Canfor Corporation

Good morning, my name is Joanna and I will be your conference operator today. Welcome to Canfor and Canfor Pulp's third 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, 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 Pulse Q3 2024 results conference call. I'm going to make a few comments before I turn things over to Pat Elliott, our Chief Financial Officer of Canfor Corporation and Canfor Pulse, and our Senior Vice President of Sustainability. In addition, we are joined by Kevin Pankratz, our Senior Vice President of Sales and Marketing. As you know, Canva has been focused on building on its globally diversified operating platform by increasing our footprint in Alberta, the US, South, and Europe while maintaining a reduced presence in British Columbia. This quarter, we've made some additional difficult decisions in British Columbia, announcing the closure of our Plateau and Fort St. John operations in Northern BC. Combined with previous announcements, these closures will remove 1 billion ore feet of annual production capacity from our BC operations. These decisions were driven by the persistent challenge in accessing economically viable fiber in northern BC, which is not improving. This challenge was further exacerbated by the increase in US tariffs, which are expected to double again next year. Despite the challenges in the BC Interior, our Kootenai operations continue to perform well, supporting our specialty product and value-added focus, including key high-margin products such as MSR, J-grade and Home Center grades. In Alberta, despite weak North American lumber pricing, our operations continue to provide positive earnings in Q3. In the US South, our focus was on executing on our capital plan. Today, our sawmill operations in our new facility in Axis, Alabama began production. When the planer mill is completed later this year, we expect the first shipment of finished lumber. The new sawmill will have an annual capacity of 250 million board feet on a two-ship basis. Our mobile plant ceased operations earlier this month with decommissioning being conducted throughout the remainder of 2024. The acquisition of the former Resolute Eldorado Mill in Arkansas, now called Iron Mountain, was completed on August 1. The Urbana upgrade project is in its final phase with startup last month and ramping up production in Q4. This project will increase capacity to 285 million board feet. With respect to VIDA, although our results were marginally better than expected, 2024 has been challenging with log costs continuing to On our financial results, our lumber business in North America recorded significant losses in the third quarter due to persistently weak lumber prices, increasing duties, and a lack of available economic fiber in British Columbia. Notwithstanding increasing log costs combined with seasonal downtime, our European operations generated positive operating income in the third quarter. While global lumber demand remains tepid in the short term, lumber prices have steadily increased over the last several weeks. With interest rates beginning to normalize, we anticipate affordability to gradually improve through 2025, which should support higher pricing into next year. While we anticipate a challenging fourth quarter, we believe our lumber business is well positioned to capitalize on improving market conditions over the medium to long term, supported by several significant capital investments nearing completion in the U.S. South, closures of certain high-cost assets across North America, and our strong European plan. With respect to pulp, on an adjusted basis our pulp business generated improved financial results in the third quarter, supported by higher sales realizations. Pulp production was modestly lower than the previous quarter, with our Northwood mill successfully transitioning to a one-line operation in August. While Canfora Pulp continues to navigate the uncertainty associated with fiber supply in British Columbia, we have seen improved operating results over the last several quarters and remain focused on improving our cost structure going forward. I will now turn it over to Pat to provide an overview of our financial results.

Thanks, Don, and good morning, everyone. In my comments this morning, I'll speak to our third quarter financial highlights, a summary of which is included in our overview slide presentation located in the investor relations section of Canfora's website. As Don mentioned, this was a challenging quarter, with our lumber business generating an operating loss of $336 million. These results include an asset write-down and impairment charge of $100 million, non-cash duty-related adjustments of $121 million, and several other items recorded in the third quarter. Adjusting for these one-time items, our lumber business generated an operating loss of $129 million, compared to a similarly adjusted loss of $115 million These results continue to reflect the impact of weak North American lumber markets, particularly for southern yellow pine, as well as an elevated cost structure due to significant production curtailments in North America, seasonal downtime in Europe, and losses associated with certain high-cost operations in British Columbia. We anticipate an improvement in our underlying cost structure following the orderly wind down of several B.C. sawmills later this year. In addition, with several major capital projects in the U.S. South nearing completion, we anticipate a gradual improvement in our unit cost structure as this low-cost capacity begins to ramp up throughout 2025. Turning to our pulp business, Camphor Pulp generated an operating loss of $209 million, including a $211 million asset write-down and impairment charge. On an adjusted basis, CAM4 Pulp generated an operating income of $2 million, an improvement of $7 million from the previous quarter, largely driven by approved pulp unit sales realizations. In total, we reduced the net book value of our lumber and pulp assets in BC by approximately $311 million, reflecting the right sizing of our operating footprint and balance sheet as a result of recent closure announcements and the reduced availability of economic fiber supply in the province. At the end of the third quarter, CAMFOR PULP had net debt of $68 million and $85 million of available liquidity, excluding a term loan commitment of $80 million related to a potential reinvestment in Switzerland. CAMFOR, excluding CAMFOR PULP and the $314 million duty deposit loan completed in late September, ended the third quarter with net cash of approximately $330 million. On a consolidated basis, capital expenditures were approximately $117 million in the quarter, including $18 million for Camp Port Paulding. We anticipate capital spend of approximately $450 million in the lumber segment in 2024, including the remaining spend on our Alabama Greenville, as well as various growth initiatives in the U.S. South and Sweden. We anticipate a significant reduction in our capital spend in 2025, following the completion of these three major projects. For CAMFOR PULT, we are currently forecasting capital spend of approximately $50 million in 2024, including capitalized maintenance. In addition, we anticipate CAMFOR will continue to allocate a modest amount of capital to opportunistically repurchase shares. And with that, Don, I'll turn the call back to you.