Canfor Announces 2020 and Fourth Quarter 2020 Results
Canfor Corporation (“Canfor” or the “company”) reported 2020 and fourth quarter 2020 results:
– Record-high 2020 reported operating income of $727 million; adjusted operating income of $735 million; shareholder net income of $544 million, or $4.35 per share
– Fourth quarter of 2020 reported operating income of $420 million; adjusted operating income of $321 million; shareholder net income of $336 million, or $2.68 per share
– Net debt of $270 million at December 31, 2020, improvement of $256 million from prior quarter; available liquidity of $1.4 billion; net debt to capitalization of 9.3% at December 31, 2020
– Cumulative cash deposits of $594 million on countervailing and anti-dumping duties at December 31, 2020
2020 was an exceptional yet volatile year for Canfor. The unprecedented challenges stemming from the coronavirus outbreak (“COVID-19”) weighed heavily on results in the first half of 2020. However, through the second half of 2020 there were several positive developments, including an unexpected increase in demand and record global pricing. This, coupled with a solid operating performance, resulted in record-high operating income of $727.3 million and net income per share of $4.35 for the year overall. These results compared to an operating loss of $294.3 million and net loss per share of $2.10 in 2019.
For the fourth quarter of 2020, the Company reported operating income of $419.6 million, $120.0 million higher than operating income of $299.6 million in the third quarter of 2020. Reported results for the fourth quarter of 2020 include a net duty recovery of $95.5 million, largely resulting from the finalization of countervailing (“CVD”) and anti-dumping duty (“ADD”) rates applicable to the first period of review (“POR1”), compared to a net duty expense of $50.7 million reported in the third quarter of 2020.
After adjusting for the aforementioned duty recovery and other one-time items, the Company’s operating income was $321.1 million for the fourth quarter of 2020, compared to similarly adjusted operating income of $347.3 million for the third quarter of 2020.
Adjusted lumber segment operating income of $365.5 million for the fourth quarter of 2020 decreased $21.9 million from the third quarter of 2020, as record quarterly results for the Company’s European Spruce/Pine/Fir (“SPF”) operations were more than offset by lower quarter-over-quarter earnings for the Company’s Southern Yellow Pine (“SYP”) operations, which notwithstanding continued to generate near record-high results. Operating results for the Company’s Western Canadian operations continued to be strong and were in line with the prior quarter.
During the fourth quarter of 2020, global lumber market fundamentals remained strong, with a sustained increase in North American demand over the traditionally slower season, particularly in December, further reducing already low inventory levels. The North American market continued to see strong new home construction activity, particularly single-family homes, which consume approximately three times the volume of lumber compared to multi-family units, and unusually high demand in the repair and remodeling sector in the current quarter. US housing starts, on a seasonally adjusted basis, averaged 1,588,000 units, up 11% from the previous quarter reflecting an 18% increase in single-family starts and a 10% decline in multi-family starts. In Canada, housing starts averaged 239,000 units on a seasonally adjusted basis, unchanged from the prior quarter.
Offshore lumber demand in Asia improved in the current quarter, particularly in Japan, as building activities in the region returned to more normal levels following quarantine delays earlier in the year. European and Scandinavian lumber demand continued to strengthen in the current quarter largely due to sustained growth in the repair and remodeling sector.
The average benchmark North American Random Lengths Western SPF 2×4 #2&Btr price experienced extreme volatility through the fourth quarter of 2020. From an all-time high of US$955 per Mfbm at the end of September, prices in the current quarter initially fell to a low of US$530 per Mfbm at the end of October, before climbing steadily through November and posting significant gains in December, to end the year at US$920 per Mfbm. As a result of the pricing fluctuations through the current period, the Western SPF 2×4 #2&Btr price averaged US$700 per Mfbm for the fourth quarter of 2020, down US$68 per Mfbm, or 9%, from the previous quarter. The Company’s Western SPF lumber unit sales realizations, however, increased moderately in the current quarter, as a favourable timing lag in shipments (versus orders) combined with improved offshore unit sales realizations and, to a lesser extent, a reduction in duties, more than offset a 2 cent, or 2%, stronger Canadian dollar.
The movement in the North American Random Lengths SYP East 2×4 #2 through the fourth quarter of 2020 was similar to that of Western SPF, dropping from a record-high of US$1,035 per Mfbm in early October 2020 to a low of US$585 per Mfbm in mid-November, before rebounding to US$1,035 per Mfbm at the end of the year and reaching a new all-time high of US$1,180 per Mfbm in early 2021. Notwithstanding the significant pricing volatility in the fourth quarter of 2020, the average SYP East 2×4 #2 was relatively flat quarter-over-quarter at US$777 per Mfbm, with the Company’s overall SYP lumber unit sales realizations decreasing in line with pronounced declines for most wider width SYP dimension products compared to the prior quarter, mostly attributable to seasonal factors.
The average European indicative SPF lumber benchmark price at SEK4,115 per Mfbm, was up SEK701 per Mfbm, or 21%, from the previous quarter. The Company’s European SPF lumber unit sales realizations for the fourth quarter of 2020 were modestly higher than the previous quarter principally reflecting this increase in European benchmark pricing and, to a lesser extent, a 1% weaker Canadian dollar (versus the SEK) offset in part by the aforementioned volatility in North American US-dollar benchmark pricing on shipments directed to the US.
Total lumber shipments of 1.56 billion board feet were up 14% from the previous quarter as a backlog of orders tied to strong demand in North America in the third quarter of 2020 was alleviated in the current period as Western Canada rail constraints eased. A substantial increase in production at the Company’s European operations in the current period combined with the incremental benefit of a full quarter of Bergs shipments in the current quarter, following its acquisition in September 2020, also contributed to the higher shipments.
Total lumber production, at 1.46 billion board feet, was up 3% from the previous quarter largely driven by the Company’s European operations where higher production volumes reflected increased operating days following the seasonal downtime taken in the prior period, improved productivity and the benefit of a full quarter of production from the recently acquired Bergs facilities. Production in the US South was in line with the previous quarter, while the Company’s Western SPF operations saw a modest decline in production principally reflecting log profile shortages due to unseasonably mild and wet-weather impacts on harvesting and low levels of rough dry inventory.
Lumber unit manufacturing costs in the fourth quarter of 2020 were slightly higher than the previous quarter primarily reflecting the impact of lower production volumes in Western Canada and to a lesser extent, seasonally higher energy costs and increased log costs due to aforementioned wet-weather conditions in BC. These unfavourable drivers were largely offset by lower European lumber unit manufacturing costs, while US South lumber unit manufacturing costs were comparable quarter-over-quarter. Log costs in Europe and the US South remained broadly in line with the previous period.
Looking ahead, the strong North American lumber demand seen at the end of 2020 has continued into early 2021 and is anticipated to continue through the first half of 2021, supported by improved housing affordability, lean housing inventory, and an aging housing stock. The ongoing effects from the COVID-19 pandemic are forecast to continue to influence consumer spending habits while favorable demographics driven by the millennial generation entering prime home buying years will also facilitate this strong lumber demand. US housing starts in the first quarter of 2021 are estimated to outpace established levels of 2020, tracking closer to long-run historical averages. North American lumber demand is projected to be further supported by sustained high levels of repair and remodel activity as increases in existing home sales are estimated to boost spending in this sector, particularly in the first quarter of 2021. Increased supply into the North American market from a higher volume of European imports and growth in SYP production is not projected to be sufficient to offset the demand/supply gap created in 2020.
Offshore lumber market demand in Asia in the first quarter of 2021, particularly Japan, is anticipated to be steady as the region continues to recover from the impacts of COVID-19. In Europe, pricing in the first quarter of 2021 is anticipated to exceed pricing levels seen in the fourth quarter of 2020, reflecting similar trends to the North American market combined with the traditional lag in contract pricing. Demand throughout Europe in early 2021 is projected to be further supported by increased lumber usage in the construction sector as a result of ongoing green initiatives throughout the region.
Results for the fourth quarter of 2020 in the pulp and paper segment reflected continued soft market conditions and weak prices on pulp shipments as well as capital-related downtime at Canfor Pulp Products Inc.’s (“CPPI”) Northwood pulp mill (“Northwood”). Compared to the third quarter of 2020, unit sales realizations were relatively unchanged, with the slightly stronger Canadian dollar offsetting a modest uplift in prices towards the end of the period; reduced production from Northwood’s recovery boiler number five (“RB5”) lower furnace rebuild mostly offset the impact of material production curtailments in the previous quarter. The lower furnace replacement was completed mid-January, as planned, with a total capital cost of approximately $27.0 million and total reduction in Northwood Northern Bleached Softwood Kraft (“NBSK”) pulp production of 70,000 tonnes (60,000 tonnes in the current quarter and a further 10,000 tonnes in January 2021).
In early 2021, global softwood kraft pulp market conditions have strengthened significantly in response to improved market fundamentals, particularly from China, where prices on the Shanghai Futures Exchange have surged in recent weeks. Reflecting this positive pricing momentum, CPPI has announced increases to its NBSK pulp list price to China of US$50 per tonne for January 2021 and a further US$120 per tonne for February 2021, to US$840 per tonne. It has also announced two consecutive price increases to North America of US$30 per tonne and US$115 per tonne, for January and February 2021, respectively, to US$1,300 per tonne. Notwithstanding the potential for higher pricing volatility in the coming months, CPPI currently projects the pricing environment to remain favourable for pulp producers through the first half of 2021. Pulp and paper segment results in the first quarter of 2021 will reflect the impact of the RB5 capital-related outage at Northwood into mid-January (approximately 10,000 tonnes). With the RB5 rebuild now completed and with much healthier fibre inventories, a key focus of CPPI’s kraft pulp mills in 2021, including Northwood, will be on improving operational reliability and closely managing manufacturing and fibre costs.
Commenting on the Company’s 2020 and fourth quarter of 2020 results, Don Kayne, Canfor’s President and Chief Executive Officer, said “We want to thank our employees for their resilience, dedication and commitment to safety, despite the COVID-19 challenges we faced in 2020. Despite such a difficult start to the year, which weighed heavily on the results for our pulp business, we were very pleased to see an unprecedented surge in global lumber markets beginning in the second quarter and continuing through the balance of the year. Supported by the strong performance of our operations, we were able to generate new record-high financial results for 2020. As we move into 2021, we expect to see continued strength in global lumber demand and along with improving conditions for global pulp markets, this should ensure another solid financial year for Canfor, despite the ongoing challenges of the global pandemic.”
“Thanks to the strong returns we have been experiencing since the middle of 2020, we are investing in a long-term community giving program called Good Things Come from Trees that will allow us to give back consistently through the ups and downs that our industry experiences. This program builds on our long history of giving. We greatly value our communities and believe it is important to invest in initiatives and organizations that align with our priority giving areas of education, health, sustainability and community,” added Kayne.
Refer to the Company’s annual Management’s Discussion and Analysis for further discussion on the Company’s results for the fourth quarter of 2020 on page 33.
For the full fourth quarter results, click here.
Canfor is a leading integrated forest products company based in Vancouver, British Columbia (“BC”) with interests in BC, Alberta, North and South Carolina, Alabama, Georgia, Mississippi and Arkansas, as well as in Sweden with its majority acquisition of the Vida Group. Canfor produces primarily softwood lumber and also owns a 54.8% interest in Canfor Pulp Products Inc., which is one of the largest global producers of market Northern Bleached Softwood Kraft Pulp and a leading producer of high performance kraft paper. Canfor shares are traded on the Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.
Pat Elliott – Vice President Corporate Finance & Strategy – Patrick.Elliot@canfor.com – (604) 661-5441
Source: Canfor Corporation