Page 11 - RosboroAR2018

Rosboro is North America’s leading producer of glulam beams, with a dominant market share that continues to grow. Rosboro glulam is the builders’ brand of choice throughout the Western United States
Manufacturing costs came in 21% more than forecast, primarily relating to labor. The new HewSaw small log line that began running in November 2017 was never able to be utilized to
its full potential. We could not generate enough blocks to keep it operating at full capacity, and from that realization we embarked on the log merchandiser capital project as a remedy. In the meantime, we ran the existing head rig more hours than planned, which required more man hours to meet production goals. Log costs on a lumber scale basis were $32/mbf (11%) higher than plan and $63/mbf (23%) higher than 2017. This is partially due to increased log prices during the rst 3 quarters of year, but also because we were only able to run 1/3 of the Hem Fir volume we targeted due to the pressing lamstock needs of the Glulam operations. For the year, Mill B generated a gross margin of $5.9 million, 85% of budget.
CAPITAL SPENDING:
After a busy 2017 with two double track kilns and the new small log line at Mill B, we doubled down in 2018 with two more major capital projects. The rst project, completed in early January 2019, was the installation of an additional two double track kilns, bringing our total number of double track kilns
to nine. This was done for several reasons. First, it provides exibility to take advantage of any and/or all of the following: the premium of dry lumber over green lumber, running
lower cost, higher margin log species like Hem Fir or White Fir (which are required to be dried), prioritizing whichever market
(dimension lumber vs. stud lumber) is o ering the higher gross margin products and to give precedence to lamstock should Glulam unexpectedly exceed expectations. Second,
it does provide us a hedge against potential shrinkage in the California green stud market. Lastly, it future proofs our ability to meet our Glulam plants’ production at full capacity by giving us enough room to dry all the lamstock needed to meet full capacity production.
The second major capital project completed was the new ve saw log merchandiser that allows us to scan and cut a log in
a single pass, unlike its predecessor which could take up to 5 passes to buck a 40’ log into 8’ blocks. This project not only gives us more e ciency in the log merchandising process
and the adaptability to route blocks to their most pro table conversion line, it also enables us to fully take advantage of the new small log line at Mill B. Firstly, the new merchandiser can block logs just as fast as the new small log line at Mill B can convert blocks and secondly, because the new merchandiser
is so e cient, we can target “cut to length” logs which can be purchased at a signi cant discount to long log lengths to help drive log costs down. We expect to lower our overall log costs on a log scale basis downward by $50/mbf.
Strategic capital improvements made in 2018 are expected to generate generous returns in 2019 and into the future.
OUTLOOK:
If the current economic expansion continues through June 2019, it will o cially be the longest US economic expansion in history. Housing starts have increased 10 years in a row but remain at least 200,000 units away from “normal”.
What de nes “normal” is household growth, which is reported to be at least 1 million households on an annualized basis, plus other factors such as second homes, removals, aging home inventory, etc. According to FEA (Forest Economic Advisors), a well-regarded economic forecasting service, housing is still a few years away from normal. They estimate annual underlying demand at 1.44 million housing starts but are projecting only 1.27 million starts in 2019 and 1.39 million in 2020, thus not yet making any headway in the pent-up demand that has been building throughout the recovery. This pent-up demand (which many still estimate to be in excess of 3 million), when
11 ANNUAL REPORT 2018