Mission: To transform Canfor into a top quartile performer
Assets: 32 years of forestry experience and a knack for sales and marketing
Yield: Strong ties with Chinese customers and ever-growing sales into Asia
After 32 years of behind-the-scenes wheeling and dealing, Don Kayne has stepped into the limelight to navigate one of B.C.’s largest lumber producers out of a mammoth market slump.
It won’t be easy.
After all, the 53-year-old executive will have to stickhandle a bushel of touchy and complex issues, including the oft-blood-boiling U.S.-Canada softwood lumber agreement, a record slump in the U.S. housing market, the aftermath of the pine beetle infestation and access to new markets abroad.
The list of challenges stacked against Canfor (TSX:CFP), not to mention every other B.C. lumber producer, is enough to make even the most stoic business leader tuck tail and run.
Some have.
But Kayne, who’s just as comfortable jawing about the complex nature of the current lumber market as he is about the day’s weather, plans to stick it out in forestry.
From where he’s sitting, the market has nowhere to go but up.
“The upside in this industry is huge,” said Kayne, who was appointed Canfor’s latest president and CEO in May. “Every other resource except for lumber has capitalized based on the global demand picture changing, and I think lumber is really primed for that future.”
His comments could seem overly optimistic to those who have watched B.C.’s most storied industry fade into the sunset in recent years.
But for those who have been watching a little closer, Kayne could be on to something. His company was one of the first to tap new demand for B.C. lumber in China a decade ago.
In the last few years, the Asian juggernaut’s demand for B.C. lumber used in concrete forming has skyrocketed. Should that demand continue, Kayne believes B.C.’s forestry sector could boom once the U.S. housing market recovers. The trick is getting his company ready for the next super-cycle, knowing the U.S. is still 18 to 24 months away from a recovery.
“This industry is so tough,” said Kayne. “If you were conservative before, you’re ultra-conservative now.
“What gives us optimism is Asia, but in terms of the U.S. I still think we need to be really careful and cautious that we don’t base too many things we’re going to do on a quick recovery.”
Kayne’s history with Canfor dates back 32 years, and his experience in the industry is even longer.
At the age of 15, the North Vancouver native went to work as a weekend maintenance employee at a sawmill in New Westminster.
After finishing forestry and business administration programs at the British Columbia Institute of Technology, Kayne had his pick of industry-related jobs throughout the province. But he wanted to work for Canfor, where his uncle had been chief forester.
A planer mill elsewhere in the province had offered him a job, but he held off on giving his answer hoping that Canfor would call back with a position. In a moment of characteristic gutsiness, Kayne phoned Canfor and delivered an ultimatum.
“I said, ‘Look, I’ve had three interviews; if you don’t give me an answer I’m going to go.’”
He was hired on the spot and became Canfor’s first marketing trainee in June 1979. But more than two decades would pass before Kayne would realize that a real opportunity existed for B.C. lumber in a market that, up until the turn of the millennium, was non-existent: China.
“It really started to take shape even more in the middle of 2004 and 2005 when we saw the U.S. [housing] market go to unbelievable levels,” he said. “Really, we knew it just couldn’t last like that.”
At the time, U.S. housing starts had topped two million units per year. By the time the Great Recession hit in the fall of 2008, that number had dropped to 777,000 units per year, dipping as low as 477,000 in April of 2009.
Housing starts continue to languish but, fortunately for Canfor, Chinese demand for lumber has displaced some of that demand.
That’s not to say the company glided through the economic storm with ease. Kayne’s predecessor, Jim Shepard, curtailed mills, cut executive pay and sold the company jet to help Canfor ride out the downturn.
Meantime, Kayne was making inroads in Asia where he hoped to stake out a new future for the company.
It’s paid off.
As of February, Canfor was shipping the equivalent production of four sawmills to China. In May, the value of lumber exports to China surpassed the U.S. for the first time in history.
Kayne believes there’s a lot of demand in Asia that has yet to be tapped. “China has the opportunity to double, [and] Japan, which we don’t talk near enough about, [is a] huge opportunity.”
The company is so keen to maintain and grow its foothold in Asia that it has partnered with competitors West Fraser Timber (TSX:WFT), Tolko Industries and Western Forest Products (TSX:WEF) and built a ship to transport products to Asia.
David Emerson, a past CEO of Canfor, said Kayne’s focus on diversifying the company’s markets would be key to its long-term survival. “If you do not have a really good sense of what the seismic shifts are in the global economy … then I think you’re going to end up selling your business to somebody that does,” said Emerson, who is also a former federal cabinet minister.
But China isn’t a cure-all for Canfor or the B.C. lumber industry’s problems.
Fortunately, Kayne knows that, which is why he’s focused on ensuring the company has the proper mix of trees to continue feeding its mills.He also committed to a $300 million capital plan to modernize Canfor’s mills. That way, when the U.S. market eventually returns, Canfor will have the fibre and technology on hand to flood the market with lumber and roll out the welcome mat for the return of the good times.
“It’s got a long way to go,” said Kayne. “But, absolutely, I do believe it can be there again right near the top.”