CANFOR REPORTS RESULTS FOR FOURTH QUARTER OF 2010 AND FOCUS ON THE ASIAN MARKETS

February 11, 2011 by timbercommunity

CANFOR REPORTS RESULTS FOR FOURTH QUARTER OF 2010 Canfor Corporation (TSX: CFP) reported net income of $54.9 million for the fourth quarter of 2010, compared to $33.5 million for the third quarter of 2010 and a net loss of $9.1 million for the fourth quarter of 2009. For the year ended December 31, 2010, the Company’s net income was $161.3 million,compared to a net loss of $62.8 million for 2009.

Canfor’s President and CEO, Jim Shepard commented in a press release from the company, “We continue to be very encouraged by the growth of our lumber business in key Asian markets, particularly Japan and China, which has mitigated some of the impact of the slow U.S. housing market.”

The North American lumber market continued to reflect a struggling U.S. housing sector in the fourth quarter of 2010. There was some good news on the demand side however, as China’s increasing consumption of BC softwood lumber continued in the quarter and helped to support higher North American market prices for narrower dimensions.

Northern Bleached Softwood Kraft (“NBSK”) pulp markets remained strong in the fourth quarter, with prices holding firm through the quarter after a dip in demand in the third quarter. Reported EBITDA for the fourth quarter of 2010 was $79.0 million, up $13.0 million from the previous quarter.

Canfor’s reported net income comprises both net income attributable to equity shareholders (“shareholder net income”) and non-controlling interests. The Company’s shareholder net income for the fourth quarter of 2010 was $30.7 million, or $0.21 per share, up from $5.6 million, or $0.04 per share, for the third quarter of 2010 and an improvement from a loss of $17.0 million, or $0.12 per share, reported for the fourth quarter of 2009. For the 2010 year, shareholder net income was $70.0 million, or $0.49 per share, compared to a net loss of $70.5 million, or $0.50 per share, for 2009.

Shareholder net income for the fourth quarter of 2010 included several items affecting comparability with prior periods, which had an overall positive impact of $17.8 million, or $0.12 per share.
After adjusting for all items affecting comparability, the Company’s adjusted net income for the fourth quarter of 2010 was $12.9 million, or $0.09 per share, compared to similarly adjusted net income of $11.6 million, or $0.08 per share, for the third quarter of 2010 and an adjusted net loss of $24.2 million, or $0.17 per share, for the fourth quarter of 2009.

For the year ended December 31, 2010, adjusted net income was $63.1 million, or $0.44 per share, compared to an adjusted net loss of $162.0 million, or $1.14 per share, for the year ended December 31, 2009.

Excluding the impact from inventory write-down movements, and a third quarter provision related to the announced permanent closure of the Clear Lake lumber operation (which took effect in January 2011), EBITDA was down $2.3 million. Compared to the fourth quarter of 2009, reported EBITDA was up $63.8 million, principally reflecting the improved lumber and pulp market prices.

The average North American benchmark Western SPF (Spruce/Pine/Fir) 2x4 #2&Btr lumber price was up US$46 per thousand board feet, or 21%, in the fourth quarter, but North American price increases for most other grades and dimensions were more modest while prices in offshore markets also saw smaller gains. The Company’s Western SPF sales realizations in the fourth quarter also reflected a lower-value sales mix, in part due to lower production of higher-value prime products, as well as a stronger Canadian dollar. As a result, sales realizations were up only slightly from the previous quarter. Southern Yellow Pine (“SYP”) lumber price movements were also mixed, with modest gains on narrow widths offset by a small decrease in prices for wider dimensions.

Lumber results for the fourth quarter were somewhat clouded by significant downtime related to capital projects at a number of the Company’s operations, including a major sawmill and planer rebuild at the Fort St. John mill. The Company’s lumber operations ran at approximately 65% of capacity in the fourth quarter of 2010, down from 70% in the previous quarter. The lower operating levels, as well as higher energy and log costs in the current quarter, contributed to higher unit manufacturing costs compared to the previous quarter. Commenting on the results,

In December, the Company announced a $300 million three-year capital spending program for its lumber business that is focused on increased productivity, higher recoveries, lower energy costs and efficient prime lumber extraction.

Approximately $120 million of this capital spending is scheduled for 2011. “We believe that this is the right time to take our operations to new levels of cost-competitiveness to take full advantage of the growing China market combined with the expected U.S. market recovery,” said Shepard. Looking forward, the North American lumber market is expected to see a mild improvement from the projected continuation of recovery of the U.S. economy in 2011. T

The Canadian housing market is expected to remain relatively steady in the short term, while the strength of the offshore market is expected to continue through 2011. The global softwood pulp market is expected to remain balanced through the first quarter of 2011 with inventory levels in a range that is expected to support current pricing levels.

CAPITAL INVESTMENTS IN SAWMILL PROJECTS AND AT VAVENBY, POLAR AND PLATEAU OPERATIONS
Canfor also announced that they will be proceeding with capital improvement projects totaling $62 million at its Vavenby, Polar and Plateau operations in British Columbia. The projects are part of a capital spending plan for 2011 totaling $145 million, and a three year strategic plan that calls for total investment in sawmill improvement projects of $300 million.