Selective Cuttings

2013 Financial results of Canadian forest sector

April 28, 2014

The financial results of the ten largest publicly traded1 Canadian forest sector firms improved in 2013. Together they reported a net income of $101 million—which is a significant decline relative to their $849 million net income of 2012, but the 2013 figure is heavily skewed by Resolute Forest Products’ $679 million net loss primarily attributable to a one-time, non-cash deferred income tax charge. A more accurate year-over-year comparison can be generated by investigating operating income. In 2013, the ten largest companies reported a positive operating income of $1.7 billion, a 45% increase relative to 2012. This is the highest operating income in the past nine years, and all ten companies reported positive operating income.

Operating income – Largest 10 Canadian publicly traded forest sector firms

 This chart shows the quarterly financial results of ten largest Canada-based publicly traded forest products companies, from the period from 2005 to 2013. Together the ten largest publicly traded Canadian forest companies reported an operating income of $ 1.7 billion, the best over the past 9 years.

Companies with major exposure to solid wood products continued to significantly improve their performance in 2013. For example, Canfor, West Fraser Timber as well as Western Forest Products all more than doubled their operating income, thanks to strong wood product demand and pricing. The strong financial performance clearly reflected higher softwood lumber exports (33% growth), mainly supported by continued momentum in the U.S. housing market, and solid offshore exports, particularly to China (30% growth) and Japan (22%).

However results of companies with more exposure to pulp and paper products are mixed, reflecting fluctuating NBSK pulp prices as well as the falling demand for certain paper product grades, particularly newsprint and graphic papers.

Improving balance sheets enable Canadian companies to make strategic investments. Many companies, including West Fraser Timber, Canfor, and Interfor, have acquired assets in the U.S. to further increase and diversity capacity. It is also interesting to note Canfor has become the first Canadian company to invest in a lumber joint venture in the increasingly important China market. Also in 2013, Domtar acquired Indas, an important Spanish sanitary, hygienic, and skin care products manufacturer. It is widely believed this transaction will advance Domtar’s transformation into a leader in personal care products.

Going forward, the financial performance of Canadian forest companies will face the challenges and uncertainties typical of a competitive global economy. However the recent depreciation of the value of Canadian dollar (down 11% from January 2013 to February 2014) will provide much needed financial relief and improve Canadian companies’ competitiveness in the global market.

1The 10 largest Canadian publicly traded forest products companies are Domtar, Resolute, Cascades, West Fraser Timber, Canfor, Tembec, Norbord, Mercer, Catalyst, and Western Forest Products.