Canfor Pulp Products Inc. (CFX) Earnings Call Transcript & Summary

Good morning, and welcome to the 2025 Annual Meeting of Shareholders of Canfor Pulp Products Inc. Please note that the meeting is being recorded. I would like to introduce John Baird, Director and Chairman of the Board and Chair of today's meeting. Mr. Baird, the floor is yours.

Good morning. It is now 11:00 a.m., and I would like to ask the meeting to please come to order. I will be acting as Chairman for this meeting. It's a great pleasure for me to extend a warm welcome to all of you today for the AGM of Canfor Pulp Products Inc. Please ensure you remain connected to the Internet during the course of this meeting. If you need technical assistance, please use the section entitled Voting Process and Meeting Technical Assistance in the Management Information Circular respecting this meeting. This meeting has been convened as the AGM of Shareholders and has been called for the principal purposes of receiving a consolidated financial statement for the year ended December 31, 2024, together with the auditor's report and the report of the directors to the shareholders, fixing the number of directors of the company at 6, electing the directors for the coming year and hooking auditors for the coming year. At this point, I would like to introduce Stephen MacKie, President and CEO of Canfor Pulp; and Patrick Elliott, the Corporate Secretary of Canfor Pulp. There will be an opportunity for any questions you might have to be addressed after the formal portion of the meeting has concluded, and after you've heard from me and Stephen. I'd ask Mr. Elliott to act as Secretary of this meeting. I would like to introduce you to the other directors of Canfor Pulp, Craig Armstrong, Dieter Jentsch, Norm Mayr, Conrad Pinette, William Stinson, Sandra Stuart and Susan Yurkovich. They have all worked diligently and effectively with the management team at Canfor Pulp, and we appreciate their wise counsel. On behalf of both the Board and the management of Canfor Pulp, I wish to extend our sincere thanks to Bill Stinson and Conrad Pinette, who are retiring from the Board and will not be standing for reelection. Conrad has been a director since 2012 and served as Chairman of the Board in 2017 to 2021. Bill has been a director since 2012. We are very grateful for their service as directors and their contributions to the company. On behalf of the Board of Directors, I'm very pleased to acknowledge our appreciation for the contribution that all of these company's personnel have made during the past year. With the consent of the meeting, I hereby appoint TSX Trust Company to act as scrutineer for the meeting. I would like to now call upon Mr. Elliott to deal with the notice of the meeting.

Mr. Chairman, a notice calling the meeting was mailed to all shareholders of Canfor Pulp entitled to receive such notice. TSX Trust Company has provided us with a certificate as to the mailing and a copy of the certificate will be kept the records of the meeting.

Mr. Secretary, can you please summarize the preliminary scrutineer's report.

We are pleased to report that there are 40 shareholders holding 51,756,751 shares represented in attendance online or by proxy at this virtual meeting representing 79.34% of the total issued and outstanding shares of the company.

As Chairman, I adopt the preliminary scrutineer's report and declare the attendance at this meeting to be as they have set forth. I direct that when delivered, the final scrutineer's report be kept with the records of the meeting. In accordance with the preliminary scrutineers' report, I declare a quorum present and the need to be duly constituted for the transaction of business. Based on the preliminary scrutineer's report, a sufficient number of proxies have been deposited with TSX Company voting in favor of all resolutions in the circular in order to pass each item of the business in this meeting. I propose that we deal first with all the formal business requirements of the meeting. After the formal portion of the meeting has concluded, Stephen MacKie, the company's President and CEO, will say a few words and there will be a final opportunity for questions from registered shareholders and proxy holders which can be submitted online. At this meeting -- as this meeting is being held virtually, I would like to remind you that voting on all matters described in the management information circular for the meeting will be conducted by electronic ballot. To allow sufficient time for voting, the polls for all matters being voted on will be open following these introductory remarks and close at the end of the formal portion of the meeting. Only registered shareholders and duly appointed proxy holders who have properly logged into the meeting will be able to vote after the meeting. I also remind you that if you are a registered shareholder and you have already voted by proxy, you do not need to vote again unless you want to change your vote. If you plan to vote at the meeting, you may choose to vote on each resolution immediately or wait to cast your vote until after the motion or an item is proposed. Once all of the business -- once all items of business before the virtual meeting have been put forward, I will give registered shareholders and proxy holders an opportunity to discuss these items of business, make comment and ask questions and to provide the opportunity to enter their votes on the open poll if they haven't already done so and then declare a boarding closed on all resolutions. In order to expedite the proceedings today, I will be proposing and seconding all motions and for the motion, not included in the circular, motions will be determined based on the preliminary scrutineer's report and reliance on the discretionary authority granted in the proxy deposited for this meeting or on a poll at my discretion. I now declare the polls open on all resolutions included in the management information circular proxy for the meeting. The first item of business is to place before the meeting is the consolidated financial statements of Canfor Pulp for the year ended December 31, 2024, together with the auditors' report and the report of the directors to the shareholders. These statements and reports are contained in Canfor Pulp's annual report and are available on SEDAR+ or from Canfor Pulp upon request. I will regard the statements and reports as received by the meeting. The next item of business is to fix the number of directors. I propose that the number of directors be fixed at 6. I direct that a poll be conducted on the motion and at the scrutineer report the results. If you haven't already captured vote online or by proxy, please cast your vote now. The next item of business is the election of directors of Canfor Pulp. I propose that the following individuals be nominated to act as directors of the company to hold office until the next Annual General Meeting. Craig Armstrong, John R. Baird, Dieter Jentsch, Norm Mayr, Sandra Stuart and Susan Yurkovich. These persons are management's nominees for election, as was stated in the information circular mailed to the shareholders of the Canfor Pulp. There being no further nominations, I declare nominations closed. I direct that a poll be conducted on the motion and that the scrutineer results -- where the scrutineer report the results. If you haven't passed your vote online or by proxy, please cast your vote now. The next item of business is the appointment of auditors, and it's the Board's recommendation that KPMG LLP chartered accountants be appointed auditors of Canfor Pulp. I propose that KPMG LLP charter accounts be appointed auditors of the company. I directed a poll be conducted on the motion and at the scrutineer report the results. If you haven't already cast your vote online or by proxy, please cast your vote now. That concludes the matters to be voted upon. For those registered shareholders and proxy holders who have not yet raised matters for discussions, made comments, ask their questions or voted on all the resolutions for which the polls are made open, please do so now as I 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 scrutineer's initial meeting report, I declare that the number of directors of the company has been set at 6. As only the required number of persons as being nominated to be elected as directors of the company, I declare that those persons nominated have been duly elected by acclamation as the directors of the company to hold office until the next Annual General Meeting and KPMG LLP chartered accountants has been appointed as the auditors of the company. After the meeting, upon receipt of the scrutineer's final meeting report on the results conducted during this 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. Following termination of the formal part of this meeting, Stephen MacKie will say a few words 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. Without further ado, I'm pleased to invite Stephen MacKie, President and CEO of Canfor Pulp, to address the meeting. After Stephen's remarks, there will be a question period for any registered shareholder or duly appointed proxy holder to ask questions using the messaging icon at the top of the virtual meeting interface.

Thank you, John. Good morning, everyone. Welcome, and thank you for joining us today for Canfor Pulp's Annual General Meeting. I would like to acknowledge that today's meeting is being hosted from the Vancouver head office on the unceded territory of the Coast Salish peoples, including the territories of the Musqueam, Squamish and Tsleil-Waututh Nation. We would also like to acknowledge the [indiscernible] nation in the interior of BC on whose traditional territory Canfor Pulp operates. 2024 was a year marked by challenges. Last year, we were deeply saddened by the loss of a long-time Canfor colleague who passed away following a serious workplace incident. This tragedy has been a stark reminder that we must live our core value of safety first every day. 2024 was also a year marked by uncertainty with ongoing volatility in market conditions, persistent fiber supply constraints and rising costs that have impacted both our operations and the broader forest industry in British Columbia. These conditions affected not only our business, but also our people, our partners and the communities where we operate. In November of 2024, I took on leadership of Canfor Pulp along with my role at Canfor with the goal of better aligning our company's interests, creating efficiencies and ensuring stability in the face of an evolving landscape. The interconnected nature of the forest sector means that challenges in one area ripple across our entire company. The pulp and paper sector and the solid wood business are mutually dependent on each other. A vibrant and robust sawmill industry is essential to generate a sufficient supply of fiber for the pulp sector. Similarly, a healthy and competitive pulp industry is necessary as a viable outlet for sawmill residuals. Over the past year, additional sawmill closures and curtailments have further reduced the availability of economic fiber, adding to the pressures we were already facing in securing a reliable supply of residuals. When combined with challenging markets and punitive duties impacting lumber, it has become increasingly difficult to obtain the fiber needed to sustain our operations. In response, we've taken steps to align our production capacity with the available fiber supply. A significant and difficult decision was the curtailment of one production line at our Northwood facility in Prince George, BC. This decision was not taken lightly, and we acknowledge and regret the impact that these decisions had on our people and the community. Despite our efforts to pursue alternate sources of fiber, additional sawmill closure announcements in the BC interior further exacerbated fiber supply challenges in the latter half of 2024, which continue to persist into 2025. With the closure of one line at Northwood, along with curtailment, we have reduced our annual pulp production capacity by approximately 580,000 tonnes. Looking at our financial results for 2024, Canfor Pulp reported an operating loss of $226.5 million compared to an operating loss of $127.5 million in 2023. We recorded an asset write-down and impairment charge of $211 million as a reduction to the carrying value of our pulp segment assets. After adjusting for this and other items, our adjusted operating loss was $15.5 million, an improvement from the $129.9 million loss in the prior year. Global pulp markets remained relatively weak in early 2024, especially in Asia, where demand was subdued. Some recovery emerged midyear due to supply disruptions, but the second half of the year saw renewed pressure with rising inventories and added hardwood capacity. North American prices followed similar trends, starting strong, peaking midyear and softening toward year-end. Pulp production in 2024 totaled 511,000 tonnes, down 15% year-over-year. Operations faced severe winter weather early in the year and extended maintenance downtime at Intercon in May, followed by the Northwood curtailment in August. While operational efficiency and reliability improved in many areas, the persistent fiber shortage continued to weigh on performance and results. Despite the headwinds, we saw encouraging signs by the end of 2024. Financial results strengthened in the final quarter, evidence that our stabilization efforts are taking hold. Now turning to the first quarter of 2025. Canfor Pulp reports an operating income of $10.8 million in the first quarter compared to $4.1 million in the fourth quarter of 2024. This was largely driven by a modest uplift in our Northern Bleach softwood kraft pulp unit sales realizations in the last quarter, along with a 6% increase in pulp production compared to the fourth quarter of 2024. We continue to focus on operational performance, closely managing our cost structure and optimizing economically available fiber in the province. Q1 results show improvements in stabilizing our operations as our teams continue to make progress in securing sufficient fiber supply by working with our partners and intently focusing on cost and operating efficiency. Looking ahead, fiber supply remains constrained, and we continue to face uncertainty given the rapidly evolving geopolitical dynamics. That said, we are making progress and are focusing on areas within our control to build a more stable and resilient foundation for the business. With the resilience, commitment and determination of everyone at Canfor Pulp, I'm confident we will navigate the road ahead. Thank you. And John, I'll turn it back over to you.

Thank you, Stephen. And on behalf of the Board, we thank you for your great work and your leadership. This is an appropriate point in the meeting to deal with any final discussion or questions from shareholders. Are there any discussion or final questions? As there are no further discussions or questions, the meeting is now concluded. Thank you for attending today's meeting. You may now disconnect.