Canfor Corporation

Good morning, my name is Michelle and I will be your host today. Welcome to Canfor Corporation's second quarter analyst call. At this time, all lines have been placed to mute to prevent any background noise. A Q&A session will be available after today's presentation. During this call, Canfor'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 release for the associated risk of such statements. I would now like to turn the meeting over to Susan Yurkovich, Campus Corporation President and Chief Executive Officer. Please go ahead, Susan.

Thanks, Michelle. Good morning, everyone. Thanks for joining our Q2 results conference call. I'll start off with a few comments before I turn things over to Pat Elliott, CAMFORCE Chief Financial Officer. I'm also joined by Stephen MacKie, our Chief Operating Officer, Kevin Pankratz, our Senior Vice President of Sales and Marketing, and Brian Yuen, our Vice President of Pulp and Paper Sales, who are available and can help with questions following our remarks. Our lumber business generated solid EBITDA in the second quarter with improved pricing driven by leaner inventories, industry capacity rationalizations over the last several years. and ongoing transportation constraints in the US South. While supply reductions have supported lumber pricing in 2026, we do remain cautious on our near-term outlook as demand continues to be impacted by global economic uncertainty, ongoing trade disputes and persistent affordability challenges. Pulp markets also remain under significant pressure with elevated inventories and a structural shift in market dynamics contributing to weak pricing over the last several quarters. Despite these headwinds, we are seeing improvements in our underlying performance, supported by the significant changes we've made to our operating platform over the last several years. While we're encouraged by our second quarter results, we remain focused on strengthening our platform and positioning the business to navigate the challenges facing our industry. As part of these efforts, we recently announced the closures of our Northwood pulp mill later this year, along with two sawmills in Sweden and our Fox Creek sawmill in Alberta. These are incredibly difficult decisions that impact our employees, their families, and our local communities. We've made changes across our platform that are gut-wrenching, but we are putting our business on a more sustainable footing. The changes will allow us to utilize the economically viable fiber supply across our operating regions more effectively and support a stronger, more competitive platform going forward. In the case of Northwood, reducing our pulp capacity will improve our cost structure Lower our capital intensity and enhance the long-term competitiveness of our intercom facility and specialty paper business, which continues to perform well. In our lumber business, the closure of Urschel, Orphor and along with Fox Creek Sawmills will allow us to optimize fiber procurement efforts, support our cost structure and overall profitability as we concentrate production and fewer more productive facilities. As we optimize our operating platform, we're also investing in higher value opportunities. Earlier this month, we completed the acquisition of Pinkwood, which we believe will strengthen our asset base in Western Canada, further diversify our earnings profile through increased exposure to value-added products. Taken together, these actions reflect our continued focus on building a stronger, more resilient company positioned to create long-term value through the cycle. With that, I'll turn it over to Pat to provide an overview of our financial results.

Thanks, Susan, and morning, everyone. In my comments this morning, I'll speak to our second quarter financial highlights, and as always, a summary of this is included in our overview slide presentation in the investor relations section of our website. Our lumber business generated adjusted EBITDA of $145 million in the second quarter, $116 million higher than the previous quarter. These results have been adjusted to exclude one-time items totaling $16 million, comprised of restructuring and impairment charges, net of a $7 million recovery of previously recorded inventory write-downs. Results included $37 million of adjusted EBITDA in our European lumber business, reflecting moderately higher pricing, increased shipments, and modest log cost relief. In North America, improved lumber pricing, increased volume, and cost structure improvements supported solid earnings, particularly in the US South. Our pulp and paper business reported adjusted EBITDA loss of $12 million, $4 million lower than the prior quarter, reflecting the impact of planned maintenance downtime and weakness in global pulp markets. As Susan mentioned, we announced the closure of our Northwood pulp mill later this year, driven by a structural shift in pulp market fundamentals and Challenges Securing Economically Viable Fibre Supply. As a result, we anticipate recording restructuring costs of approximately $30 million in the third quarter. In addition, we announced the closure of our Fox Creek Sawmill due to challenging market conditions, elevated duties and declining fibre availability in the region. As a result, we anticipate recording an asset write-down and impairment charge of approximately $35 million also in the third quarter. Turning to our balance sheet, Canfor ended the second quarter with available liquidity of approximately $1.2 billion and net debt excluding the duty loan of $316 million. Available liquidity improved by $215 million in the second quarter, supported by solid earnings and a seasonal working capital unwind. We anticipate capital spend of approximately $210 million in 2026, including approximately $35 million for our pulp business, and the remaining spend associated with our Bruiser facility in Sweden and our Iron Mountain facility in Arkansas. Following completion of these projects, capital spend will moderate supported by our strong lumber platform and right-sized pulp footprint. And with that, Michelle, we are now ready to take questions from the analysts.