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Top 100 public companies list shows banner 2015 for forestry companies

June 22, 2016

By: Business In Vancouver

Business in Vancouver’s 2016 list of the top 100 public companies in B.C. reveals the stellar year enjoyed by the province’s forestry companies in 2015.

Each of the 11 companies on the list that generated sales from producing lumber, pulp, paper or finished wood products saw an increase in revenue in 2015 compared with the previous year.

Other sectors posted mixed results, while the resources and mining sectors were particularly hard hit, with many companies suffering double-digit percentage revenue declines.

Companies ranking in the top 10 achieved an average 1.5% increase in revenue, although if the two forestry companies are removed, average revenue for the remaining eight companies declined.

West Fraser (TSX:WFT), for example, increased sales 6.3% and moved up to No. 5 on the list, compared with No. 6 last year. Canfor Corp. (TSX:CFP) did even better. It increased sales 17.3% and moved up three spots on the list to No. 6 this year compared with last year’s ranking.

“Canfor was acquiring companies in the U.S. South, and that would have helped its 2015 revenue,” said Peter Woodbridge, a wood products consultant and president of Woodbridge

He pointed to Canfor finalizing a deal in April 2015 to buy the operating assets from Southern Lumber Co. that included a Mississippi sawmill. Canfor also closed a deal in January 2015 to buy the operating assets of Beadles Lumber Co. and Balfour Lumber Co. – purchases that included two sawmills in Georgia.

Those purchases not only added incremental revenue, but also added revenue generated in U.S. dollars, which surged in value compared with the Canadian dollar throughout 2015.

When Canfor repatriated those U.S. greenbacks and reported them in Canadian dollars on the company’s balance sheet, Woodbridge said, it gave the appearance of more revenue. Catalyst Paper Corp. (TSX:CYT) used the same growth strategy in January 2015, when it bought two U.S. sawmills from a combination of owners. Revenue from its newly acquired Biron paper mill, in Wisconsin, and Rumford pulp and paper mill, in Maine, helped light the fire under Catalyst’s 79.5% revenue growth surge in 2015, compared with the year before.

Interfor Corp. (TSX:IFP), Taiga Building Products Ltd. (TSX:TBL), Canfor Pulp Products Inc. (TSX:CFX), Hardwoods Distribution Inc. (TSX:HWD) and Fortress Paper Ltd. (TSX:FTP) also enjoyed double-digit percentage revenue growth year over year.

These and other forestry companies have reason for optimism in 2016, given that B.C. lumber shipments to the U.S. were up 2.3% in the first quarter, Woodbridge said.

Canfor revealed in a May filing that its biggest individual shareholder, Jim Pattison, invested more than $9.75 million to buy 688,700 shares, putting Pattison’s total holding at 33,001,650 shares.

There are clouds on the horizon, however.

Woodbridge said the pulp and paper sector could struggle because of increased pulp production in South America, which drives down the price for pulp and reduces demand for B.C. production.

A boost in South American pulp output also hurts B.C. lumber companies, because after half of each typical log is cut into lumber, the remainder is turned into wood chips that are sold to pulp companies. When pulp companies produce less, Woodbridge said, wood chip demand drops and forestry companies have to sell them for a reduced rate.

“The biggest story we’re going to see in the next 12 months is the impact of the softwood lumber agreement [SLA] expiring last October,” said Woodbridge.

The end of that agreement meant that the U.S. stopped charging export tariffs on shipments of B.C. lumber. In the short term that’s good news for B.C. producers and has helped drive sales because, without tariffs, prices are lower.

The original SLA required both sides to wait at least one year before enacting new tariffs following the agreement’s expiry. Therefore, starting in October, the U.S. could institute new tariffs.

They could come in the form of U.S. Customs and Border Protection requiring bonds from B.C. companies to get lumber shipments across the border.

In 2001, according to Woodbridge, U.S. customs required a payment worth 28.2% of each shipment’s value. Almost all of that was kept when a new SLA came into effect in 2006.

“It’s like a one-time tax,” he said, “and companies are unlikely to get much of it back.”

The likelihood of retaliation appears high given a June 17 joint statement from both U.S. Trade Representative Michael Froman and Canadian Trade Minister Chrystia Freeland in which the two said that “significant differences remain between us.”

In March, U.S. President Barack Obama and Canadian  Prime Minister Justin Trudeau asked officials to work out possible solutions and report back within 100 days. That deadline runs out on June 18.

Susan Yurkovich, who is CEO of the BC Lumber Trade Council and the Council of Forest Industries said in a statement that she remains optimistic.

“However, if a reasonable agreement cannot be reached, we are also prepared to work alongside the Canadian government to defend the industry against any potential trade actions brought by the United States,” she said.

By: Business In Vancouver

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