Canfor Corporation ( CFPZF.PK)

Q3 2011 Earnings Conference Call

October 28, 2011 11:00 ET


Don Kayne – President and CEO

Alan Nicholl – CFO

Alistair Cook – SVP, Wood Products Operations

Wayne Guthrie – SVP, Sales and Marketing


Daryl Swetlishoff – Raymond James

Sean Steuart – TD Securities

Paul Quinn – RBC Capital Markets



Good morning, ladies and gentlemen welcome to the Canfor Corporation Third Quarter Results 2011 Conference Call. A recording of the call and the transcript will be available on Canfor’s website. During this call, Canfor’s Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section on their website.

Also the company would like to point out that that this call will include forward-looking statements. So please refer to the press release for the associated risks of such statements.

I would now like to turn the meeting over to Mr. Don Kayne, President and CEO of Canfor Corporation. Please go ahead Mr. Kayne.

Don Kayne

Thank you, operator and good morning everyone and welcome to Canfor’s conference call to discuss the company’s third quarter results for 2011. I will speak very briefly about our Q3 highlights before turning the call over to Alan Nicholl, who is our Chief Financial Officer. Alistair Cook, our Senior VP of Wood Products Operations; and Wayne Guthrie, our Senior VP of Sales and Marketing are with me as well to answer any questions you may have specific to their responsibility areas.

Yesterday, we reported an adjusted loss from continuing operations of $1.8 million on sales of $602 million for the third quarter and an EBITDA of $54.4 million. And I will speak to our financial performance in a few minutes. Conditions in the United States housing market remained relatively flat over the quarter in line with forecast expectations. We continue to anticipate that a further 18 to 24 months will be necessary to see the U.S. return to more normal levels.

Our Asia-Pacific business continues to be exceptionally strong. Offshore lumber shipments increased by 5% over Q2 and are 68% higher than the same quarter in 2010. Offshore shipments reached new record high levels based on continued strength from China as well as steady consumption from Japan and Korea. And we anticipate steady growth in demand from the Asia-Pacific markets going forward. In China, we are seeing particular strength in the remanufacturing segment as well as growing demand from geographies beyond Shanghai and Beijing areas.

Looking forward, our focused and consistent efforts to support the uptick of wood frame construction among China’s major developers and builders will result in continued growth into the future. As was the case in the second quarter, continued severe weather affected our British Columbia and Alberta operations over the summer resulting in higher log costs based on longer haul distances, additional road maintenance costs, and some external purchases.

Overall for Q3, lumber production was up 3%. We continued to make very strong progress on our capital program and restart of our Vavenby sawmill on September 6. A major player upgrade at Polar sawmill is complete and the energy systems at the Plateau and Chetwynd sawmills are also on target. Our capital program investments are delivering solid results and our cost performance and productivity is strengthening across the operations. We remain very confident in our Asia-Pacific markets and exceptional customer base in China, Japan and other countries. As demand recovers in North America and continues to grow in Asia, Canfor will be positioned to prosper.

Well, I’d like to now turn the call over to Alan Nicholl to discuss Canfor’s financial performance in the quarter.

Alan Nicholl

Thanks Don and good morning everyone. My comments will be principally focused on our financial performance for the third quarter of 2011 by reference to the previous quarter. In my comments, I will be referring to a third quarter overview slide presentation which you will find on our website in the Investor Relations section. Full details in the mines are contained in our news release issued yesterday.

Our third quarter of 2011 equity shareholder net loss, which includes a 50.2% share of earnings from Canfor Pulp Limited partnership, was $22 million or $0.15 per share. This compares to a net income of $2 million or $0.01 a share for the second quarter of 2011 and a net income of $9 million or $0.06 a share for the third quarter of 2010.

On slide three of our presentation, we highlight non-operating items that affect comparability of results between the second and third quarters. In the third quarter, these items consisted of a loss on the translation of U.S. dollars denominated debt into Canadian dollars that reflected a stronger U.S. dollar. Net loss on derivative financial instruments which is also largely attributable to the strengthening of the U.S dollar and a mark-to-market decrease in the fair value of our asset-backed commercial paper. After taking account of these items, the third quarter adjusted loss was $2 million or $0.01 of share. This compares just similarly adjusted net income of $3 million or $0.02 a share for the second quarter, a decrease of $5 million or $0.03 per share.

With respect to our third quarter operating performance, you will see on slide four of our presentation that our total sales were $602 million and this was probably 3% lower than the prior quarter. EBITDA was $54 million, a decrease of $12 million from the prior quarter. Almost all of this $12 million variance was in the Pulp & Paper segment and reflected downtime taken by Canfor Pulp or Northwood mills boiler upgraded as well as lower NBSK pulp prices.

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