CST: 24/07/2016 17:22:20   

West Fraser Announces Fourth Quarter Results

164 Days ago

VANCOUVER, BC --(Marketwired - February 11, 2016) - West Fraser (TSX: WFT) reported a loss $15 million or $(0.18) basic earnings per share on sales of $1,013 million in the fourth quarter of 2015 and earnings of $104 million or $1.25 basic earnings per share on sales of $4,100 million for 2015. These results compare with previous periods as shown in the table below.

Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS as described in this News Release reflect the adjustments described in the tables referred to in the section titled "Non-IFRS Measures" on page 22 of our 2015 Management's Discussion & Analysis.

     
($millions except earnings per 2015 2014
share ("EPS")) Q4   Q3 YTD Q4 YTD
Sales 1,013   1,044 4,100 964 3,856
Adjusted EBITDA1 90   82 417 157 621
Operating earnings 18   88 249 83 406
Earnings (15 ) 56 104 43 259
Basic EPS ($) (0.18 ) 0.67 1.25 0.51 3.06
Adjusted earnings1 30   36 176 84 327
Adjusted basic EPS ($)1 0.38   0.42 2.12 1.00 3.86
1. In this News Release, reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS (collectively "these measures"). We believe that, in addition to earnings, these measures are useful performance indicators. None of these measures is a generally accepted earnings measure under International Financial Reporting Standards ("IFRS") and none has a standardized meaning prescribed by IFRS. Investors are cautioned that none of these measures should be considered as an alternative to earnings, EPS or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating any of these measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of any of these measures may not be directly comparable to similarly titled measures used by other entities. Refer to the tables in the section titled "Non-IFRS Measures" on page 22 of our 2015 Management's Discussion & Analysis for details of these adjustments.

Operational Results

In the quarter our lumber operations generated operating earnings of $17 million (Q3-15 -- operating loss of $9 million) and Adjusted EBITDA of $55 million (Q3-15 -- $26 million). An increase in U.S. SYP and low-grade SPF lumber prices and a slightly weaker Canadian dollar were major factors in the improvement on a quarter to quarter basis. The benefit of increased shipments from our Canadian mills was offset by a decrease in production and shipments from our U.S. sawmills.

Our panels segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $16 million (Q3-15 -- $26 million) and Adjusted EBITDA of $19 million (Q3-15 -- $29 million). Plywood and MDF markets experienced a seasonal decline and prices decreased accordingly.

Our pulp & paper segment generated operating earnings of $8 million (Q3-15 -- $14 million) and Adjusted EBITDA of $17 million (Q3-15 -- $25 million). Production and shipments from our pulp mills were similar to the previous quarter but key prices declined. Newsprint shipments improved but prices continued their secular decline.

Outlook

"We weathered a sharp deterioration in lumber prices in 2015 which was the result of a number of external factors such as a delayed building season due to poor weather in the first quarter of 2015 and a significant slowdown in demand from China during the third quarter. We expect U.S. housing to continue to improve in 2016 and currently are experiencing strong demand for lumber from our customers in China. We are continuing to focus on those factors that are within our control: all the elements of operational excellence. On that front, I am encouraged that we are improving many aspects of our performance and that throughout our Company our people are focused on taking advantage of all the opportunities that are presented to us," said Ted Seraphim, our President and CEO.

We are also announcing that on April 19, 2016 Hank Ketcham will relinquish the title of Executive Chairman and will become our non-executive Chairman of the Board. This step completes the transition of our senior executive position to Ted Seraphim, our President and Chief Executive Officer. Hank Ketcham has been the senior member of our executive team since his appointment as President and Chief Executive Officer in 1985. Ted Seraphim commented: "I know that Hank will continue to play a key role at West Fraser and I look forward to receiving his counsel and advice in the future."

Annual Financial Statements and Management's Discussion & Analysis ("MD&A")

The Company's consolidated financial statements for the year ended December 31, 2015 and related MD&A is available on the Company's website: www.westfraser.com and on the System for Electronic Document Analysis and Retrieval at www.sedar.com under the Company's profile.

Dividend Declared

The Board of Directors of the Company has declared a dividend of $0.07 per share on the Common shares and the Class B Common shares in the capital of the Company, payable on April 4, 2016 to shareholders of record on March 21, 2016.

Dividends are designated to be eligible dividends pursuant to subsection 89(14) of the Income Tax Act (Canada) and any applicable provincial legislation pertaining to eligible dividends.

The Company

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

Forward-Looking Statements

This Report contains historical information, descriptions of current circumstances and statements about potential future developments. The latter, which are forward-looking statements and are included under the heading "Outlook", are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes and results will depend on a number of factors that could affect the ability of the Company to execute its business plans, including those matters described in the 2015 annual Management's Discussion & Analysis under "Risks and Uncertainties", and may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws.

Conference Call

Investors are invited to listen to the quarterly conference call on Friday, February 12, 2016 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-866-225-0198 (toll- free North America). The call may also be accessed through West Fraser's website at www.westfraser.com.

 
West Fraser Timber Co. Ltd.
Condensed Consolidated Balance Sheets
(in millions of Canadian dollars, except where indicated -- unaudited)
 
      December 31    December 31
     2015    2014
Assets            
Current assets            
Cash and short-term investments   $ 13   $ 21
Receivables     298     288
Income taxes receivable     11     -
Inventories (note 3)     631     586
Prepaid expenses     18     12
      971     907
Property, plant and equipment     1,609     1,469
Timber licences     570     530
Goodwill and other intangibles     369     350
Other assets     36     79
Deferred income tax assets     80     62
    $ 3,635   $ 3,397
             
Liabilities            
Current liabilities            
Cheques issued in excess of funds on deposit   $ 29   $ 36
Operating loans     178     103
Payables and accrued liabilities     351     411
Income taxes payable     -     26
Reforestation and decommissioning obligations     48     40
      606     616
Long-term debt     423     354
Other liabilities     269     244
Deferred income tax liabilities     190     154
      1,488     1,368
             
Shareholders' Equity            
Share capital     579     587
Accumulated other comprehensive earnings     164     55
Retained earnings     1,404     1,387
      2,147     2,029
    $ 3,635   $ 3,397
Number of Common shares and Class B Common shares outstanding at February 11, 2016 was 82,457,433.
 
 
West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(in millions of Canadian dollars, except where indicated -- unaudited)
 
    October 1 to December 31   January 1 to December 31
    2015   2014   2015   2014
 
Share capital                                
Balance -- beginning of period   $ 579     $ 589     $ 587     $ 602  
Common share repurchases     -       (2 )     (8 )     (15 )
Balance -- end of period   $ 579     $ 587     $ 579     $ 587  
                                 
Accumulated other comprehensive earnings                                
Balance -- beginning of period   $ 139     $ 36     $ 55     $ 10  
Translation gain on foreign operations     25       19       109       45  
Balance -- end of period   $ 164     $ 55     $ 164     $ 55  
                                 
Retained earnings                                
Balance -- beginning of period   $ 1,406     $ 1,404     $ 1,387     $ 1,335  
Actuarial gain (loss) on post-retirement benefits     19       (38 )     (12 )     (87 )
Common share repurchases     -       (16 )     (52 )     (96 )
Earnings for the period     (15 )     43       104       259  
Dividends     (6 )     (6 )     (23 )     (24 )
Balance -- end of period   $ 1,404     $ 1,387     $ 1,404     $ 1,387  
                                 
Shareholders' Equity   $ 2,147     $ 2,029     $ 2,147     $ 2,029  
                                 
West Fraser Timber Co. Ltd.                  
Condensed Consolidated Statements of Earnings and Comprehensive Earnings      
(in millions of Canadian dollars, except where indicated - unaudited)          
   
      October 1 to December 31       January 1 to December 31  
      2015       2014       2015       2014  
                                 
Sales   $ 1,013     $ 964     $ 4,100     $ 3,856  
                                 
Costs and expenses                                
Cost of products sold     712       631       2,874       2,538  
Freight and other distribution costs     160       137       627       548  
Export taxes     3       -       29       -  
Amortization     50       43       191       170  
Selling, general and administration     48       39       153       149  
Equity-based compensation     22       31       (23 )     45  
      995       881       3,851       3,450  
Operating earnings     18       83       249       406  
Finance expense     (6 )     (6 )     (29 )     (26 )
Other (note 4)     (16 )     (7 )     (64 )     (5 )
Earnings before tax     (4 )     70       156       375  
Tax provision (note 5)     (11 )     (27 )     (52 )     (116 )
Earnings   $ (15 )   $ 43     $ 104     $ 259  
                                 
Earnings per share (dollars) (note 6)                                
Basic   $ (0.18 )   $ 0.51     $ 1.25     $ 3.06  
Diluted   $ (0.18 )   $ 0.51     $ 0.89     $ 3.06  
                                 
Comprehensive earnings                                
Earnings   $ (15 )   $ 43     $ 104     $ 259  
Other comprehensive earnings                                
Translation gain on foreign operations     25       19       109       45  
Actuarial gain (loss) on post-retirement benefits 1     19       (38 )     (12 )     (87 )
Comprehensive earnings   $ 29     $ 24     $ 201     $ 217  
1. Net of tax provision of $7 million for the three months ended December 31, 2015 (three months ended December 31, 2014 -- $14 million recovery) and $5 million tax recovery for the year ended December 31, 2015 (year ended December 31, 2014 -- $31 million recovery).
 
West Fraser Timber Co. Ltd.                                      
Condensed Consolidated Statements of Cash Flows                                  
(in millions of Canadian dollars, except where indicated -- unaudited)                  
             
    October 1 to December 31    January 1 to December 31 
      2015      2014      2015      2014 
Operating activities                                
Earnings   $ (15 )   $ 43     $ 104     $ 259  
Adjustments                                
  Amortization     50       43       191       170  
  Finance expense     6       6       29       26  
  Exchange loss on long-term debt     15       12       67       29  
  Fair value adjustment to power agreements     3       2       32       2  
  Tax provision     11       27       52       116  
  Income taxes paid     (5 )     (14 )     (67 )     (68 )
  Post-retirement expense     20       13       71       54  
  Contributions to post-retirement benefit plans     (34 )     (27 )     (78 )     (69 )
  Other     (7 )     (4 )     (21 )     (29 )
Changes in non-cash working capital                                
  Receivables     20       25       1       3  
  Inventories     (68 )     (60 )     (16 )     (28 )
  Prepaid expenses     2       7       (4 )     -  
  Payables and accrued liabilities     (26 )     (32 )     (60 )     10  
Cash flows from operating activities     (28 )     41       301       475  
                                 
Financing activities                                
Repayment of long-term debt     -       (339 )     -       (339 )
Proceeds from long-term debt     -       339       -       339  
Proceeds from operating loans     137       61       68       106  
Finance expense paid     (10 )     (10 )     (22 )     (22 )
Dividends     (6 )     (6 )     (23 )     (24 )
Common share repurchases     -       (18 )     (60 )     (111 )
Other     -       (3 )     (1 )     (4 )
Cash flows from financing activities     121       24       (38 )     (55 )
                                 
Investing activities                                
Acquisitions     (76 )     (5 )     (76 )     (208 )
Additions to capital assets     (51 )     (89 )     (220 )     (410 )
Government assistance     4       4       4       17  
Other     (1 )     -       4       (9 )
Cash flows from investing activities     (124 )     (90 )     (288 )     (610 )
                                 
Change in cash     (31 )     (25 )     (25 )     (190 )
Foreign exchange effect on cash     12       3       24       13  
Cash - beginning of period     3       7       (15 )     162  
Cash - end of period   $ (16 )   $ (15 )   $ (16 )   $ (15 )
                                 
Cash consists of                                
Cash and short-term investments                   $ 13     $ 21  
Cheques issued in excess of funds on deposit                     (29 )     (36 )
                    $ (16 )   $ (15 )
                                 

West Fraser Timber Co. Ltd.
Notes to Condensed Consolidated Interim Financial Statements
(figures are in millions of dollars, except where indicated -- unaudited)

1. Nature of operations 

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

2. Basis of presentation 

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 -- Interim Financial Reporting and using the same accounting policies and methods of their application as the December 31, 2015 annual audited consolidated financial statements and their accompanying notes ("Financial Statements"). These condensed consolidated interim financial statements should be read in conjunction with our 2015 Financial Statements.

3. Inventories

Inventories at December 31, 2015 were written down by $21 million (September 30, 2015 -- $37 million; December 31, 2014 -- $5 million) to reflect net realizable value being lower than cost.

4. Other                   

    October 1 to December 31     January 1 to December 31  
      2015       2014       2015       2014  
Foreign exchange gain on working capital   $ 9     $ 5     $ 28     $ 13  
Foreign exchange gain on intercompany financing     1       2       9       5  
Foreign exchange loss on long-term debt     (15 )     (12 )     (67 )     (29 )
Writedown of investment     (7 )     -       (7 )     -  
Fair value adjustment to power agreements     (3 )     (2 )     (32 )     (2 )
Gain on asset sales     1       1       2       3  
Other     (2 )     (1 )     3       5  
    $ (16 )   $ (7 )   $ (64 )   $ (5 )

5. Tax provision 

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

             
    October 1 to December 31     January 1 to December 31  
      2015       2014       2015       2014  
Income tax expense at statutory rate of 26%   $ 2     $ (19 )   $ (40 )   $ (98 )
Non-taxable amounts     (8 )     (7 )     (1 )     (11 )
Rate differentials between jurisdictions and on specified activities     1       (2 )     5       (8 )
Unrecognized capital losses     (6 )     -       (9 )     -  
Increase in Alberta statutory tax rate     -       -       (7 )     -  
Other     -       1       -       1  
Tax provision   $ (11 )   $ (27 )   $ (52 )   $ (116 )

6. Earnings per share                 

Basic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using the weighted average number of Common shares and Class B Common shares outstanding.

Diluted earnings per share is calculated based on earnings available to Common shareholders adjusted to remove the actual share option (recovery) expense charged to earnings and after deducting a notional charge for share option expense assuming the use of the equity-settled method, as set out below. The diluted weighted average number of shares is calculated using the treasury stock method. When earnings available to Common shareholders for diluted earnings per share are greater than earnings available to Common shareholders for basic earnings per share, the calculation is anti-dilutive and diluted earnings per share are deemed to be the same as basic earnings per share.

         
    October 1 to December 31    January 1 to December 31 
      2015     2014       2015       2014  
Earnings                                
Basic   $ (15 )   $ 43     $ 104     $ 259  
Share option (recovery) expense     20       27       (26 )     36  
Equity settled share option                                
adjustment     -       (1 )     (3 )     (3 )
Diluted   $ 5     $ 69     $ 75     $ 292  
                                 
Weighted average number of                                
shares (thousands)                                
Basic     82,455       83,687       83,104       84,742  
Share options     1,074       1,406       1,295       1,430  
Diluted     83,529       85,093       84,399       86,172  
                                 
Earnings per share (dollars)                                
Basic   $ (0.18 )   $ 0.51     $ 1.25     $ 3.06  
Diluted   $ (0.18 )   $ 0.51     $ 0.89     $ 3.06  
                                 

7. Segmented information

                                         
                    Pulp &     Corporate          
      Lumber       Panels     paper     & other       Total  
October 1, 2015 to December 31, 2015                                        
                                         
Sales                                        
  To external customers   $ 656     $ 137     $ 220     $ -     $ 1,013  
  To other segments     28       2       -       -          
    $ 684     $ 139     $ 220     $ -          
                                         
Operating earnings before amortization   $ 55     $ 19     $ 17     $ (23 )   $ 68  
Amortization     (38 )     (3 )     (9 )     -       (50 )
Operating earnings     17       16       8       (23 )     18  
Finance expense     (4 )     -       (2 )     -       (6 )
Other     (4 )     (1 )     2       (13 )     (16 )
Earnings before tax   $ 9     $ 15     $ 8     $ (36 )   $ (4 )
                                         
October 1, 2014 to December 31, 2014                                        
                                         
Sales                                        
  To external customers   $ 640     $ 132     $ 192     $ -     $ 964  
  To other segments     23       2       -       -          
    $ 663     $ 134     $ 192     $ -          
                                         
Operating earnings before amortization   $ 121     $ 25     $ 12     $ (32 )   $ 126  
Amortization     (31 )     (3 )     (9 )     -       (43 )
Operating earnings     90       22       3       (32 )     83  
Finance expense     (4 )     (1 )     (1 )     -       (6 )
Other     4       -       1       (12 )     (7 )
Earnings before tax   $ 90     $ 21     $ 3     $ (44 )   $ 70  
                    Pulp &     Corporate          
      Lumber       Panels     paper     & other       Total  
January 1, 2015 to December 31, 2015                                        
                                         
Sales                                        
  To external customers   $ 2,654     $ 546     $ 900     $ -     $ 4,100  
  To other segments     110       8       -       -          
    $ 2,764     $ 554     $ 900     $ -          
                                         
Operating earnings before amortization   $ 243     $ 95     $ 80     $ 22     $ 440  
Amortization     (138 )     (13 )     (39 )     (1 )     (191 )
Operating earnings     105       82       41       21       249  
Finance expense     (18 )     (3 )     (8 )     -       (29 )
Other     9       (3 )     (5 )     (65 )     (64 )
Earnings before tax   $ 96     $ 76     $ 28     $ (44 )   $ 156  
                                         
January 1, 2014 to December 31, 2014                                        
                                         
Sales                                        
  To external customers   $ 2,526     $ 518     $ 812     $ -     $ 3,856  
  To other segments     96       8       -       -          
    $ 2,622     $ 526     $ 812     $ -          
                                         
Operating earnings before amortization   $ 465     $ 78     $ 83     $ (50 )   $ 576  
Amortization     (114 )     (14 )     (41 )     (1 )     (170 )
Operating earnings     351       64       42       (51 )     406  
Finance expense     (16 )     (3 )     (7 )     -       (26 )
Other     15       1       8       (29 )     (5 )
Earnings before tax   $ 350     $ 62     $ 43     $ (80 )   $ 375  
                                         
 
The geographic distribution of external sales is as follows1:
      October 1 to December 31     January 1 to December 31
      2015     2014     2015     2014
Canada   $ 229   $ 210   $ 898   $ 894
United States     577     521     2,249     1,997
China     110     147     580     598
Other Asia     75     66     299     274
Other     22     20     74     93
    $ 1,013   $ 964   $ 4,100   $ 3,856
1. Sales distribution is based on the location of product delivery.

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

For more information:
Larry Hughes
Vice President, Finance and Chief Financial Officer

Rodger Hutchinson
Vice President, Corporate Controller and Investor Relations
(604) 895-2700
www.westfraser.com