Canfor Corporation

Good morning. My name is Ina and I will be your conference operator today. Welcome to Canfor and CanforPulse second quarter analysis call. Online submissions to prevent any background noise. During this call, Canfor and CanforPulse 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 Q2 2024 results conference call. I'm going to make a few comments before I turn things over to Kevin Edson, Canfor Pulp's President and Chief Executive Officer, and Pat Elliott, our Chief Financial Officer of Canfor Corporation and Canfor Pulp, and our Senior Vice President of Sustainability. In addition, we are joined by Kevin Pankratz, Senior Vice President of Sales and Marketing, and David Trent, our SVP of Supply Chain, Transportation and Digital, Before touching on markets, I'll share a few Q2 business updates. As you know, over the past decade, Canberra has been focused on building its globally diversified operating platform by increasing our footprint in Alberta, the US South and Europe, while working towards a smaller but stronger presence in British Columbia. To that end, during Q2, we made some difficult decisions with respect to our BC operations, including the permanent closure of our polar sawmill in the Prince George area and the suspension of plans to reinvest in a new Houston sawmill. Operating conditions in British Columbia remain extremely challenging as we continue to face persistent and significant constraints accessing economically viable funds. Coupled with current market conditions, we have taken steps to reduce our summer operating schedules by 90 million board feet. Despite BC's challenges, our Kootenai operations have performed well as they support our high-value product focus serving geographical diversified markets. With BC's high-cost operating environment, depressed North American lumber markets and expected increased export duties next month, we will continue to evaluate and adjust our BC operating rates to mitigate ongoing losses. In Alberta, we continued to generate positive operating income in Q2, supported by favorable log costs and strong operating results. We continue to see progress in productivity, uptime, and great improvement there. In the US South, in April, we announced a decision to permanently close our aging Jackson, Alabama mill, which was completed mid-June. This action was taken as part of our continued focus on restructuring, consolidating and expanding our production at modern facilities in regions with strong fiber baskets. Our Access Alabama Greenfield project is proceeding well as we work towards startup in the fourth quarter. On commissioning of this facility, our existing sawmill in Mobile, Alabama will close. These investments and strategic consolidation of our Alabama operations will strengthen our long-term position at well-capitalized, highly efficient facilities that are positioned to be competitive for the long term. Our pending acquisition of El Dorado, Arkansas is expected to close imminently, and after a planned U.S. $50 million capital investment will grow to a $175 million boardfoot facility over the next several years. Complementing our existing assets in the region, this acquisition will create synergies and vertical integration opportunities as we grow our footprint with top quartile operations. I also want to highlight our European operations, which continue to deliver strong earnings this quarter, largely tied to solid activity and improved market pricing. Our beta operations benefit from market optionality, and with their focus on specialty products, are able to differentiate themselves from competitors' commodity markets. I'll also touch on two issues that we're closely watching and preparing for. The first is disruption to our supply chains, particularly with the shutdown of CN's main line due to the Jasper wildfire, as well as the potential for a Canadian rail strike involving both Canadian National and Canadian Pacific, Kansas City Southern. With rail making up approximately 50% of Canfor and Canfor Pub's combined transportation capacity, the stability and reliability of Canada's two major railways is of significant concern. We're planning mitigating actions to ensure that our businesses are in the best possible position should a rail labor disruption occur. The second is the ongoing softwood lumber dispute and the increased duty environment. In February this year, the U.S. Department of Commerce announced preliminary rates for the fifth period of review, which we anticipate will rise considerably when they go into effect in August. As of the end of Q2, Canfor has paid cumulative cash deposits of $956 million. This quarter posed considerable challenges for our lumber business. While we continue to believe market fundamentals remain solid for the medium to long term, we anticipate lumber markets to remain challenging for the balance of the year. Notwithstanding current lumber market dynamics, solar results in Europe and Alberta highlight the value of our diversification strategy. We have started to see improvements in our underlying cost structure following recent capital investments and the decisions to restructure our lumber platform. We believe these decisions will allow us to capitalize on solid market fundamentals for the long term and provide a stronger platform going forward. I will now turn it over to Kevin to provide an overview of Canfor Pulse.

Thank you, Don, and good morning, everyone. Canfor Pulse generated solid financial results in the second quarter, with strong global pulp pricing more than offsetting the impact of lower production. On the back of global supply disruptions and producer downtime, health pricing in China was up 9% in the second quarter, with more pronounced increases seen in North America and Europe. While a portion of this price increase will be realized in our third quarter results, improved pricing contributed to a $16 million improvement in cash earnings quarter over quarter, before taking into consideration restructuring costs. Turning to our operating performance, our results reflected the impact of a scheduled maintenance outage at Intercon, combined with the unplanned downtime to accommodate repairs to Intercon's recovery boiler. While pulp production was down 18% quarter over quarter, operating rates improved in June and have returned to normalized levels in July. In May, we announced the decision to indefinitely curtail one production line at our Northwood MBSK pulp mill due to a lack of economically available fiber in northern BC. The containment is anticipated to commence in August. We regret the impact these decisions have on our employees, their families, and the local community, and I'd like to thank our employees for their unwavering commitment and perseverance as we respond to the external pressures facing our business. I will now turn it over to Pat to provide an overview of our financial results.