliminary countervailing duty rate. The Company anticipates marketplace volatility as investigations progress and determinations are made.

For the company’s key offshore lumber markets, demand is anticipated to show a solid improvement through the second quarter of 2017. In the pulp and paper segment, global softwood markets are projected to remain relatively strong during the second quarter. Reduced capacity over the traditional spring maintenance period may support further price increases in the second quarter of 2017. With the commissioning of new pulp capacity in the latter part of 2017 and into 2018, there is risk of downward pressure on pricing in the second half of this year. For the month of April 2017, CPPI announced an increase of US$20 per tonne for NBSK pulp list price to China and North America.

Results in the second quarter of 2017 will reflect the positive impact of recent price gains, particularly in Asia, and scheduled maintenance outages at CPPI’s Northwood and Taylor pulp mills, with a projected 33,000 tonnes of reduced NBSK pulp and 4,000 tonnes of reduced BCTMP production, respectively, as well as higher associated maintenance costs and lower projected shipment volumes. For the third quarter of 2017, CPPI’s Intercontinental pulp mill has a maintenance outage scheduled, with a projected 8,000 tonnes of reduced NBSK pulp production.
April 26, 2017 - Sales of newly built, single-family homes rose for the third straight month, increasing 5.8 per cent in March to a seasonally adjusted annual rate of 621,000 units, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

"This month's increase in new home sales is aligned with solid builder confidence and shows that the spring home buying season is off to a strong start," said Granger MacDonald, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Kerrville, Texas. "However, builders are concerned that ongoing increases in building material costs will hurt housing affordability, especially given today's proposal by the Department of Commerce to impose a hefty tariff on Canadian lumber."

"The March sales numbers are the second highest on record since the Great Recession, which is especially encouraging considering the poor weather conditions throughout many parts of the country," said NAHB chief economist Robert Dietz. "With tight existing home inventory, rising household formations and continued job creation, we can expect further growth in new home sales moving forward."

The inventory of new homes for sale was 268,000 in March, which is a 5.2-month supply at the current sales pace. The median sales price of new houses sold was $315,100.

Regionally, new home sales increased 25.8 percent in the Northeast, 16.7 per cent in the West and 1.6 percent in the South. Sales fell 4.5 per cent in the Midwest.
April 25, 2017 - West Fraser Timber Co. Ltd. has reported its first quarter 2017 results.

First Quarter Highlights

  • Sales improved by 7% compared to the previous quarter.
  • Earnings up 56% from previous quarter.
  • Improved product pricing across operating segments.
  • Strong operating metrics despite some weather-related challenges.
  • Quarter ending net debt to capital ratio of 16%.
Operational Results

Our lumber segment generated operating earnings of $152 million (Q4-16 - $107 million) and Adjusted EBITDA of $191 million (Q4-16 - $144 million).  Improved product pricing was the primary driver of improved results.  SPF shipments were lower than production due in part to weather-related transportation delays.

Our panels segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $12 million (Q4-16 - $17 million) and Adjusted EBITDA of $15 million (Q4-16 - $20 million).  Improved product pricing was offset by increased costs associated with our WestPine MDF plant restart.

Our pulp & paper segment generated operating earnings of $31 million (Q4-16 - $20 million) and Adjusted EBITDA of $40 million (Q4-16 - $30 million).  Higher pulp prices, higher BCTMP shipments and lower NBSK production costs were the primary drivers of improved results. Both Hinton Pulp and Slave Lake Pulp set quarterly production records.

Outlook

We will continue to focus on operational improvements which, together with warmer weather in Canada, should contribute to improved lumber production and shipments.  Our two NBSK pulp mills will undergo major scheduled maintenance during the balance of 2017 which will reduce normal NBSK pulp production by approximately 25,000 tonnes.  Our WestPine MDF mill is expected to gradually work through start-up issues over the balance of the year but we do not expect to achieve targeted production levels until late in 2017.

The most challenging immediate issue facing the Company is the current softwood lumber dispute.  We are expecting the U.S. Department of Commerce to announce preliminary countervail duty rates very shortly, to be implemented in May 2017, and potentially to be applied retroactively over a 90-day period.  West Fraser will receive its own duty rate.  Anti-dumping duty rates are expected to be announced in late June and implemented in July 2017 and could potentially be applied retroactively over a 90-day period.  Ted Seraphim, our President and CEO, said: "It is regrettable that our American neighbours have chosen to renew this long-standing dispute which creates so much uncertainty for lumber market participants and threatens to undermine some of the tremendous work our two countries have undertaken to grow the markets for North American lumber.  However, we are fully cooperating with the U.S. investigation as we continue to believe that the allegations of subsidy and dumping are groundless."

Mr. Seraphim also added: "I want to thank all of our employees for their tremendous effort and dedication to continuously improving our safety awareness and at the same time focusing on achieving operational excellence.  Our focus is not on any one quarter but on long-term results and we are certainly making progress towards achieving our goals."
April 19, 2017 - In the last 24 hours, the U.S. Department of Commerce preliminarily found that the Government of China unfairly subsidizes its hardwood plywood producers and imposed preliminary countervailing duties on Chinese hardwood plywood imports, ranging from 9.89 to 111.09 per cent for the mandatory respondents and 9.89 per cent for all other Chinese hardwood plywood producers.  The Coalition for Fair Trade of Hardwood Plywood, which filed this trade case, commends the Commerce Department for its hard work on this investigation thus far.

Today's determination by Commerce establishes the preliminary duty margins in the subsidies portion of the investigation.  Following the publication of Commerce's preliminary determination in the Federal Register, Commerce will instruct Customs and Border Protection to begin suspending liquidation and collect preliminary duties on entries of hardwood plywood from China, at the preliminary margin rates determined.  Commerce also made an affirmative preliminary determination of critical circumstances for all companies but Sanfortune.  If a final affirmative determination of critical circumstances is ultimately made, subsidy duties will apply to imports entered even earlier – as of Jan. 17, 2017.  

The Coalition notes that this is a preliminary ruling only. The investigations are ongoing, and additional subsidy programs have been alleged, which have not yet been fully investigated by the Department of Commerce and which are not reflected in today's determination. "The Coalition is confident that, by the time these investigations are concluded, the final margins will reflect the full amount of subsidies granted by the Chinese government to Chinese hardwood plywood producers," said Kip Howlett, president of the Hardwood Plywood & Veneer Association (HPVA). The final determination is currently expected to be issued in early November 2017. 

In addition, the Coalition awaits the Commerce Department's preliminary and final determinations in the companion antidumping duty investigation of hardwood plywood from China, expected in June 2017 and November 2017, respectively.

"Today's preliminary finding of unfair subsidization is an important step in remedying the harm caused by unfairly traded imports of Chinese hardwood plywood," said Tim Brightbill, trade counsel to the Coalition. "U.S. hardwood plywood producers look forward to further relief when preliminary antidumping duties are announced in about two months."

The antidumping and countervailing duty cases were filed on behalf of the Coalition for Fair Trade of Hardwood Plywood, a group of six producers and manufacturers that are committed to safeguarding the U.S. hardwood plywood industry and its thousands of workers. The Coalition's members include Columbia Forest Products, Commonwealth Plywood Inc., Murphy Plywood, Roseburg Forest Products Co., States Industries, Inc. and Timber Products Company. The law firm of Wiley Rein LLP is representing the Coalition in these investigations.
March 23, 2017 - The latest WOOD MARKETS annual survey of the "Top 40" Canadian and U.S. softwood lumber producers featured steady production growth in 2016 due to the cooperation of a strong U.S. market, plus growth in China. Amid an absence of any major mill acquisitions, almost all of the production gains came from existing mills. Of the top forty companies, only three in Canada and four in the U.S. recorded any production declines – a sign of a good year.

These and other industry highlights were recently released in the March 2017 issue of WOOD Markets Monthly International Report. The consultants at International WOOD MARKETS Group, Vancouver B.C. have conducted this survey annually since 1997.

The Canadian top 20 lumber companies saw their output rise from 19.6 billion bf in 2015 to 20.45 billion bf last year, while their share of national production slipped to 72% (from 74%). However, Canadian mill investments in the U.S. South are proving very strategic due to the ample timber supply in the region and high sawmilling margins (the result of low timber prices). As well, with U.S. duties being implemented on Canadian lumber shipments commencing in May, Canadian mill ownership in the U.S. is looking to be a very astute move. While there was no U.S. sawmill acquisition activity in 2016 by Canadian companies, the current collective U.S. mill count of West Fraser, Canfor and Interfor — 39 mills in all — allows their sawmill operations to enjoy excellent diversification.

Turning to the ranking of the top 20 Canadian firms, 12 were based in Western Canada and collectively produced 14.7 billion bf (52.0% of Canada’s shipments); this was higher by 390 million bf (+2.7%) than in 2015. Production for the top eight eastern Canadian producers was 5.7 billion bf (20.1% of Canada’s shipments), up 445 million bf (+8.4%) from the prior year.

The top five Canadian producers were as follows: West Fraser, Canfor, Tolko, Resolute and Western Forest Products. Of note, West Fraser surpassed Canfor as Canada’s top lumber producer — a position the former last held in 2011. Collectively, the top five raised their production to 12.3 billion bf (43.0% of Canadian lumber output), versus 12.0 billion bf (45.1%) in 2015. West Fraser inched up to lead spot, raising its output by 197 million bf (to 3.80 billion bf; +5.5%) at its 13 mills. Canfor dropped to second position with 3.79 billion bf and recorded a decline in output of 42 million bf (-1.1%). Tolko placed third, with its output falling by 63 million bf to 1.90 billion bf (-3.2%) as it cut production by half at its Quesnel, B.C. mill beginning in October 2016 (it also closed its Merritt, B.C. mill in Q1/17). Fourth-place Resolute gained 166 million bf (+9.9%) to reach a healthy 1.84 billion bf. Western Forest Products saw its output expand by 52 million bf (to 943 million bf).

In the U.S., total lumber shipments of the top 20 companies rose from 19.7 billion bf to 20.9 billion bf (+6.3%). The top 20 U.S. companies increased their output at a pace that was almost twice that of the entire U.S. industry and 50% more than that of the top 20 Canadian companies.

The top 20 firms produced 63.9% of all U.S. softwood lumber shipments in 2016 (versus 62.1% in 2015). Despite the lack of export duties on Canadian lumber in 2016, the larger U.S. sawmills enjoyed excellent results. This growth indicates the rising confidence of the largest U.S. producers (including Canadian owners) in the housing market recovery and corresponding lumber consumption growth. The other apparent driver behind these growth strategies (on both sides of the border) was the need to improve cost-competitiveness by driving down costs and increasing efficiencies.

As In 2015, Weyerhaeuser retained its first-place U.S. position through a moderate increase of 230 million bf to 3.64 billion (+6.7%). Weyerhaeuser’s acquisition of Plum Creek Timber was the blockbuster deal of the year: it included two sawmills (with timberlands that are now the core assets of the combined companies with a total of 13 million acres of forests). Georgia-Pacific remained in second position with an estimated 2.5 billion bf (+6.9%). In third place was West Fraser, growing its production by 131 million bf to 2.14 billion bf (+6.5%) as a result of the rebuilt Quincy mill being in operation for the full year. Sierra Pacific was in fourth spot with production down 22 million bf to 2.01 billion bf (-11%). Interfor retained its fifth-place spot with production of 1.61 billion bf, a decrease of 101 million bf (-5.9%)

The top five U.S. firms produced 11.9 billion bf, representing 36.3% of all U.S. lumber shipments, a slight (3.5%) increase from 2015.

Four of the largest North American softwood lumber producers have operations in both the U.S. and Canada. These publicly traded companies were positioned in both the top six in Canada and U.S. for last year (the percentage of their 2016 U.S. lumber production is shown in brackets): Weyerhaeuser (81%), West Fraser (36%), Canfor (26%) and Interfor (65%). “When comparing the earnings (EBITDA) amongst the four companies,” noted Russ Taylor, WOOD MARKETS’ President, “Weyerhaeuser’s above-average earnings since 2014 is noticeable (and has the highest percentage of U.S. mill assets) and this does lead to a timely question: why is the U.S. claiming that Canadian mills are subsidized when Weyerhaeuser is achieving such exceptional financial results with only 19% of its mill production in Canada?” The other three Canadian-based companies achieved lower earnings than Weyerhaeuser over the same three-year period and have more Canadian-based mills than Weyerhaeuser (details are provided in the full article). More food for debate!

The wild card for 2017 is the imposition of U.S. duties on Canadian lumber starting in early May. This is expected to negatively impact Canadian production (and U.S. exports) and benefit U.S. sawmills (and timberland companies). This will be discussed at length at WOOD MARKETS’ Global Softwood Log & Lumber Conference, to be held in Vancouver on May 11, 2017.

The complete Top 40 List and further analysis are available to subscribers of WOOD Markets Monthly International Report.
March 21, 2017 - Over the past ten years, there has been a clear shift in fibre-sourcing for pellet manufacturers in the U.S. South from logs to residues. In 2008, when the first large pellet plant was built, practically all fibre consumed by this plant was low-quality small-diameter logs from adjacent forests. This fibre source is a high-cost fibre furnish since it needs to be chipped, hammered and dried before it can be processed to pellets, which adds substantial cost to the manufacturing of pellets.

Increasingly, pellet plants throughout the southern states have turned to sawmill by-products and forest residues that in the past have been left at the harvesting sites. The North American Wood Fiber Review (NAWFR) has for the past five years tracked the fibre sources for the pellet industry each quarter in the two major producing regions of North America - British Columbia and the U.S. South. There have been two clear trends:

  • In British Columbia, pellet companies have moved from entirely relying on inexpensive sawdust from the local sawmills for its fibre furnish to increasingly supplementing its dominant fibre source with forest residues in the form of tree tops and branches left after harvest operations.
  • In the U.S. South, there has been an increase in the usage of residuals at the expense of roundwood.
In the 1Q/17, pellet plants in B.C. consumed just over 82 per cent sawmill residues, while forest residues accounted for about 17 per cent. With the expected reduction in lumber production in the province in the coming years, pellet plants will increasingly have to rely on forest residues and low-cost logs for their furnish since the available supply of sawmill by-products will diminish.

In the U.S. South, the fibre sourcing trend is the opposite of British Columbia with expected increases in the usage of sawmill residues as the lumber production is likely to expand in the future. From the 1Q/13 to the 1Q/17, the usage of industry and forest residues increased from 33 per cent to 47 per cent of the total fibre furnish for the pellet industry, according to the NAWFR. This upward trend is expected to continue, especially in regards to the usage of sawdust and microchips (chips manufactured from tree tops, tree branches and small-diameter trees from forest thinnings). 



The North American Wood Fiber Review (NAWFR) has tracked wood fibre markets in the U.S. and Canada for over 30 years and it is the only publication that includes prices for sawlogs, pulpwood, wood chips and biomass in North America. The 36-page quarterly report includes wood market updates for 15 regions on the continent in addition to the latest export statistics for sawlogs, lumber, wood pellets and wood chips.
March 17, 2017 - Stella-Jones Inc. has announced financial results for its fourth quarter and fiscal year ended December 31, 2016.

"2016 marked the sixteenth consecutive year of sales and net income growth for Stella-Jones. These results reflect the efficiency of our operations and the benefits of our expansion strategy. Most significantly, they point to the Company's deeply rooted role as a principal North American provider of treated wood products in our main product categories," said Brian McManus, president and chief executive officer. 

2016 RESULTS


Sales reached $1.84 billion, up 17.9% from last year's sales of $1.56 billion. Acquisitions contributed additional sales of $156.8 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, had a positive impact of about $53.1 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased approximately $69.1 million, or 4.4%.

Railway tie sales for 2016 amounted to $716.2 million, up from sales of $709.7 million in 2015. Excluding the conversion effect, railway tie sales decreased approximately $22.9 million, or 3.2%, as lower industry demand in the second half of the year offset strong first-half demand.

Utility pole sales reached $579.2 million in 2016, representing an increase of $51.5 million, or 9.8%, from sales of $527.7 million in 2015. Excluding the currency conversion effect and the contribution from acquisitions, sales declined approximately $24.8 million, or 4.7%. This variation reflects a decline in sales of distribution poles due to reduced maintenance demand in certain regions, while sales of transmission poles held relatively steady.

Sales in the residential lumber category totalled $345.7 million in 2016, up from $182.6 million in 2015. This $163.2 million, or 89.4% increase mostly reflects additional sales of $91.5 million from the Ram acquisition in the first nine months of 2016. Excluding this factor and the currency conversion effect, sales increased $68.5 million, or 37.6%, reflecting the transition from treating services only for wholesalers to a value-added full service direct offering to retailers.

Industrial product sales were $96.3 million in 2016, compared with $97.3 million in 2015. This decrease is mainly attributable to the timing of orders for rail-related products in the United States, partially offset by the currency conversion effect. Logs and lumber sales amounted to $100.8 million in 2016, up from $42.0 million in 2015. This increase is explained by the addition of the purchase and resale of lumber resulting from procurement efforts to support residential lumber requirements and by the timing of timber harvesting.

Operating income stood at $233.2 million, or 12.7% of sales, compared with $220.1 million, or 14.1% of sales, in 2015. The increase in absolute dollars essentially reflects higher business activity for the year and the contribution from acquisitions. As a percentage of sales, the decrease is mainly attributable to a higher proportion of low-margin logs and lumber sales, a less favourable product mix this year compared to 2015 and softness in selling prices for certain regions. These factors were partially offset by economies of scale generated by higher volumes in the residential lumber category.

Net income for 2016 increased 8.9% to $153.9 million, or $2.22 per diluted share, up from $141.4 million, or $2.04 per diluted share, in 2015.

FOURTH QUARTER RESULTS

Sales amounted to $341.7 million, versus $357.5 million a year ago. Acquisitions accounted for sales of approximately $19.5 million, while the conversion effect from fluctuations in the value of the Canadian dollar, versus the U.S. dollar, had a positive impact of $1.1 million on the value of U.S. dollar denominated sales when compared with last year's fourth quarter. Excluding these factors, sales decreased approximately $36.4 million, or 10.2%.

Railway tie sales totalled $113.1 million, down from $147.5 million last year, primarily as a result of lower industry demand at the end of the year. Sales of utility poles reached $144.6 million, compared with $129.5 million last year. Excluding acquisitions, sales declined approximately $3.6 million as a result of slight decreases in sales of both distribution and transmission poles. Sales of residential lumber amounted to $44.6 million, up from $40.1 million last year, reflecting solid market demand and higher direct sales to retailers. Industrial product sales were $15.3 million, down from $23.6 million a year ago, as a result of lower sales of rail related products. Logs and lumber sales stood at $24.1 million, versus $16.7 million last year, due to the timing of lumber purchase and resale activities as well as the timing of timber harvesting.

Operating income amounted to $28.2 million, or 8.2% of sales, in the fourth quarter of 2016, versus $48.3 million, or 13.5% of sales, last year. The decrease in absolute dollars and as a percentage of sales mainly reflects lower business activity in railway ties sales and a less favourable product mix. Net income for the fourth quarter of 2016 was $18.5 million, or $0.27 per diluted share, compared with $33.0 million, or $0.48 per diluted share, in the fourth quarter of 2015.

ACQUISITION OF KMS AND NPTW

On December 21, 2016, the Company completed the acquisition of substantially all the operating assets employed in the businesses of Bois KMS (GMI) Ltée ("KMS") and Northern Pressure Treated Wood (N.P.T.W.) Ltd ("NPTW"). KMS and NPTW manufacture treated wood utility poles at their facilities located in Rivière-Rouge, Québec and Kirkland Lake, Ontario, respectively.

Total cash outlay associated with the acquisition was approximately $19.2 million, excluding acquisition costs of approximately $1.0 million, recognized in the consolidated statement of income under selling and administrative expenses. The Company financed the acquisition through its committed revolving credit facility.

SOLID CASH FLOW AND FINANCIAL POSITION

In 2016, Stella-Jones generated a cash flow from operating activities before changes in non-cash working capital components and interest and income taxes paid of $268.9 million, up 5.7% from $254.3 million in 2015. This increase mostly reflects a higher net income for the year. 

As at December 31, 2016, the Company's long-term debt, including the current portion, stood at $694.4 million compared with $669.9 million at the end of 2015. The variation reflects higher borrowings to finance the acquisitions completed in 2016, partially offset by the effect of local currency translation on U.S. dollar denominated long-term debt. As at December 31, 2016, Stella-Jones' total debt to total capitalization ratio was 0.40:1, compared with 0.42:1 twelve months earlier.

QUARTERLY DIVIDEND OF $0.11 PER SHARE

On March 16, 2017, the Board of Directors declared a quarterly dividend of $0.11 per common share, payable on April 28, 2017 to shareholders of record at the close of business on April 3, 2017.

OUTLOOK

Based on current market conditions in our main product categories, we expect sales to be weaker in the first half of 2017 when compared to 2016 with an expected year-over-year increase in the second half of the year. Operating margins will be negatively impacted by product mix and softer pricing in certain regions. In the railway tie category, given strong demand in the first half of 2016, we anticipate lower year-over-year demand for 2017, while softer pricing will also reduce revenues. In the utility pole category, demand for regular maintenance projects should gradually return to normal patterns in the second half of 2017, but operating margins are also expected to decrease as a result of the geographical sales mix. As for the residential lumber category, we remain confident to further benefit from solid demand for new construction and outdoor renovation projects in the residential and commercial markets. Our immediate focus will be on the integration of our recent acquisitions as well as taking the necessary steps to adjust production levels, maximize operating efficiencies and minimize costs throughout the organization.
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