Conifex Timber Inc. (CFF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Conifex Timber Inc. Annual General Meeting 2022 Call. I would now like to turn the meeting over to Mr. Ken Shields. Please go ahead.

Well, thank you very much, and welcome to our meeting, everyone. I'm Ken Shields, I'm the Chairman, CEO and President of Conifex, and in accordance with our bylaws, I will act as Chair. I will now call the meeting to order. Most of our shareholders are joining us today by teleconference instead of attending in person, and I'd like to thank those of you who have called in today. We asked for your questions to be submitted by e-mail prior to the meeting, and we will answer those questions, assuming there are some questions after the meeting. I'd next like to appoint Winny Tang, our Chief Financial Officer and Secretary; and Gary Gill of Sangra Moller as Recording Secretary; and Loretta Pataki of Computershare Investor Services as Scrutineer. Notice of meeting. I have a copy of the notice callings this meeting and an affidavit of mailing of [indiscernible] Computershare Trust Company of Canada. Since notice of the meeting has been circulated, I will dispense with the reading of the notice calling this meeting. In accordance with the Canada Business Corporations Act, the notice of meeting and record date was also published in the Globe and Mail newspaper on April 25, 2022. Quorum. The scrutineer's report indicates that there are 31 shareholders present in person or by proxy, holding 15.3 million shares, which represents just over 38% of the 40 million shares outstanding as of the record date. In accordance with the bylaws, I declare that a quorum of shareholders is present and this meeting is regularly and duly called and constituted and ready for the transaction of business. I now propose to deal with the business described in the notice. First of all, financial statements. The financial statements for the year ended December 31, 2021, and the company's auditor's report have been mailed to all shareholders who are entitled to receive copies. The next item is the election of directors. Ken Shield, Dave Roberts, Michael Costello, Janine North and Charlie Miller, are prepared to stand for election as directors and are being nominated for election. Each director will serve until the next Annual General Meeting of Shareholders, unless that Director resigns or until the director soon has ceased to hold office. Pursuant to the advanced notice provisions of our bylaws, there can be no further nominations put forward at this time. Accordingly, I declare nominations to be closed. I'll now make a motion for the election of the 5 nominees as directors on the following terms. Resolve that each of the nominees be and are hereby elected directors of Conifex to hold office until the next AGM unless the director's office is earlier vacated in accordance with the articles of the CBCA, or unless he or she becomes disqualified to act as a director. We will conduct a vote by ballot in respect of this resolution. The scrutineers has circulated ballot for this purpose. [Voting]

I see that the ballots have been tallied and the results show that management nominees have been elected as follows. Ken Shields, 15-plus million votes for; David Roberts, 11.7 million votes for; Michael Costello, 15 million votes for; Janine North, 11.8 million votes for; and Charles Miller, 11.8 million votes for. The next item is the appointment and compensation of Conifex's auditor. The Board wishes to reappoint PricewaterhouseCoopers for the ensuing year, and such firm has consented 2 or 3 appointment. I will now make a motion that PricewaterhouseCoopers be appointed as auditor of Conifex for the ensuing year and that the Board be granted their authorization to fix the remuneration. We will conduct a vote by ballot with respect to this resolution. The scrutineer has circulated ballots for this purpose. [Voting]

I see that the ballots have been tallied and the results show 14.1 million votes cast for the motion and 1.2 million votes withheld. As there's nothing else on the agenda for today's meeting. I will now make a motion for the meeting to be terminated. All present and in favor, signify by raising your hand. [Voting]

I declare the motion carried, and the meeting is terminated. Thank you for your attendance. We will now move on to questions submitted by shareholders, if any, prior to the meeting. Are there any questions that have been submitted?

Okay. Well, I would like to cover off an announcement. Earlier today, our Board met, we reviewed our progress through the second quarter of the year. We noted that as at May 31, we had approximately $32.9 million of cash on hand, which is up $18 million from our March results, and that our available liquidity comprised of cash on hand and amounts available under our revolving credit facility totaled $44.4 million. So we just declared a onetime special cash dividend of $0.20 per Conifex share, which will be paid on or before August 8, 2022 to shareholders of record July 15, 2022. This is a departure from our practice in last year where we implemented a substantial issuer bid. And the reason for it is a substantial issuer bids typically apply to companies that have an excess of $150 million of market capitalization. And if you don't meet that market cap test, you have less flexibility to move forward on that basis. So last year, we spent $9 million on a share [ buyback ]. Based on our results so far this year, we are distributing $8 million. And of course, as we progress through this third and fourth quarter of this year, we'll see if there is a justification for returning additional funds to shareholders either through a share buyback program, which would be a normal course issuer bid, or if lumber prices bounce back rapidly, there's also a possibility of some other dividends. So as I said earlier, this is the partial distribution of the strong cash flow that we generated through the first half of this year. We had full and complete capital expenditures related to maintaining our full compliance with safety requirements. Obviously, we always fund any project that's necessary for us to enhance or maintain our compliance with environmental sustainability. And on top of that, we always spend money to ensure that the performance and reliability of our sawmills. So all those capital budgeting items were topped up. I think many of you are aware that we also have an opportunity to look at a substantial modernization and upgrade program for our Mackenzie sawmill complex. But there's 2 important Ministry of Forests processes that are underway. One is looking at the future harvest level for the Mackenzie timber supply area. And of course, when you look at the future harvest level, you will also have to decide on what the mix is of harvest between green and salvaged sawlogs. And then following these harvest level redeterminations is typically an apportionment decision, which is essentially -- the outcome is an allocation as to who of the operators in the region have what level of tenure. So we currently have roughly 30% of tenure in the timber supply area, and we hope that, that volume is retained going forward. So we're very pleased that we had the opportunity to share some of the superb results with our shareholders. And we look forward to hearing from the Ministry as to what the outcome is on these 2 important process that are underway. So against that backdrop, I think that I will conclude my comments at this time I'll turn it back to Michael to see if there's any questions on the line, or if anyone here in Vancouver has questions, now it's the time to put them forth.

We have a question here, Michael.

Certainly.

You have enough paid up capital. Why are you paying it out as a dividend versus a return of capital?

I'm not sure of the answer to that. Winny, Gary, do you want to add?

Yes. I think the folks have looked at it, and we can provide you with more details on PwC in the room.

With who?

Pricewaterhouse. And we can bring useful information on that by some of the Pricewaterhouse peers.

And we have over 1 million shares, all of a sudden paying tax on [ $0.20 ] dividends and $200,000, you're paying tax on, whose return to capital, you'd be paying 0 tax, and you certainly have the capacity to pay the money out on return on capital because you paid the capital as substantial now.

Yes. Well, that's a good point. And [indiscernible] thank you for that comment, and we will certainly investigate that fully as we move forward through the balance of this year and next year. Any other questions on the line?

[Operator Instructions] There are no questions from the phone lines at the moment, Mr. Shields.

Okay. Well, thank you very much, operator, and thank you, everyone, for attending our call today, and we look forward to speaking to many of you on August 9, I believe it is, when we have the next call covering our Q2 results. So enjoy the rest of the day, everyone. Thank you.

Thank you. Ladies and gentlemen, your conference has now ended. All callers are asked to hang up their lines at this time, and thank you for joining today's call.