b.c. timber sales · bcts continues to manage 100% of its apportioned timber volume under...

B.C. TIMBER SALES

QUARTERLY PERFORMANCE REPORT

April 1, 2019 to December 31, 2019

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

Quarterly Performance Summary | | for the period April 1 to December 31, 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 3 (April 1/December 31, 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 third 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


QUARTERLY PERFORMANCE HIGHLIGHTS

Overall Performance: Summary of Highlights The forest sector downturn is impacting performance. As well, wildlife impacts and reconciliation activities continued to adversely impact operations. As a result, some key performance indicators, including Timber Volume Sold and Developed, were not achieved during the quarter. Annual performance will also be adversely impacted.

However, the rates paid for harvested timber were higher than expected positively impacting gross revenues. BCTS is expecting that it will exceed its annual revenue target for the year.

Reconciliation with Indigenous Peoples BCTS is working in collaboration with the rest of the Ministry on implementation of the United Nations Declaration on the Rights of Indigenous Peoples and the Truth and Reconciliation Commissions Calls to Action.

In implementing the Ministry’s Learning for Reconciliation Strategy, approximately 90% 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.

Forest Sector Safety BCTS held an Emergency Response Planning (ERP) workshop together with some of its contractors. The workshop identified operational opportunities to improve ERP. The ongoing work includes expanded drills for the evacuation of injured workers and improving the quality and consistency of ERP. This work is being undertaken in partnership with BCTS’s customers and service providers.

BCTS conducts annual audits of our safety program in order to maintain SAFE Company certification. In the 3rd quarter, BCTS successfully completed an internal maintenance audit of its safety program. In 2020, BCTS will undergo an external audit of our safety program.

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

BCTS remains an active member of the Western Canada SFI Implementation Committee and is participating in the SFI Standard Revision process.


17%15%

12%

20%22% 21%

0%

5%

10%

15%

20%

25%

Q3 YR Q3 YR Q3 YR

% of Projected Harvest VolumeApril 1 - December 31, 2019

Target Actuals/ Projected Previous Year

15% 15%

20% 20%21% 22%

0%

5%

10%

15%

20%

25%

Coast Interior

Percent of Projected Harvest

Actual Target Projected Actual Target Projected

The volume of timber auctioned by BCTS must be sufficient to support the Market Pricing System (MPS).

By the end of Q3, BCTS was behind target and had advertised 15% of the annual projected provincial harvest volume.

At this time, BCTS is projecting that the shortfall will be made up in Q4. By year end, BCTS expects to auction 22%, sufficient to support the MPS.

BCTS advertised 15% of the projected annual harvest volume on the Coast, and 15% in the Interior.

Although the Interior did not achieve its auction volume target for the quarter, BCTS is projecting to auction 21% of the projected harvest volume on the Coast and 22% 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


80% 80%

94%

85%

70%

75%

80%

85%

90%

95%

100%

Coast Interior

Percent of BCTS Auction Volume HarvestedJan 1, 2019 - December 31, 2019

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 December 31, 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.

The overall average quality level for the quarter was 84%. This is below the target of 95% but shows an improvement when compared to 79% for Q2. BCTS has been implementing a new Development in Progress Inventory. The data quality of the new inventory has been below the target to date but is projected to be well above target by year end. BCTS is continuing continuous improvement activities to ensure all key data is complete, accurate and reliable.

GOAL: PROVIDING CREDIBLE DATA FOR MPS


Quarter 3 Timber Volume Sold by Business Area

Volume Sold Coast Target Mm3 Achieved Mm3 Variance Mm3 Variance %

CHINOOK 0.36 0.46 0.11 30% SEAWARD 0.37 0.14 -0.23 -63% STRAIT OF GEORGIA 0.91 0.43 -0.48 -53%

Coast Total 1.63 1.03 -0.60 -37%

Volume Sold North Target Mm3 Achieved Mm3 Variance Mm3 Variance %

BABINE 0.71 0.55 -0.16 -21% PEACE LIARD 1.00 0.68 -0.32 -32% PRINCE GEORGE 1.33 0.82 -0.51 -38% SKEENA 0.67 0.42 -0.25 -37% STUART NECHAKO 0.75 0.83 0.08 11%

TOTAL NORTH 4.46 3.30 -1.16 -26%

Volume Sold South Target Mm3 Achieved Mm3 Variance Mm3 Variance %

CARIBOO CHILCOTIN 0.78 0.21 -0.57 -73% KAMLOOPS 0.94 0.48 -0.46 -49% KOOTENAY 0.88 0.81 -0.07 -9% OKANAGAN 0.85 0.78 -0.07 -8%

South Total 3.45 2.28 -1.17 -34%

9.5

6.6 7.3

11.810.4 11.4

- 2.0 4.0 6.0 8.0

10.0 12.0 14.0

Q3 YR Q3 YR Q3 YR

Target Actal / Projected Prior YR

Volume Sold (Mm3)April 1 - December 31, 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 three quarters BCTS sold 6.6 Mm3, or 69% 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 not achieve its annual target of 11.8 Mm3. By year end, BCTS is expecting to sell 10.4 Mm, a shortfall of 1.4 Mm3, or 15%.


4.93.4 3.8

13.610.9 10.6

0.0

5.0

10.0

15.0

Q3 YR Q3 YR Q3 YR

Mill

ions

m3

Target Actual/Projection Previous Year

Timber Volume Annual Developed April 1 to December 31, 2019

90%78%

110%

0%

20%

40%

60%

80%

100%

120%

Target-Min Q3 Target - Max

Perc

ent

% of Volume Advertised in Planned QuarterApril 1 to December 31, 2019

1.2

0.8

1.2

0.00.20.40.60.81.01.21.4

Target Actual Projection

Volume Offered 10% of Rationalized Approtionment as Cat 2 April 1 to December 31, 2019

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

To date, BCTS has under achieved its target by 31%. The loss in production was primarily due to operational delays largely outside its control.

At this time, BCTS is projecting to under-achieve its year-end target by 2.7 Mm3 or 20%.

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 third quarter, 11 of the 12 business areas did not achieve target. The low rating of 78% is an indicator of the uncertain market conditions and operational delays.

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 third quarter BCTS offered 0.8 Mm3 to Category 2 registrants. BCTS is currently projecting to advertise 1.2 Mm3 by year end.

OBJECTIVE 1: SELLING THE APPORTIONMENT

The volume of timber supplied to the market is reliable

Develop sufficient timber to maximize timber volume offered and sold

Offer 10% of Rationalized Apportionment as Category 2 Timber Sales


$247 $279 $296

$366 $398$434

$50

$150

$250

$350

$450

Q3 YR Q3 YR Q3 YR

Milli

ons

Target Actual/ Projection Previous Year

Gross Revenue April 1 to December 31, 2019

$138 $143 $141

$213 $210$213

$0

$50

$100

$150

$200

$250

Q3 YR Q3 YR Q3 YR

Mill

ions


Captialized Expenditures April 1 to December 31, 2019

$109 $136 $155$153

$188$221

$0

$50

$100

$150

$200

$250

Q3 YR Q3 YR Q3 YR

Mill

ions


Net Revenue April 1 to December 31, 2019

Less: Capitalized Expenditures

The year-to-date capitalized expenditures have exceeded target by $5M. This increase in mainly due to increasing costs of the silviculture liability expense.

BCTS is projecting that it will achieve its annual expenditure target of $213M.

OBJECTIVE 2: REVENUE

BCTS achieved its Gross Revenue target for the period ending December 31, 2019.

Gross Revenue was $32M (or 13%) more than target because of higher than expected rates paid for harvested timber.

Revenue was less than the prior year mainly because of lower harvest volumes.

BCTS is projecting that it will over-achieve its revenue target for the year.

Gross Revenue

Net Revenue for the nine-month period ending December 31, 2019 was $136M, or $27M more than target because of higher than expected rates paid for harvested timber.

Net Revenue, however, was $15M less than the prior year due to softening market conditions and less timber being harvested. BCTS is projecting that it will over-achieve 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 reduce waste and improve efficiency. BCTS applies the Lean philosophy to reduce waste in our business processes.

In the quarter, a project was initiated to reduce our hiring process from an average of 90 days to 30 days. By reducing the time to fill vacancies we will be better able to respond to change, peak workloads and the needs of our clients. We have also begun to implement a new process for onboarding staff. This new process will provide a more standardized process for delivering mandatory training ensuring staff have the required training to be safe and productive.

Pursue excellence in people Every two years the Work Environment Survey (WES) is completed. The BCTS People Practices Working Group reviews the survey and identifies opportunities for improvement.

Projects that were completed in the quarter included: improvements to shared workspaces; and improvements to the recruiting and onboarding process for summer students. The project to improve shared workspaces will improve the working environment for our staff, clients and contractors. The project to improve the recruiting and onboarding of summer students will ensure that summer students are well matched to a rewarding summer job experience and will receive mandatory training more effectively.

The stress created by a constantly changing high demand work environment can take a toll on staff. BCTS has initiated a series of workshops to increase our staff’s ability to be resilient in dealing with these challenges.


OBJECTIVE 3: CONTINUOUS IMPROVEMENT

Pursue Effective Relationships

BCTS continues to pursue mutually beneficial effective business relationships with willing third-partner partners. In many cases, these partners have an Indigenous affiliation (i.e. companies owned in part or wholly by an Indigenous community). BCTS Disposition Agreements have proven to be an effective means to enhance business relationships with (non-BCTS) forest tenure holders, whereby BCTS auctions our partners volume in return for negotiated financial and other benefits. To date BCTS has signed five such agreements this year and have added one this quarter for approximately 20 000m3.

Premier’s Awards

Promoting Innovation and Excellence BCTS is pleased to report that its Forest Technologist Entry Level Program (known as FTELP) was selected as a Regional Finalist for this year’s prestigious award. The Premier’s Award for Organizational Excellence recognizes one or more BC Public Service organizations that have delivered a program, service, or initiative resulting in substantial benefits to their organization(s), the public service, or citizens of British Columbia. The FTELP is located in Mackenzie and was developed to provide new forestry graduates with on-the-job pathways to a professional designation and opportunities for career growth. The FTELP helps participants move to Mackenzie, find housing and provides a two-year curriculum of classroom learning and in-the-field experiential learning. The program also supports participants moving through the learning modules required for their Registered Forest Technologist and Forester in Training designations as well as providing them with the field experiences necessary to be fully qualified Forest Technologist within BCTS. The curriculum includes: cut-block and road design; timber sales licensees (TSL) preparation and monitoring; check cruising; silviculture activities including planting and surveys; appraisal preparation; contract preparation and monitoring; geographic information system (GIS) training; forest health; safety; and Indigenous Peoples awareness training. The program helps young people establish ties with northern communities and BCTS while addressing a serious recruitment and retention issue affecting the forestry sector

’


Target Total Coast Northern Interior

Southern Interior

Volume Advertised /Offered (Mm3) 9.0 7.6 1.8 3.5 2.3

Volume Advertised- CAT2 (Mm3) 0.6 0.7 0.06 0.3 0.4

Less: No Bid Sales/No Sale -0.1 -1.6 -0.7 -0.5 -0.4

Less: Timing Variance (note 1) -0.0 -0.2 -0.06 -0.09 -0.06

Plus: YE Timing Variance 0.0 0.07 0.0 0.03 0.04

Volume Sold (Mm3) 9.5 6.6 1.0 3.3 2.3

Volume Scaled (Harvested (Mm3)) 7.3 5.3 1.6 1.8 1.9

Lump Sum Timber Sale Licences Number

(TSL)

Volume

(Mm3)

• Advertised 56 1.67

• Less: No Bid/No Sale (16) (0.327)

• Total Sold 30 1.35

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 December 31, 2019


April 1 - December 31, 2019

2019/20 First

Quarter (Millions)

2019/20 Second Quarter

(Millions)

2019/20 Third Quarter (Millions)

Revenue from External Sources $ 78.0 $ 111.60

$ 89.2

GROSS REVENUE $78.0 $111.60 $89.2 Capitalized Expenses:

Cost of Timber Inventory Harvested Administration / Salaries ($3.2) ($6.3)

($8.1)

Planning & Sales

($6.0) ($12.0) ($13.4)

Access – Amortization ($7.8) ($7.8)

($7.9)

Sub-Total Cost of Timber Harvested & Amortization

($17.0) ($26.1) ($29.4)

Other Costs Silviculture Liability Expenses ($11.0) ($11.0) ($14.8) Road & Bridge Maintenance Non- BCTS Roads

($1.8)

($0.1)

($5.4)

($0.2)

($3.6)

($0.1)

Harvest Conformance

($0.1) ($0.2)

($0.2)

Operational & Administrative Overhead

($8.7)

($7.1)

($7.4)

Land Base Investment / FFT Recoveries $0.8

$0.4 $0.5

Sub-Total Other Costs NET REVENUE/ (LOSS)

($20.9)

$ 40.1

($23.5)

$ 62.0

($25.6) $ 34.3

Note: Results are Unaudited

APPENDIX 2 – FINANCIAL PERFORMANCE


Selected Balance Sheet Items

2019/20 first

Quarter (Millions)

2019/20 Second Quarter

(Millions)

2019/20 Third

Quarter (Millions)

Silviculture Liability $ 145.7 $138.0 $ 144.2

Inventory Value of Developed Timber

Timber Inventory – Opening Balance

$202.9 $204.4 $209.7

Timber Developed

$ 10.7 $ 23.6 $ 26.4

Timber Available for Sale $213.6

$228.0 $236.1

Cost of Timber Inventory Harvested

($ 9.2) ($18.3) ($ 21.5)

Timber Inventory – Closing Balance $204.4 $209.7 $214.6

Roads Book Value

$851.2 $863.4 $877.8

Accumulated Amortization

($583.2) ($591.0) ($598.8)

Net Book Value

$268.0 $272.4 $279.0

Deactivation Liability ($ 11.2)

($ 11.1)

($ 11.1)

Seed Inventory $ 19.8

$ 19.8

$ 20.8

Note: Results are Unaudited

APPENDIX 2 – FINANCIAL PERFORMANCE

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