Canfor Corporation

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Canfor Corporation

3000-Four Bentall Centre
1055 Dunsmuir Street
Vancouver, British Columbia V7X 1B5
Canada
Telephone: (604) 661-5241
Fax: (604) 661-5235
Web site: http://www.canfor.com

Public Company
Incorporated: 1938 as Pacific Veneer
Employees: 6,574
Sales: C$2.26 billion (2000)
Stock Exchanges: Toronto
Ticker Symbol: CFP
NAIC: 11531 Support Activities for Forestry

Canfor Corporation is the largest producer of lumber in Canada and one of the country’s leading producers of pulp. The company’s mills, facilities, and timber resources are located principally in British Columbia and, to a lesser extent, in Alberta. Wood products account for the majority of the company’s sales, including products such as dimension lumber, studs, plywood, and trim board. Roughly 75 percent of the company’s overall sales are made in North America.

Origins

A Canadian company with Austrian heritage, Canfor was founded by John G. Prentice and his brother-in-law, Leopold Bentley. Prentice and Bentley fled their native Austria on the eve of World War II, seeking refuge from the threat of subjugation by Nazi Germany. Anschluss, the incorporation of Austria into the German Reich, occurred in 1938, the same year Prentice and Bentley moved with their families to Vancouver, British Columbia. Before the end of the year, the two men started their own company, Pacific Veneer, a small furniture veneer company that ultimately evolved into Canada’s largest softwood lumber producer, Canfor Corporation.

Pacific Veneer began as a small company, but its growth was quickly fanned by the outbreak of hostilities overseas. Prentice and Bentley built a small mill along the Fraser River in New Westminster, British Columbia, not long after starting their entrepreneurial careers in Canada. Initially, the mill employed 28 workers, but after Great Britain was severed from its European wood supplies in 1939, employment at the mill mushroomed. Pacific Veneer began supplying plywood for wartime aviation and marine purposes, which delivered explosive growth, soon raising the mill’s employment rolls to 1,000. With their profits, Prentice and Bentley were quick to expand, acquiring Eburne Saw Mills Limited in 1940. Situated near the mouth of the Fraser River, the Eburne mill was improved and converted to cut hemlock and balsam. The acquisition also made Pacific Veneer a shareholder in a Vancouver-based wood products marketing and shipping consortium named Seaboard Lumber Sales Ltd. Through its interest in Seaboard, Pacific Veneer gained advantages it could immediately put to use, such as better access to overseas markets and lower freight rates.

Prentice and Bentley continued to develop Pacific Veneer into a timber concern during the war years. The two partners were intent on obtaining control over a stable log supply to feed into their mills, and in 1943 they began to vertically integrate their operations by purchasing a handful of small logging operations in the Fraser Valley. The following year they bolstered their timber supply by acquiring logging rights in the Nimpkish Valley on Vancouver Island, a purchase that served as the foundation of their company’s Englewood Logging division. By the end of the war, Prentice and Bentley controlled far more than a furniture veneer company, the realization of which prompted the two founders to search for a new name for their company. Pacific Veneer no longer accurately reflected the logging and mill operations that composed the company. In 1947, they renamed their company Canadian Forest Products Limited, adopting the name of a small timber operation included in the acquisition of timber rights in the Nimpkish Valley.

Post-World War II: Diversification and Growth

Canadian Forest entered the 1950s primed for growth and ready to diversify its operations. The company continued to add to its portfolio of mills and timber resources, but the most significant move of the decade pushed Canadian Forest in a new direction. In 1951, the company acquired a small, unbleached kraft pulp mill, marking its entry into the pulp business. Named Howe Sound Pulp Company Limited, the mill was closed when Canadian Forest completed the acquisition, but the shuttered mill was soon expanded and converted to produce bleached pulp.

A series of acquisitions charted Canadian Forest’s growth during the postwar years. The company expanded geographically and it broadened its business scope, developing a spectrum of operations that were organized into several divisions. In 1955, shortly after diversifying into the pulp business for the first time, Canadian Forest purchased a 50 percent interest in Northern Plywood Ltd., located in Grande Prairie, Alberta. The company later acquired the rest of Northern Plywood, which formed the foundation for Canadian Forest’s Grande Prairie Logging division, comprising Northern Plywood and nearby mills that were acquired later. In 1963, the basis of Canadian Forest’s Chetwynd division was established when a handful of sawmills and planer mills were purchased in the Peace River District. The acquisitions marked Canadian Forest’s march into the northern British Columbia interior, where the company also secured timber rights and mills owned by the Fort St. John Lumber Company. A year after the acquisitions were completed, the assets were consolidated to form the company’s Chetwynd division.

Diversification and expansion continued into the 1970s and 1980s. After establishing a mill in Alberta—the Hines Creek mill—in 1970, Canadian Forest acquired a majority interest in Westcoast Cellufibre Industries Ltd. Completed in 1973, the investment provided Canadian Forest with a supplier of chips for its Howe Sound Pulp mill. Two years after taking control of Westcoast Cellufibre, Canadian Forest gained a new leader. Peter Bentley, the son of cofounder Leopold Bentley, was named president and chief executive officer, assuming day-today control over the company in 1975.

1975: The Peter Bentley Era Begins

Before his penultimate promotion (he was later named chairman), Bentley accumulated a wealth of working experience, both at Canfor and at other timber-related companies. As a teen, the Vienna-born Bentley worked as a sparkchaser in a fire-fighting crew, then worked as a truck driver and a surveyor. As a salesman for a lumber wholesaler in Chicago, Bentley secured prized contracts with Caterpillar, Pontiac, and Ford, winning over the Midwest’s influential industrial executives at prestigious golf clubs.

After leaving Chicago at age 23, Bentley returned to his family’s business. “I was put where they put me,” Bentley remembered in an October 1995 interview with BC Business. “I was more or less ordered to take forestry at UBC (University of British Columbia) .” He worked his way up through the organization, earning his promotions by taking on responsibilities related to nearly every facet of the company’s activities, from stints at the Eburne sawmill in Vancouver to working at Canadian Forest’s sales offices in Europe. In 1970, when the company’s annual sales reached C$144 million, Bentley was named executive vice-president of operations, awarded the post as he entered his early 40s.

When Bentley was named executive vice-president, Canadian Forest was in the midst of a significant transformation. For years, Bentley’s father and uncle had been developing Canadian Forest beyond its roots as a coastal wood-products manufacturer and into an integrated forest company operating throughout western Canada. When Bentley assumed control over the company in 1975, he continued to chase the strategic objective of the previous generation, but his structural changes went deeper. In the early 1970s, before he accepted the posts of president and chief executive officer, Bentley was approached by a large U.S.-based forest products company. Bentley considered accepting the job offer, but his father and uncle were intent on retaining their experienced protégé. Bentley offered to stay, provided, he stipulated, they allow him to manage the company the way he saw fit. The co-founders agreed, ushering in a new management style that helped fuel robust growth.

Before Bentley began making his changes, Canadian Forest had conducted business in the traditional style of a family-owned business. Decisions were made at the top, with all department managers reporting directly to the cofounders, who then issued their instructions. Bentley insisted on a less hierarchical, less centralized mode of management, instead promoting communication among department managers and the dissemination of all pertinent information throughout the company. Access to information and interdepartmental interaction made for a more successful corporate organization, one better equipped to contend with the challenges that lay ahead. Canadian Forest was in the midst of shaking off the last vestiges of its entrepreneurial beginnings and set to become a full-fledged corporation.

Under the leadership of a new generation, Canadian Forest continued its steady expansion. In 1981, the company purchased Swanson Lumber Co. Ltd., which owned and operated valuable sawmills and woodlands operations. Two years later, the company converted to public ownership. Concurrently, the company changed its name for the second time in its history, becoming Canfor Corporation. The company’s former name, Canadian Forest Products, became the new name for a wholly owned subsidiary. The achievements of Bentley’s first years in control also included continuing the process of transforming Canfor into an integrated forest products company. Bentley sold Canfor’s shingle and plywood mills, divested non-forest assets, such as a trust company and several shipyards, and focused the company’s efforts on three business areas: lumber, pulp and paper, and fiber products.

Company Perspectives:

We continue to focus on strengthening our core businesses, driven off of our superior northern fibre base, while at the same time fulfilling our commitment to environmental stewardship and to the communities in which we operate .

1990s: The Search for Strategic Focus

Despite a narrowed focus on its operating activities, Canfor entered the 1990s struggling to turn a profit. The company had grown tremendously since Bentley’s ascension to leadership, increasing its annual sales to more than C$1 billion and swelling its stature to become Canada’s largest lumber producer, but profitability, once a strong suit, had become an issue forcing a response. In 1991, a companywide reorganization was implemented as a solution to Canfor’s problems. The company’s business was structured into three groups: pulp and paper, coastal wood products, and northern wood products. To aid Bentley in executing the new structure, Arild Nielssen was appointed president and chief operating officer, assuming the posts in 1991.

Canfor’s efforts to restore the luster of profitability were not helped by the onset of anemic economic conditions. The early 1990s were years of severe economic downturn, hobbling the efforts of Canfor, along with a litany of other companies, to demonstrate financial vitality. Once the economic climate began to improve, Canfor moved boldly forward, hoping to join the industry-wide trend toward consolidation and to realize the expected financial benefits. In December 1994, the company announced its intention to take over Vancouver-based Slocan Forest Products Ltd. Canfor offered C$650 million for Slocan, which ranked as Canada’s fourth largest lumber producer. Provided the deal was accepted by Slocan shareholders and approved by provincial authorities, Canfor would gain control over nearly 40 percent of the provincial timber in the Prince George area and, of strategic importance, the company would benefit from Slocan’s valuable wood chip output. The deal collapsed, however, in early 1995, meeting stiff resistance from Slocan, its shareholders, and the B.C. Forest Minister.

Following the disappointment of the scuttled Slocan takeover, more distressing news cast a pall over Canfor’s Vancouver headquarters. The company’s financial results were miserable, despite an increase in revenues to more than C$1.5 billion. In 1996, the company’s before-tax losses totaled C$56.9 million, followed by a C$32.9 million loss in 1997. Arild Nielssen left the company in July 1997, offering no public explanation, which marked the return of Peter Bentley to the offices of president and chief executive officer. Bentley’s tenure was brief, however, ending once a replacement for Nielssen was found. David Emerson, the former deputy finance minister and deputy minister to British Columbia’s Premier, was selected as Cantor’s new steward. Before joining Canfor in 1998, Emerson served as president and chief executive officer of the Vancouver International Airport Authority, the identical posts he would occupy at Canfor.

The partnership of Bentley and Emerson combined to revitalize a beleaguered company. A restructuring program was begun in 1998, its aim to focus on efficiencies and to reduce costs. The reorganization marked the first major initiative of Emerson’s tenure, and it began with the reduction of the company’s workforce by 20 percent, which represented the loss of 250 jobs. Structurally, Canfor was divided into three divisions: pulp and paper products, northern wood products, and coastal wood products. Each business group was organized as an autonomous business, responsible for its financial performance and management in much the same way as a stand-alone business. Growth in pulp and paper products, a key facet of the company’s business scope, was expected to be realized by turning the division into a specialty kraft operation. Although capital spending was cut back drastically during the reorganization, C$8 million was set aside to upgrade Canfor’s paper machines at its Prince George pulp and paper mill. Longer-range plans called for production to be tripled.

With Emerson spearheading the efforts toward recovery, Canfor demonstrated a newfound strength. In 1998, the company reported another devastating loss of more than C$200 million, but its bottom line improved dramatically the following year. In 1999, the company’s net income surged to C$102.6 million in a year highlighted by a mammoth acquisition. In August, the company entered into an agreement to purchase Northwood Inc. for C$635 million. The acquisition agreement closed in November, giving Canfor a wealth of new assets located principally in the Prince George area of British Columbia. From the acquisition, Canfor gained four sawmills, one plywood mill, one pulp mill, one wood treatment plant, two log-chipping facilities, and timber-cutting rights, nearly doubling the company’s pulp and lumber capacity.

Much of 2000 was devoted to integrating Northwood’s assets into the Canfor fold, a process that was expected to continue into 2001. Revenue in 2000 surged past the C$2 billion mark, reaching C$2.26 billion, while net income swelled to C$125.6 million. With the company’s efforts sharply focused on wood products and pulp and specialty kraft paper, Canfor entered the 21st century rejuvenated, exhibiting the type of strength that had proved elusive in the 1990s. The tandem of Bentley and Emerson appeared to be a partnership well equipped to shepherd Canfor into the future.

Principal Subsidiaries

Canadian Forest Products Ltd.; Genus Resource Management Technologies Inc.; Howe Sound Pulp and Paper (50%) .

Principal Competitors

Abitibi-Consolidated Inc.; West Fraser Timber Co. Ltd.; Nexfor Inc.

Key Dates:

1938:: Canfor’s predecessor, Pacific Veneer, is founded.
1947:: Company is renamed Canadian Forest Products Limited.
1951:: Company enters the pulp business through the acquisition of Howe Sound Pulp Company Ltd.
1975:: Peter Bentley is named president and chief executive officer.
1983:: Now rechristened as Canfor Corporation, the company begins trading on the Toronto Stock Exchange.
1999:: Northwood Inc. is acquired, doubling Canfor’s lumber and pulp capacity.