Canfor Pulp Products Inc. Announces Second Quarter 2019 Results and Quarterly Dividend

VANCOUVER, July 25, 2019 /CNW/ - Canfor Pulp Products Inc. ("CPPI") (TSX: CFX) today reported second quarter 2019 results and its quarterly dividend:

Overview

• Second quarter of 2019 reported operating income of $18 million
• Operating income of $32 million after adjusting for inventory write-downs
• Net income of $11 million, or $0.16 per share

Financial Results

The following table summarizes selected financial information for CPPI for the comparative periods:

		Q2		Q1		YTD		Q2		YTD
(millions of Canadian dollars, except per share amounts)		2019		2019		2019		2018		2018
Sales	$	319.5	$	304.0	$	623.5	$	396.4	$	756.1
Reported operating income before amortization	$	41.7	$	40.4	$	82.1	$	105.1	$	209.4
Reported operating income	$	18.4	$	18.1	$	36.5	$	85.4	$	170.5
Adjusted operating income before amortization^1	$	55.1	$	40.4	$	95.5	$	105.1	$	209.4
Adjusted operating income^1	$	31.8	$	18.1	$	49.9	$	85.4	$	170.5
Net income	$	10.6	$	10.8	$	21.4	$	63.0	$	127.3
Net income per share, basic and diluted	$	0.16	$	0.17	$	0.33	$	0.97	$	1.95

Results for 2019 include the adoption of IFRS 16 Leases, from January 1, 2019, on a prospective basis. Comparative periods have not been restated.

¹ Adjusted for inventory write-down (expense of $13.4 million in the second quarter of 2019).

The Company reported operating income of $18.4 million for the second quarter of 2019, up $0.3 million from the first quarter of 2019. Reported results for the second quarter of 2019 included a $13.4 million finished pulp and raw material inventory write-down at period end. After adjusting for this, the Company's operating income was $31.8 million for the second quarter of 2019, up $13.7 million from the previous quarter.

The Company's operating results reflected a solid operating performance at the Company's pulp and paper mills, which more than offset the effects of pricing declines due to continued elevated global market pulp inventory levels and weaker demand, particularly in China and Europe.

After showing a modest recovery in March, Northern Bleached Softwood Kraft ("NBSK") pulp prices to China, the world's largest pulp consumer, fell sharply, declining US$130 per tonne, or 18%, to end the quarter at US$600 per tonne. The average US-dollar NBSK pulp list price to China for the second quarter of 2019 was US$653 per tonne, down US$57 per tonne, or 8%, from the previous quarter. Prices to other global regions, including North America and Europe, also came under significant pressure as the quarter progressed, but quarter-over-quarter showed more modest declines. Notwithstanding the significant decline in global pulp list prices, the Company's average NBSK pulp unit sales realizations showed a more moderate decrease compared to the previous quarter, primarily reflecting the Company's geographic sales mix and the timing of shipments (versus orders).

Energy revenues increased in the current quarter as seasonally lower energy prices were more than offset by increased power generation, driven by improved productivity and a full quarter with Northwood's new Turbo Generator Condensing turbine in operation.

Pulp production was 300,000 tonnes, up 26,000 tonnes, or 9%, from the previous quarter reflecting improved operating rates at all pulp mills throughout most of the current quarter. During the second quarter, the Company completed scheduled maintenance outages at its Intercontinental NBSK pulp and Taylor Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") mills, which reduced pulp production by 11,000 tonnes and 6,000 tonnes, respectively. Pulp shipments were up 29,000 tonnes, or 11%, from the previous quarter reflecting the increase in pulp production.

Pulp unit manufacturing costs were moderately lower than the previous quarter, principally reflecting improved productivity and seasonally lower energy usage.  Fibre costs showed a modest decline, with lower market-based prices for sawmill residual chips (linked to Canadian dollar NBSK pulp sales realizations) offsetting increased seasonal pricing adjustments and a higher proportion of higher-cost whole log chips. The latter reflected the impact of curtailments on the supply of sawmill residual chips, which will continue into the third quarter.

Operating income in the Company's paper segment was $8.1 million, up $2.2 million from the first quarter of 2019, reflecting both lower slush pulp costs, linked to lower Canadian dollar NBSK pulp prices, and a solid operating performance.

Global softwood pulp markets are projected to remain challenging through the third quarter of 2019 given the current oversupply in global pulp markets and typically seasonally slower demand in the summer months. Reflecting the difficult market conditions, in combination with fibre supply constraints and higher fibre costs resulting from recent sawmill curtailments, the Company is taking phased summer curtailments at its Intercontinental and Northwood NBSK pulp mills in Prince George, British Columbia ("BC"), as well as at its BCTMP mill in Taylor, BC. In addition, the Company announced today that it will be extending the curtailment at its BCTMP mill by a further five weeks to September 9, 2019. Combined, the summer curtailments will reduce third quarter pulp production by an estimated 75,000 tonnes of NBSK pulp and 50,000 tonnes of BCTMP, respectively. Maintenance outages are also scheduled at the Prince George NBSK pulp mill and at the Company's paper mill in September 2019, with a projected 6,000 tonnes of reduced NBSK pulp production and 4,000 tonnes of reduced paper production, respectively.

Towards the end of 2019 and into 2020, global inventory levels are forecast to move towards a more balanced range reflecting a gradual drawdown of inventory that will include the anticipated impact of the conversion to dissolving pulp of two large NBSK pulp mills outside of North America by the end of 2019, as well as production curtailments. Given the impacts of recently announced sawmill curtailments and closures in the BC Interior, fibre costs are projected to remain under pressure as a result of an increased proportion of higher-cost whole log chips, which are currently in tight supply. Bleached kraft paper demand is anticipated to decline slightly through the balance of the year.

Commenting on the Company's second quarter of 2019 results and current market conditions, CPPI's Chief Executive Officer, Don Kayne said, "The second quarter saw an improved operational performance at all of our pulp mills, and strong collaboration across our various business areas as we navigated the various challenges presented by sawmill curtailments in the period. As a result of our planned summer market and fibre-related downtime, we will be well placed to run at full capacity through the fall and winter, when we anticipate market conditions and prices will be improved."  

On July 25, 2019, the Board of Directors declared a quarterly dividend of $0.0625 per share, payable on August 14, 2019 to the shareholders of record on August 7, 2019.

Additional Information and Conference Call 
A conference call to discuss the second quarter's financial and operating results will be held on Friday, July 26, 2019 at 8:00 AM Pacific time. To participate in the call, please dial Toll-Free 1-888-390-0546. For instant replay access until August 9, 2019, please dial Toll-Free 1-888-390-0541 and enter participant pass code 728808#. The conference call will be webcast live and will be available at www.canfor.com.  This news release, the attached financial statements and a presentation used during the conference call can be accessed via the Company's website at http://www.canfor.com/investor-relations/webcasts.

Non-IFRS Measures and Forward Looking Statements
Operating Income before Amortization and Adjusted Operating Income are not generally accepted earnings measures and should not be considered as an alternative to net income or cash flows as determined in accordance with IFRS. Refer to the Company's Annual Management's Discussion and Analysis for a reconciliation of Operating Income reported in accordance with IFRS to Operating Income before Amortization and to Adjusted Operating Income. 

Forward Looking Statements
Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements.  Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements.  These statements are based on management's current expectations and beliefs and actual events or results may differ materially.  There are many factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements.  Forward-looking statements are based on current expectations and the Company assumes no obligation to update such information to reflect later events or developments, except as required by law.

CPPI is a leading global supplier of pulp and paper products with operations in the central interior of British Columbia ("BC") employing approximately 1,300 people throughout the organization.  Canfor Pulp owns and operates three mills in Prince George, BC with a total capacity of 1.1 million tonnes of Premium Reinforcing Northern Bleached Softwood Kraft Pulp and 140,000 tonnes of kraft paper, as well as one mill in Taylor, BC with an annual production capacity of 220,000 tonnes of Bleached Chemi-Thermo Mechanical Pulp ("BCTMP").  Canfor Pulp is the largest North American, and one of the largest global producers of market NBSK pulp.  CPPI shares are traded on the Toronto Stock Exchange under the symbol CFX.

SOURCE Canfor Pulp Products Inc.

Media Contact: Michelle Ward, Canfor's Director, Corporate Communications, [phone], [email protected]; Investor Contact: Pat Elliott, Canfor's Vice President, Corporate Finance and Strategy, [phone], [email protected]