quarter performance report - british columbia · sustainable forest management bc timber sales...

B.C. TIMBER SALES

QUARTER PERFORMANCE

REPORT

April 1, 2019 to September 30, 2019

Quarterly Performance Summary | | for the period April 1 to September 30, 2019 | Fiscal 2019/20 2

Safety • Reconciliation • Sustainable Resources • Economic Prosperity • Business Excellence

Library and Archives Canada Cataloguing in Publication Data

BC Timber Sales.

Quarter ... performance. — Quarter 2

(April 1/September 30, 2019)- Quarterly.

Running title: BC Timber Sales quarter ... performance.

ISSN 1715-6319 = Quarter ... performance (BC Timber

Sales)

1. BC Timber Sales - Periodicals.

2. British Columbia - Marketing - Periodicals.

3. Logging - Government policy - British Columbia - Periodicals.

I. Title. II. Title: BC Timber Sales quarter …

performance.

HD9764.B7B37 354.5’5 C2004-960204-X


BC TIMBER SALES AREA MAP

TABLE OF CONTENTS

Introduction ........................................................................................... 4

Performance Highlights .......................................................................... 5

➢ Overview ➢ Principle 1: Forest sector safety ➢ Principle 2: Reconciliation with Indigenous peoples ➢ Principle 3: Sustainable resources

GOAL: Providing credible representative price and cost benchmark data…… 6

• Objective 1: Selling the full BC Timber Sales’ apportionment ....... 8

• Objective 2: Generate direct net revenue and indirect revenue. .. 10

• Objective 3: Continuous business improvement .......................... 11

Appendix 1—Outputs ............................................................................. 13

Appendix 2—Financial Performance ....................................................... 14


BC Timber Sales (BCTS) presents its second quarter performance report for 2019/20. Quarterly performance reports are a key part of the BCTS Performance Management and Accountability Framework.

Our Mission Committed to pursuing excellence in all aspects of our business, maintaining effective relations

and focusing on results, BC Timber Sales generates economic prosperity for all British Columbians through the safe, sustainable, and reliable development and auction of Crown

timber and by playing a pivotal role in the ministry’s reforestation strategies.

INTRODUCTION


mbri

QUARTERLY PERFORMANCE HIGHLIGHTS

Overall Performance: Summary of Highlights

During quarter two, the rates paid for harvested timber were higher than expected and continued to increase gross revenues. At this time, BCTS is expecting that it will exceed its annual revenue and net revenue targets for the year.

Softening markets, a shortage of available timber supply, and delays in preparing timber inventory for sale are adversely impacting operations. Some key performance indicators, including Volume Sold, were not achieved during the quarter and year end achievement is at risk.

Reconciliation with Indigenous Peoples

BCTS is continuing implementation of its key strategies under Principle 2 of its business plan, Reconciliation with Indigenous Peoples. BCTS has been focused on improving our understanding of the United Nations Declaration on the Rights of Indigenous Peoples and the Truth and Reconciliation Commissions Calls to Action. In implementing the broader Ministry’s Learning for Reconciliation strategy, approximately 85% of BCTS staff have either now taken or are in the process of taking reconciliation training. This training is focused on improving cultural awareness and understanding Indigenous people’s history, culture and legal framework. BCTS is also working with the broader Ministry on developing Learning for Reconciliation Strategy (version two), building further upon the first phase of implementation. BCTS business areas have both hired , and are in the process of hiring new staff that are

Forest Sector Safety

Each year BCTS conducts an audit of its safety program in order to maintain its SAFE company certification with the BC Forest Safety Council. This years’ audit was undertaken in quarter 2 and the final report is expected to be released in quarter 3. The BCTS Safety Working Group will use the audit findings to improve the safety program. Past improvements have included: improved safe work procedures, improved reporting procedures and improved investigation procedures. BCTS continues to collaborate with the Ministry in support of its safety certification and with industry, to promote the achievement of safe and healthy workplaces. BCTS is continuing to integrate the BCTS safety program with the Ministry of Forests, Lands and Natural Resource Operations and Rural Development’s Safety Management System to reduce duplication and ensure our safety program is effective and efficient.

Sustainable Forest Management

BC Timber Sales manages 100% of its apportioned timber volume under Sustainable Forestry Initiative forest certification standard as of the end of June 2019. This marks the end of a transition period whereby the BCTS Peace Liard (TPL) Business Area changed a portion of its area from CSA certification to Sustainable Forest Initiative (SFI) certification, following a decision made by Canfor (a TPL major licensee and certification partner) to shift to SFI certification.

BCTS also maintains an Environmental Management System (EMS), to support the SFI Certification program and demonstrate its commitment to high standards in environmental management, sustainable forest management, and continuous improvement. The EMS is no longer certified to the ISO 140001 standard as of September 2018, however evaluation of the EMS occurs with each internal and external SFI audit.

BC Timber Sales remains an active member of the Western Canada SFI Implementation Committee.


10%9%

7%

20%22%

21%

0%

5%

10%

15%

20%

25%

Q2 YR Q2 YR Q2 YR

% of Projected Harvest Volume

Target Actuals/ Projected Previous Year

10% 9%

20% 20%19%

23%

0%

5%

10%

15%

20%

25%

Coast Interior

Percent of Projected Harvest

Actual Target Projected Actual Target Projection

The volume of timber auctioned by BCTS must be at a level sufficient to support the Market Pricing System.

By the end of the quarter, BCTS had advertised 9% of the annual projected provincial harvest volume.

At this time, BCTS is projecting that it will auction 22% by year end. This volume is sufficient to support the Market Pricing System.

BCTS advertised 10% of the projected annual harvest volume on the Coast, and 9% in the Interior.

BCTS is projecting to auction 19% of the projected harvest volume on the Coast and 23% in the Interior by year end. This combined level of auction volume will be sufficient to support the Market Pricing System.

BCTS auction volume as a percent of projected provincial harvest volume – Coast and Interior

GOAL: PROVIDING CREDIBLE DATA FOR MPS

BCTS auction volume as a percent of projected provincial harvest volume


80% 80%

97%

83%

0%

20%

40%

60%

80%

100%

120%

Coast Interior

Percent of BCTS Auction Volume Harvested

Target Actual

The percent of BCTS timber volume sold is within 5 percentage points of the percent of harvest volume by major licensees for each major species and grade 80% of the time

BCTS must develop and auction a representative volume of timber sales to provide statistically credible data to the Market Pricing System. This data is used to establish market-based stumpage rates. For the twelve-month period ending September 30, 2019, the BCTS auction volume harvested was within five (5) percentage points of the Major Licensee harvest volume by species and grade more than 80% of the time. This indicates good representation of harvest volume provided by BCTS.

GOAL: PROVIDING CREDIBLE DATA FOR MPS


Quarter 2 Timber Volume Sold by Business Area

Volume Sold Coast Target Mm3 Achieved Mm3 Variance Mm3 Variance %

CHINOOK 0.21 0.40 0.19 91%

SEAWARD 0.22 0.11 -0.11 -50%

STRAIT OF GEORGIA 0.57 0.11 -0.46 -81%

Coast Total 1.00 0.62 -0.38 -38%

Volume Sold North Target Mm3 Achieved Mm3 Variance Mm3 Variance %

BABINE 0.47 0.27 -020 -43%

PEACE LIARD 0.65 0.53 -0.12 -18%

PRINCE GEORGE 0.70 0.62 -0.08 -11%

SKEENA 0.47 0.19 -0.28 -60%

STUART NECHAKO 0.45 0.73 0.28 62%

TOTAL NORTH 2.74 2.34 -0.40 -15%

Volume Sold South Target Mm3 Achieved Mm3 Variance Mm3 Variance %

CARIBOO CHILCOTIN 0.40 0.10 -0.30 -75%

KAMLOOPS 0.60 0.27 -0.33 -55%

KOOTENAY 0.59 0.48 -0.11 -19%

OKANAGAN 0.58 0.45 -0.13 -23%

South Total 2.17 1.30 -0.87 -40%

5.9

4.2 4.5

11.8 11.7 11.4

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q2 YR Q2 YR Q2 YR

Target Actal / Projected Prior YR

Volume Sold April 1 to September 30, 2019

OBJECTIVE 1: SELLING THE APPORTIONMENT

Timber Volume Sold (Mm3)

Timber volume sold is a key measure that BCTS is selling its apportionment over the business cycle.

Through the first two quarters BCTS sold 4.2Mm3, or 71% of target. Softening markets that have increased the number of no bid sales have contributed to this shortfall.

At this time, BCTS is projecting that it will substantially achieve its volume sold target of 11.8Mm3 by year-end. But that this achievement is at risk.


2.2 2.2 2.1

13.6 13.5

10.6

0.0

5.0

10.0

15.0

Q2 YR Q2 YR Q2 YR

Mill

ions m

3

Target Actual/Projection Previous Year

Timber Volume Annual Developed April 1 to Sept 30, 2019

90%

64%

110%

0%

20%

40%

60%

80%

100%

120%

Target-Min Q2 Target - Max

Perc

ent

% of Volume Advertised in Planned QuarterApril 1 to Sept 30, 2019

1.2

0.47

1.3

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Target Actual Projection

Volume Offered 10% of Rationalized Approtionment as Cat 2 April 1 to Sept 30, 2019

BCTS develops timber in order to have sufficient inventory for future auctions.

During the second quarter BCTS achieved its target and produced 2.2Mm3 of ready to sell timber.

At this time, BCTS is projecting that it will substantially achieve its year-end target of 13.6Mm3.

Timber volume advertised in the quarter planned is an indicator of the reliability of timber supply and the reliability of BCTS’ Sales Schedules. In the second quarter, 11 of the 12 business areas did not achieve target. The low rating of 64% is an indicator of the lack of timber supply and uncertain market conditions.

A key BCTS strategy is to provide open access to Crown timber for non-tenured or insufficiently tenured timber processing facilities. This promotes local employment and supports the value-added sector. In the first half of the year, BCTS offered 0.47Mm3 to Category 2 registrants. BCTS is currently projecting to advertise 1.3Mm3 by year end.

OBJECTIVE 1: SELLING THE APPORTIONMENT

The volume of timber supplied to the market is reliable

Develop sufficient timber to maximise timber volume offered and sold

Offer 10% of Rationalized Apportionment as Category 2 Timber Sales


$188 $190 $173

$366 $372

$434

$0$50

$100$150$200$250$300$350$400$450

Q2 YR Q2 YR Q2 YR

Mill

ions

Target Actual/ Projection Previous Year

Gross Revenue April 1 to Sept 30, 2019

$88 $88 $82

$214 $213 $213

$0

$50

$100

$150

$200

$250

Q2 YR Q2 YR Q2 YR

Mill

ions


Captialized ExpendituresApril 1 to Sept 30, 2019

$100 $102 $91

$152 $159

$221

$0

$50

$100

$150

$200

$250

Q2 YR Q2 YR Q2 YR

Mill

ions


Net Revenue April 1 to Sept 30, 2019

Less: Capitalized Expenditures

Capitalized expenditures for the first six months were on target. Expenditures were $6M more than the prior year, primarily due to increased silviculture and access costs.

BCTS is projecting that it will achieve its annual expenditure target for the year.

OBJECTIVE 2: REVENUE

BCTS achieved its Gross Revenue target for the period ending September 30, 2019.

Gross Revenue was $17.0M (10%) more than the prior year because of higher than expected rates paid for harvested timber.

BCTS is projecting that rates will decline as the year progresses, but it is expecting that it will over-achieve its revenue target for the year.

Gross Revenue

Net Revenue for the six-month period ending September 30, 2019 was $102M. Net Revenue was $11M more than the prior period. This increase is mainly because of the higher billed rates paid for harvested timber. BCTS is projecting that it will exceed its Net Revenue target for the year.

Equals: Net Revenue


OBJECTIVE 3: CONTINUOUS IMPROVEMENT

To effectively realize its mission, goal and objectives, deliver superior performance and make a distinct and lasting impact, BC Timber Sales needs to be continuously improving.

“Only those with Excellent Processes and Excellent People will Truly Excel.”

To achieve this continuous improvement, BC Timber Sales and its people are committed to continuously learn, innovate and lead through change in the pursuit of excellence. BCTS has

embraced Lean as the next step in continuous improvement.

Pursue Excellence in Operations, Practices and Processes

BCTS is continually looking for new ways to meet its business plan targets, reduce waste, increase efficiency, and improve safety outcomes. BCTS applies the Lean philosophy in its pursuit of finding ways to improve its business processes. So far this year, BCTS has initiated a number of Lean projects. In quarter 2, these projects included a project to improve our internal business processes by eliminating coding errors in our financial processes and exploring new and innovative methods for conducting remote forest surveys using drone technology. BCTS offers training on the Lean philosophy to all staff members throughout the province so all employees have the opportunity to contribute and participate in making improvements to their workplace processes. Advanced training is provided to lead team coordinators as planners and facilitators of Lean projects.

Pursue Excellence in People

The BC Public Service Work Environment Survey (WES) helps provide information on work environment challenges impacting engagement, starts conversations on what can be done differently and is used to guide actions and initiatives to improve engagement. The survey is conducted every second year. Based on previous WES results, BCTS’ People Practices Working Group has initiated projects to improve the tools available to staff, improve workspaces, streamline our hiring process and improve the process for onboarding new employees. Work has also been started on improving the delivery of mandatory safety training for newly-hired employees. In addition, BCTS has developed a 2-year Forest Technologist Entry Level Training Program (FTELP) which provides recent college and university graduates with the skills and experience necessary to become forestry professionals. The FTELP program was recently recognized by being selected as a Regional Finalist for a Premier’s Award.


OBJECTIVE 3: CONTINUOUS IMPROVEMENT

Pursue Effective Relationships

Effective relationships are vital to the success of BCTS. These relationships can be with the Ministry and across government, as well as with Indigenous peoples, communities, customers and suppliers. Building and maintaining effective relationships supports the Ministry objective that “natural resource decisions and dispositions support community needs and provincial priorities” and the Ministry’s key strategy to “engage with communities, industry and First Nations to manage the impacts to upcoming fibre supply as a result of the mountain pine beetle epidemic.”

BCTS is actively implementing a Rural Communities Communications and Engagement Strategy and an enhanced communications program across all 12 of its business areas. Since the fall of 2017, our participation in forestry sector industry, educational and community events and face-to-face meetings with stakeholders and Indigenous peoples has steadily increased.

During the quarter, BCTS engaged and collaborated with a number of key stakeholder groups throughout the province. These groups included government, industry customers and suppliers, First Nations and rural communities. BCTS continues to seek new opportunities for meaningful engagement and to build and maintain mutually-beneficial relationships.

Earlier this year, BCTS integrated its twelve business areas with the 8 provincial forest regions in order to optimize its land management resources and capabilities. During the second quarter, BCTS continued its work to implement changes that support the new structure.


Target Total Coast Northern

Interior

Southern

Interior

Volume Advertised /Offered (Mm3) 5.6 4.7 1.1 2.3 1.3

Volume Advertised- CAT2 (Mm3) 0.4 0.4 0.0 0.2 0.2

Less: No Bid Sales/No Sale 0.06 0.7 0.3 0.2 0.2

Less: Timing Variance (note 1) 0.0 0.3 0.2 0.0 0.1

Plus: YE Timing Variance 0.0 0.07 0.0 0.03 0.04

Volume Sold (Mm3) 5.9 4.2 0.6 2.3 1.3

Volume Scaled (Harvested (Mm3)) 4.3 3.8 1.3 1.3 1.2

Lump Sum Timber Sale Licences Number

(TSL)

Volume

(Mm3)

• Advertised 56 1.75

• Less: No Bid/No Sale (9) (0.23)

• Total Sold 47 1.52

APPENDIX 1 – OUTPUTS

Note 1: The timing variance is the volume of timber advertised but not yet sold at cut off.

Key Year to Date Results by Coast and Interior Areas April 1 to September 30, 2019


April 1 – September 30, 2019

2019/20 First

Quarter (Millions)

2019/20 Second Quarter (Millions)

Revenue from External Sources $ 78.0 $ 111.6

GROSS REVENUE $78.0 $111.6

Capitalized Expenses

Cost of Timber Inventory Harvested

Administration / Salaries ($3.2) ($6.3)

Planning & Sales

($6.0) ($12.0)

Access – Amortization ($7.8) ($7.8)

Sub-Total Cost of Timber Harvested & Amortization ($17.0) ($26.1)

Other Costs

Silviculture Liability Expenses ($11.0) ($11.0)

Road & Bridge Maintenance Non- BCTS Roads

($1.8)

($0.1)

($5.4)

($0.2)

Harvest Conformance

($0.1) ($0.2)

Operational & Administrative Overhead

($8.7)

($7.1)

Land Base Investment / FFT Recoveries $0.8

$0.4

Sub-Total Other Costs NET REVENUE/ (LOSS)

($20.9)

$ 40.1

($23.5)

$ 62.0

Note: Results are Unaudited

APPENDIX 2 – FINANCIAL PERFORMANCE


Selected Balance Sheet Items

2019/20 First

Quarter (Millions)

2019/20 Second

Quarter (Millions)

Silviculture Liability ($ 145.7) ($ 138.0)

Inventory Value of Developed Timber

Timber Inventory – Opening Balance $202.9 $204.4

Timber Developed

$ 10.7 $ 23.6

Timber Available for Sale $213.6 $228.0

Cost of Timber Inventory Harvested ($ 9.2) ($ 18.3)

Timber Inventory – Closing Balance $204.4 $209.7

Roads

Book Value

$851.2 $863.4

Accumulated Amortization

($583.2) ($591.0)

Net Book Value

$268.0 $272.4

Deactivation Liability ($ 11.2)

($ 11.1)

Seed Inventory $ 19.8

$ 19.8

Note: Results are Unaudited

APPENDIX 2 – FINANCIAL PERFORMANCE

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