Canfor Corporation (CFP) Earnings Call Transcript & Summary

That concludes the matters to be voted on. For those registered shareholders and proxy holders who have not yet raised matters or discussion, make comments, ask their questions are voted on all of the resolutions for which the polls are made open, please do so now, and they will shortly close all such polls. There being no further discussion at this time. The polls on all such resolutions are now closed. I direct the scrutineer to provide a report on the results of the poll. Based on the scrutineers' initial meeting report, I declare that the number of directors of the company has been set at 13 as only the required number of persons have been nominated to be elected as directors of the company, I declare that those persons nominated have been duly elected by acclamation as the director of the company to hold off until the next AGM. And that KPMG LLP, chartered accounts has been appointed as the auditors of the company. After the meeting upon receipt of the scrutineer's final meeting report on the polls conducted during the meeting, I direct the recording secretary of this meeting to attach the scrutineer's final meeting report to the minutes of the meeting. All of the business for which this meeting was called have been completed. While determination of this formal part of the meeting, Don Kayne, the company's President and Chief Executive Officer, will say a few words regarding our company's developments and registered shareholders and proxy holders who wish to ask questions or make comments will be subsequently invited to do so. I propose that the formal portion of this meeting be terminated. Based on the preliminary scrutineers' report, I declare the motion carried, and the formal part of this meeting is now terminated. I now call upon Don Kayne, the company's President and CEO, to address the meeting. After Don's remarks, registered shareholders or duly appointed proxy holders can ask questions using the messaging icon on the top of the virtual interface. Don?

Thanks, John. Good morning, everyone, and thank you for joining us today for Canfor Corporation's Annual General Meeting. I would like to acknowledge that today's meeting is being hosted from the Vancouver head office on the unseated territory of the Coast Salish people, including the territories of the Musqueam, Squamish and Tsleil-Waututh nations. We acknowledge them and the more than 60 nations across our operating regions in British Columbia and Alberta as an important sign of respect and a step towards reconciliation. Around the world, sustainably produced forest products are being recognized for their role in the global fight against climate change from the way that our fiber is sourced to how it is manufactured to the carbon saving benefits of our products our high-value, low-carbon products are in demand across the globe. While we continue to be optimistic about the opportunities ahead, we experienced a challenging year in 2023. At last year's AGM, lumber markets were just coming off an extraordinary run, reaching a peak of $1,600 per thousand board feet in 2022. But in 2023, we found ourselves in a very different space, with lumber prices having fallen dramatically, reaching lows of $330 per thousand board feet. There are many reasons for this downturn, including geopolitical unrest, affecting global supply chains, continued inflationary pressures impacting housing affordability and consumer confidence, extensive wildfires, particularly in Western Canada and a challenging policy landscape, which is causing persistent uncertainty with regards to accessing economically viable fiber in British Columbia. Canfor reported an operating loss of approximately $530 million in 2023 after taking account of adjustments, our operating loss was $590 million or $2.79 per share. For the lumber segment, the adjusted operating loss for 2023 was approximately $404 million compared to the adjusted operating earnings of approximately $1.422 billion in 2022. These results were mostly driven by a substantial decline in global lumber market prices in 2023, this downward pricing pressure was coupled with a modestly lower production and shipment volumes in 2023 and mainly due to the combination of permanent and temporary curtailments at Canfor's Western Canadian sawmills, slightly offset by a 4% weaker Canadian dollar versus the U.S. dollar in the current year. We continue to pay cash deposits on Canadian lumber exports to the U.S. And at the end of 2023, we had USD 703 million or CAD 931 million on deposit. Canfor paid cash deposits at a rate of 5.87% for the first half of 2023 and 6.61% for the second half. On February 1, 2024, following a fifth administrative review of antidumping and countervailing duty orders, the Department of Commerce confirmed its intent to extend existing tariffs and based on the preliminary rates for administrative review 5, Canfor's combined cash duty deposit rate is sectorized to 15.79% in August of 2024. Together with governments and industry partners, we will continue to defend our interest against these unfair and unjustified tariffs. Canfor Corporation is also active in the Pulp and Paper segment through our 54.8% interest in Canfor Pulp. 2023 was also a difficult year for Canfor Pulp with an adjusted operating loss of approximately $130 million for the current year compared to an adjusted operating loss of $59 million for the prior year. These results largely reflected substantially lower average Northern Bleached Softwood Kraft pulp unit sales realizations tied directly to the weak global pulp market conditions through most of the year, along with the reduced pulp production and shipments with the closure of our PG pulp mill early in 2023. For quarter 1, on a consolidated basis, the company reported an operating loss of approximately $86 million for the first quarter of 2024. This reflects a shareholder loss of $65 million or $0.54 per share. This quarter, we saw sustained pressure on global lumber markets and pricing, especially for Southern Yellow Pine, which resulted in challenging results for the U.S. South. In Europe, we experienced solid earnings and although Western Canada benefited from an uplift in Western spruce-pine-fir pricing in the first quarter, we continue to see ongoing constraints accessing economically viable fiber in British Columbia that we expect to impact lumber and pulp operating rates in the near term and through the balance of 2024. Despite market volatility and ongoing challenges, we have maintained a strong balance sheet. As at December 31, 2023, on a consolidated basis, including Canfor Pulp and Vida, the company had a total net cash of approximately $357 million and total liquidity of approximately $1.848 billion. This provides the flexibility to execute on our strategy and pursue opportunities as they arrive. Over the past decade, we have been focused on building a globally diversified operating platform by increasing our footprint in the U.S. and Europe while working towards a smaller but stronger presence in Western Canada. As a result of this strategy, we have been better able to optimize our shipments to serve our customers from various operating regions. Through a targeted and expansive capital investment program, we are modernizing and transforming our manufacturing facilities to ensure we have a globally competitive operations capable of meeting the needs of our customers. We are undertaking this work while also ensuring financial flexibility and identifying areas for external growth. In 2023, we made continued progress on several strategic initiatives. In the U.S. South, we had numerous capital expansion projects underway or completed in 2023. In April, we opened our first greenfield mill in the U.S. South in DeRidder, Louisiana. This flagship operation is a modern, efficient workplace for our employees while providing manufacturing flexibility to produce high-value lumber products and better serve growing Southwestern markets, including Texas. We are also constructing a greenfield facility in Axis, Alabama that will replace our existing operation in the city of Mobile. In Urbana, Arkansas, we are investing in upgrades to our existing sawmill and planer facilities and earlier today, we announced a purchase agreement with Resolute Forest Products to acquire its El Dorado solid wood manufacturing facility in Union County, Arkansas. This acquisition will create synergies and vertical integration opportunities given its complementary geographic fit with Canfor's existing operations in the region. In Q4 2023, we announced that Vida will increase the capacity of its Bruza Sawmill in Sweden from 175 million board feet to 240 million board feet. Construction will begin this year, and we anticipate new production to come online in 2026 and we continue to look for new opportunities in Northern Europe and are also working to enhance vertical integration within Vida's highly successful Wood Packaging division. As I mentioned, the BC operating environment remains extremely challenging. Regulatory complexity and uncertainty here continue to significantly constrain our ability to consistently access enough economic fiber to support our sawmills and pulp mill operations. As a result, we have had to make difficult decisions to reduce our operations here as we work towards a smaller but stronger footprint in British Columbia. However, in Alberta, we continue to see higher, more stable returns generated by our Whitecourt, Fox Creek and Spruceland facilities, which we acquired in 2022 from Millar Western. As we look to expand and grow our business, we remain deeply committed to sustainability, and it is embedded throughout our entire operations from the forest to the finished product and beyond. We have an ambitious plan to be a leader in sustainable business focused on three key areas: people, planet and products. Across 13 material topics, we have set discrete goals to significantly shift the way we do business. Naturally, this includes a focus on climate change through our targets on scope 1, 2 and 3 emissions, but it also includes improving safety, deepening relationships with indigenous nations, increasing support for our operating communities and further enhancing the diversity of our workforce to name a few. Through these actions and our carbon friendly products, Canfor is well positioned to be part of the solution to climate change. Being part of that climate change solution means looking for new ways to use forest fiber in all of its forms to displace fossil-based materials. Our bio-innovation team is doing just that. Looking at how we can use and extract value from our residual fiber, the chips, sawdust and other wood waste that's left over after we make dimensional lumber, the lower the carbon content of a broad spectrum of products. We are now testing options for the development of biocomposites that could be used for many products that are currently made of plastic. And at our biofuels joint venture in Prince George, Construction is progressing well, and we expect to start producing biofuel in the second half of 2024. This joint venture project is a partnership with Licella and The Lheidli T'enneh First Nations, just one of the many partnerships we have entered into with nations across our operating areas. As we advance our business, we are also deepening our relationships with indigenous communities through agreements, partnerships, employment and new ventures as part of our shared reconciliation journey. Looking ahead, North American markets are expected to remain challenging as interest rates remain at increased levels longer than previously anticipated. We are optimistic about the outlook in both Europe and Asia. And in China, we are seeing a growing interest in green building materials as governments and corporations recognize the many benefits of carbon building with wood. We'll continue to search for new opportunities that will further diversify both our operating platform and product offerings to insulate us from market downturns and the commodity price fluctuations. In particular, we see further opportunities in the U.S. South as it has served us well to date as well as in Northern Europe. Nothing that we do would be possible without the perseverance and commitment of our people. We recognize the responsibility that we have for their safety, and we work hard to ensure that everyone is safe, engaged and is rewarded for their work. We continue to advance many safety initiatives, including our global safety program to ensure that best practices are shared and implemented throughout the organization. We are also making improvements to the employee experience and training and development remains a foundational aspect of our employee development as we build for the future. Every member of our team has a role to play in our company's success and I want to thank each of them for their contributions and resiliency through this challenging market. My appreciation also goes out to our Board of Directors for their guidance and to our valued shareholders, customers and the local and indigenous communities that we operate in for their continued confidence in our company. While market challenges will persist in the short term, I am confident in the future of our company, Increasingly, the forest industry is being recognized for the role that we can play in the global fight against climate change. Customers are looking to us for our sustainably produced low-carbon products, and we are well positioned to make products that build a better future for our people and our planet. Thank you, John, and I'll turn it back over to you.

Thank you, Don, for the great presentation. This is now an appropriate point of the meeting to deal with any final questions or discussion. I look to Valerie, is there any discussion or for questions from shareholders or proxyholders?

Yes, there's one question. Why are there no dividend payment?

Let me be able to welcome your question. Let me say that I will certainly take your intervention back to my colleagues on the Board of Directors. I should say that the Board of Directors and management have been really focused on deploying capital on growth and is prioritized investments such as the one that our Chief Executive spoke about in DeRidder, Louisiana, which has been an incredible success. Its operating performance has exceeded all of our expectations. And then, of course, it's current capital deployment on the greenfield Axis site and on the brown field, the rebuild of our mill in Urbana, Arkansas. So this has been the focus of our capital deployment rather than dividends. Look to Don, if you wanted to add anything to comment.

So I think I agree with everything there, John, for sure. So I have nothing more to add.

Again, thank you for the question, and I'll be sure to take that intervention back. Well, thank you very much. Seeing that there are no further discussions or questions, I will now declare this meeting concluded. I want to thank you, everyone, for attending, and you may now disconnect. Thanks very much.