Canfor Corporation

Good morning. My name is Joanna, and I will be your conference operator today. Welcome to Canfor and Canfor Pulp's fourth quarter analyst call. All lines have been placed on mute to prevent any background noise. During this call, Canfor and Canfor Pulp's chief financial officer will be referring to a slide presentation that is available in the investor relations section of the company's website. Also, the companies would like to point out that this call will include forward-looking statements, so please refer to the press releases for the associated risks of such statements. I would now like to turn the meeting over to Mr. Don Kane, Canfor Corporation's President and Chief Executive Officer. Please go ahead, Mr. Kane.

Thank you, Operator, and good morning, everyone. Thank you for joining the Canfor and Canfor Pulp Q4 2023 Results Conference Call. I'm going to make a few comments before I turn things over to Kevin Edson, Canfor's Pulp President and Chief Executive Officer, and Pat Elliott, Chief Financial Officer of Canfor Corporation and Canfor Pulp. and our senior vice president of sustainability. In addition, we are joined by Kevin Pankratz, our senior vice president of sales and marketing. Before talking about our results, I'd like to begin by acknowledging our dedicated employees around the globe who have worked relentlessly to navigate the challenging marketing or market environment of 2023 to continue to improve our competitiveness and to deliver on our strategic priorities. CanForce achievements are only possible through the abilities and commitment of our people, and I'm extremely proud of the resilience they demonstrate every day. 2023 was a year of significant volatility. In addition to very difficult lumber markets, we also experienced extremely high log costs, reduced shipping volumes, and an extremely difficult operating environment, particularly in British Columbia, where conditions have been further exacerbated by a lack of access to economic fiber. This led to a series of difficult decisions taken to create a more sustainable operating footprint by optimizing and aligning our manufacturing capacity in British Columbia with the available long-term supply of economic fiber. Production at our BC operations was reduced by a total of 750 million board feet in 2023 through the permanent closure of our Chetwynd sawmill and temporary closure of our Houston sawmill as we look to firm up plans going forward. Late in 2023, we also announced a fiber driven temporary curtailment at our Polar sawmill, which began in January of 2024. The reconfiguring of CanCorp's operating portfolio in British Columbia underscores our commitment to fulfill our smaller but stronger operating footprint. We regret the impact that these closures and curtailments have had on our employees, our First Nations partners, small businesses, contractors and communities. I'd also like to thank the United Steelworkers Union for their partnership supporting our employees through the transition. 2023 was also a devastating wildfire season, with both BC and Alberta setting wildfire severity records. First and foremost, we recognize the lives tragically lost and extend our appreciation to the BC and Alberta wildfire services, emergency responders, and the many volunteers who kept people, communities, and infrastructure safe while helping to preserve provincial forest resources. The impact of wildfires on available timber supply is best mitigated by expedited salvage harvesting. We have had solid success with this in our Alberta operations, while in British Columbia, the slow approval process has resulted in a slower salvage operation. We will continue to work collaboratively with the BC government, First Nations and forest stakeholders in an effort to increase the supply of economic fiber. The challenges of 2023 underscore the importance and value of Canberra's globally diversified supply and customer base, with our operating footprint in the US, Europe, and Alberta, while maintaining a smaller but stronger presence in BC. Our diversified business portfolio creates resilience to changing market dynamics and fluctuations in demand, giving us access to new global markets and the resources, flexibility, and reliability to consistently provide our customers with competitive high-quality products. Despite the down cycle we're currently experiencing, we have made considerable progress on several strategic initiatives in 2023. Construction was complete on our first state-of-the-art greenfield facility in Derrida, Louisiana. It began operation in Q1 2023 and continues to outperform our startup expectations. Development of our Access Alabama second greenfield project is on budget and scheduled to start up at Q4 2024. Similarly, our brownfield project at the urbana Arkansas facility is progressing well 130 million dollar investment will increase production capacity there by 115 million for feet and improve manufacturing flexibility to accommodate additional high value products. At our European operations in October, we closed on the strategic acquisition of a small value-added facility in Ingarp and announced an investment of approximately $85 million at Vita's Brutha sawmill, which will expand production from 175 million more feet to 240 million. Turning to our financial results, and due to the ongoing affordability issues related to overall inflation and interest rate levels, our industry experienced a sharp decline in global lumber prices in 2023. Notwithstanding market dynamics and challenges in British Columbia, we generated solid financial results in Europe and the U.S. South in 2023, again highlighting the value of our diversification strategies. Despite this significant capital investment made in 2023, our balance sheet remains strong with over $350 million of net cash at the end of December, supporting continued reinvestment in our operations over the next several years. With our smaller but stronger footprint in British Columbia and the organic growth initiatives in the U.S. and Sweden, we anticipate a significant reduction in our performance cost structure, increased production capacity, and increasing geographic diversification. lumber prices are anticipated to remain under pressure in the short term our strategy is supported by the strong underlying market fundamentals over the medium to long term while we are prepared to remain patient until the right opportunities present themselves our balance sheet strength will support various external growth initiatives as we look to further grow lumber business globally and with that i will now turn it over to kevin to provide an overview of campbell

Thank you Don and good morning everyone. 2023 was a challenging year for Camp Fort Pol with our results reflecting weak global pulp pricing and the impact of extensive summer curtailments due to weak lumber market conditions and the lack of economically available fiber. As a result of persistent fiber supply challenges, we permanently closed our tailored facility in 2023 and made the difficult decision to close the pulp line at our print storage pulp paper mill in April of the year. I'd like to thank our employees for their dedication, perseverance, and commitment to safety as we responded to the external pressures facing our business. While these decisions were not taken lightly, they were required to support the long-term sustainability of Camp Fort Pol. Looking ahead, we remain focused on improving our operating performance and cost structure while optimizing the available fiber supply. Turning to our financial results, following the restart of Northwood in October, we saw a significant improvement in productivity rates at both our pulp mills, which supported improved results in the fourth quarter. As previously mentioned, we have identified a significant capital reinvestment plan at all our mills to further support productivity and reliability. Though we remain committed to this recapitalization, the timing and magnitude of spend is still to be determined and will be completed as market financial circumstances allow. As such, capital spending in 2024 will likely remain modest. I will turn it over to Pat to provide an overview of our financial results. Thanks, Kevin, and good morning. The Canfor and Canfor Pulse fourth quarter and 2023 annual results were released yesterday afternoon. In my comments this morning, I'll speak to the fourth quarter financial highlights, a summary of which is included in our overview slide presentation located in the investor relations section of Canfor's website. Our lumber business generated an operating loss of $162 million in the first quarter, which included a $30 million recovery of a previously recorded rate of inventory in Western Canada and a non-cash duty expense of $82 million related to our anti-dumping duty accrual rate. Adjusting for these non-cash items, our lumber business generated an operating loss of $111 million in the fourth quarter. These results reflect significant losses associated with our BC operations due to weak lumber pricing and persistently high log costs as we continue to be faced with challenges accessing economically viable fibre. Our US health operations saw a sharp decline in earnings in the fourth quarter, led principally by an 18% decline in the Southern Yellow Pine 2x6 benchmark lumber price quarter over quarter. Our European operations contributed $16 million in cash earnings in the fourth quarter, with increased production and shipments partly offsetting the impact of lower pricing. In 2023, our European operations contributed approximately $150 million in cash earnings, reinforcing the value of our diversification efforts over the last several years. Hanford Pulp generated an operating loss of $15 million in the fourth quarter, which included an $11 million recovery on its previously recorded inventory right now. On an adjusted basis, Canfor pulp generated an operating loss of $26 million in the fourth quarter, an improvement of $25 million quarter over quarter. These results largely reflect a moderate improvement in global pulp pricing and a 20% increase in pulp production in the fourth quarter. As Kevin mentioned, following Northwood's challenging restart in October, our pulp mills benefited from an improved operating rate through the balance of Q4. At the end of the fourth quarter, Canfor pulp had net debt of $86 million, and $147 million of available liquidity, of which $80 million is restricted for use towards future reinvestment in Northwood's recovery border number one. On a consolidated basis, capital expenditures were approximately $172 million in the fourth quarter, including approximately $22 million for Canthorpe Hall. Capital spending totals $587 million in 2023, of which $61 million was for anticipate capital spending of approximately 400 million dollars in the lumber segment in 2024 including remaining spend on our alabama alabama greenfield and various organic growth initiatives in the u.s south and sweden for camphor pulp we are currently forecasting capital spend of 40 million dollars in 2024 including capitalized maintenance in addition we anticipate camphor will continue to allocate a modest amount of capital to opportunistically repurchase I'll turn the call back for you.