Q1 2024 Western Forest Products Inc Earnings Call

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Operator: This conference is being recorded. All participants, please stand by; your conference is, Good morning, ladies and gentlemen, welcome to the Western Forest Products first quarter 2024 results conference. During this conference call, Western's representative may make forward-looking statements within the meaning of applicable securities. These statements can be identified by the words anticipate, plan, estimate, will, and other references to the future. Although these forward-looking statements reflect management's reasonable beliefs, expectations, and assumptions, they are subject to inherent uncertainties, and actual results may differ.

Good morning, ladies and gentlemen, welcome to the Western Forest products first quarter 2024 results Conference call. During this conference call Western's with business. It is it makes for a good statement within the meaning of applicable securities laws. These statements can be identified by the words like anticipate plan estimate will and other English.

Operator: There are many factors that could cause actual outcomes to the different, including those factors described under risk and uncertainties in the company's annual and, Which can be accessed on CDAR and is supplemented by the company's quarterly and Forward-looking statements are based only on information currently available to Western and speaks only of the date of which they are, Except as required by law, Western undertakes no obligation to update forward-looking Accordingly, listeners should exercise caution in relying upon forward-looking, I would now like to turn the meeting over to Mr. Stephen Offer, President and CEO of Western Forest Products. Mr. Offer.

Stephen Williams: Answers to future periods.

Stephen Williams: Although these forward looking statements reflect management's reasonable.

Stephen Williams: Beliefs expectations and assumptions they are subject to inherent uncertainties and actual results may differ materially.

Stephen Williams: There are many factors that could cause actual outcomes to different including those factors described under risks and uncertainties in the company's annual MD&A, which can be accessed on SEDAR and as supplemented by the company's quarterly MD&A.

Stephen Williams: Forward looking statements are based on information currently available to western and speak only of the date of which they are made except as required by law Western undertakes no obligation to update forward looking statements.

Stephen Williams: Accordingly listeners should exercise caution in relying upon forward looking statements I would now like to turn the meeting over to Mr. Sheehan, President and CEO of Western Forest products. Mr. Ofer. Please go ahead.

Stephen Williams: Thank you, Carl, and good afternoon, everyone. I'd like to welcome you to Western Forest Products' 2024 first quarter conference call. Joining me on the call today is Stephen Williams, our Executive Vice President and Chief Financial Officer; Bruce Alexander, our Senior Vice President of Sales, Marketing, and Manufacturing; and Glen Nontell, our Vice President of Corporate Development.

Stephen Williams: Thank you Carl and good afternoon, everyone.

Stephen Williams: I'd like to welcome you to Western Forest Products' 2024 first quarter conference call.

Stephen Williams: Joining me on the call today is Steven Williams, our executive Vice President and Chief Financial Officer.

Stephen Williams: Bruce Alexander our senior Vice President of sales marketing and manufacturing.

Stephen Williams: And Glenn <unk>, our vice President of corporate development.

Stephen Williams: We issued our 2024 first quarter results yesterday. I will provide you with some introductory comments and then ask Steve to take you through our financial results. I will follow Steve's review with our Outlook section before we open the call to your questions.

Stephen Williams: We issued our 2024 first quarter results yesterday.

Stephen Williams: I will provide you with some introductory comments and then ask Steve to take you through our financial results.

Stephen Williams: I will follow Steve's review with our outlook section before we open the call to your questions.

Stephen Williams: We continue to face softer market conditions in the first quarter of 2024. Despite this, we remain optimistic in our ability to manage through the current markets and advance our strategic priorities. During the quarter, we continued to demonstrate our commitment to First Nation relationships and partnerships. This included completing the sale of a 34% interest in our Mid-Island Forest operation to four local First Nations for $35.9 million. And releasing a draft for public comment of the first forest landscape plan in British Columbia for TFL 37.

Stephen Williams: We continue to face softer market conditions in the first quarter 2024.

Stephen Williams: Despite this we remain optimistic in our ability to manage through the current markets and advance our strategic priorities.

Stephen Williams: During the quarter, we continued to demonstrate our commitment to first nation relationships and partnerships.

Stephen Williams: This included completing the sale of a 34% interest in her mid island Forest operation two four local first nations for $35 $9 million.

Stephen Williams: And releasing a draft for public comment of the first forest landscape plan in British Columbia for Tfl 37.

Stephen Williams: The plan was developed in collaboration with the Numgees First Nation and provides the opportunity for greater certainty for a stable long-term fiber supply within TFL-37. We were also successful in accelerating our transition to higher value products. This included commissioning the first continuous kiln on the BC coast at our Salt Air Sawmill. This project was completed on budget and will support increased production of higher-valued products. In the first month since commissioning the kiln, it has operated at 97% efficiency and exceeded our target EBITDA returns on an annualized basis. We also advance pre-engineering and permitting related to two previously announced continuous kilns on Vancouver Island. These two kilns are expected to be completed in 2025 at a total cost of approximately $35 million.

Stephen Williams: The plan was developed in collaboration with the <unk> first nation and provides.

Stephen Williams: The opportunity for greater certainty for a stable long term fiber supply within Tfl 37.

Stephen Williams: We were also successful in accelerating our transition to higher value products. This included.

Stephen Williams: Commissioning the first continuous kilns on the BC coast at our Salt Aerosol mill.

Stephen Williams: Project was completed on budget and will support increased production of higher valued products.

Stephen Williams: In the first month since commissioning the kill it has operated at 97% efficiency and exceeded our target EBITDA returns on an annualized basis.

Stephen Williams: We also advanced pre engineering and permitting related to two previously announced continuous kilns on Vancouver Island. These.

Stephen Williams: These two kilns are expected to be completed in 2025 at a total cost of approximately $35 million.

Stephen Williams: We remain very focused on health and safety and internal initiatives to support driving improved profitability in our business. In our Timberlands group, this has included improving the stratification of our specialty log sorts, such as pole and peeler logs, to support incremental margin. In our manufacturing group, we are continuing to focus on operational uptime and reliability, and we achieved uptime rates ahead of target in the first quarter.

Stephen Williams: We remain very focused on health and safety and internal initiatives to support dry it driving improved profitability in our business.

Stephen Williams: In our Timberlands group. This has included improving the stratification of our specialty log sorts, such as Paul and Peter logs to support incremental margin.

Stephen Williams: In our manufacturing group, we're continuing to focus on operational uptime and reliability.

Stephen Williams: And we achieved uptime rates ahead of target in the first quarter.

Stephen Williams: In our sales and marketing group, we are focused on a customer strategy that delivers mutual benefit for Western and our partner customers. This has included growing key strategic accounts while developing value-added products and programs targeted with the end user in mind. We continue to grow the demand for our key product categories, which include cedar-finished, value-added products, Hemlock and Douglas fir products targeted at Japan's traditional home and non-residential sectors.

Stephen Williams: And our sales and marketing groups, we are focused on our customer strategy that delivers mutual benefit for western and our partner customers.

Stephen Williams: This has included growing key strategic accounts, while developing value added products and programs targeted with the end user in mind.

Stephen Williams: We continue to grow the demand for our key product categories, which include Cedar finished value added products.

Stephen Williams: Hemlock and Douglas fir products targeted at the Japan traditional home and nonresidential sectors.

Stephen Williams: Hemlock and Douglas fir timber and industrial programs hemlock.

Stephen Williams: Hemlock Treating Program, Programs and Products, and Lambstock and Glue Lamb for the Stock Beam and Custom Market. In our Commodity Lumber segment, we continue to target Square Edge and ProSales in treating, retail, and MSR products, that typically sell at a premium above regular dimension channels. That premium spread has been widening recently given reduced availability in other regions, resulting in customers willing to pay more for access to our supply. While near-term lumber market performance is expected to be product-line dependent, we remain optimistic in our ability to weather the current market. We remain very focused on maintaining a strong balance sheet in the near term. I will now turn it over to Steve to review our key financial results. Thanks.

Stephen Williams: Hemlock treating program programs and products and Lam stock and glue Lam for the stock beam and custom markets.

Steve: In our commodity lumber segment, we continue to target square edge and pro sales and trading retail and MSR products that typically sell at a premium above regular dimension channels.

Steve: That premium spread has been widening recently given reduced availability in other regions, resulting in customers willing to pay more for access to our supply.

Steve: While near term lumber market performance is expected to be product line dependent we remain optimistic in our ability to manage through the current markets.

Steve: We remain very focused on maintaining a strong balance sheet in the near term.

Stephen Williams: I will now turn it over to Steve to review, our key financial results. Thanks, Steven.

Stephen Williams: First quarter adjusted EBITDA was negative $4.2 million as compared to negative $5 million in the same period last year. However, results in the first quarter of 2024 benefited from a stronger sales mix. Higher domestic log shipments and lower stumpage and freight expenses. However, this was offset by lower lumber prices in certain segments, lower lumber shipments, and higher secondary processing costs due to a stronger mix of specialty volume. Our shipment volumes to Japan continue to remain strong and were almost doubled compared to the same period last year. Our engineered wood products business continues to perform well, generating another strong quarter of results.

Steve: First quarter, adjusted EBITDA was negative $4 $2 million as compared to negative $5 million in the same period last year.

Stephen Williams: Results in the first quarter of 2024 benefited from a stronger sales mix.

Stephen Williams: Domestic log shipments and lower stumpage and freight expense.

Stephen Williams: This was offset by lower lumber prices in certain segments.

Stephen Williams: Lower lumber shipments and higher secondary processing costs due to a stronger mix of specialty volumes.

Stephen Williams: Our shipment volumes to Japan continued to remain strong and we're almost doubled compared to the same period last year.

Stephen Williams: Our engineered wood products business continues to perform well generating another strong quarter of results since acquiring Calvert in August 2022, we have generated EBIT of approximately $10 million, implying a payback on our investment of under three years.

Stephen Williams: Since acquiring Calvert in August of 2022, we have generated EBIT of approximately $10 million, implying a payback on our investment of under three years. We closed the first quarter with 84 million board feet of lumber inventory and 749,000 cubic meters of log inventory. Turning to CapEx and cash flow, we have reduced our 2024 total CapEx plan by approximately $15 million and now expect 2024 CapEx to be approximately $50 million. This includes approximately $13 million related to our two previously announced continuous dry kills.

Stephen Williams: We closed the first quarter was 84 million board feet of lumber inventory and 749000 cubic meters of log inventory.

Stephen Williams: Turning to Capex and cash flow we.

Stephen Williams: We have reduced our 2020 for total Capex plan by approximately $15 million and now expect 2020 for Capex to be approximately $50 million. This includes approximately $13 million related to our two previously announced continuous dry kilns.

Stephen Williams: We are currently refining our CapEx timeline related to the new kilns, and some of this CapEx spending in 2024 may be delayed to 2025. We received $35.9 million in the first quarter from the sale of a 34% ownership interest in our Mid-Island Forest operation, and we expect to receive an income tax refund of approximately $23 million in the second or third quarter of 2024. From a balance sheet perspective, we ended the first quarter with liquidity of approximately $142 million and a net debt-to-cap ratio of 13%.

Stephen Williams: We are currently refining our capex timeline related to the new kilns and some of this capex spending in 2024 may be delayed to 2025.

Stephen Williams: We received $35 $9 million in the first quarter from the sale of a 34% ownership interest in our mid island Forest operation.

Stephen Williams: And we expect to receive an income tax refund of approximately $23 million in the second or third quarter of 2024.

Stephen Williams: From a balance sheet perspective.

Stephen Williams: We ended the first quarter with liquidity of approximately $142 million and a net debt to cap ratio of 13%.

Stephen Williams: At the end of March, we had $228.5 million in duties on deposit, which equates to approximately $0.53 per share after tax. Therefore, our book value is $1.83 per share at the end of March, relative to the current share price of approximately $0.53 per share.

Stephen Williams: At the end of March we had $228 $5 million in duties on deposit, which equates to approximately 53 cents per share after tax our book value was $1 83 per share at the end of March relative to the current share price of approximately 53 cents per share.

Stephen Williams: Turning to second quarter seasonality, typically, in the second quarter, our harvest volumes increase as snow recedes, and we expand operations across the entire timber harvesting land base. As our harvest activity moves further up hillsides, our costs tend to rise as steeper and more difficult terrain increases the harvesting complexity. From a market perspective, North American lumber consumption typically increases as we move into a more active spring season. We plan to continue to match production to market demand. Stephen, that concludes my comment. Thanks, Steve.

Stephen Williams: Turning to second quarter seasonality.

Stephen Williams: Typically in the second quarter, our harvest volumes increase as snow recedes, and we expand operations across the entire timber harvesting land base as our harvest activity moves further up hillsides, our costs tend to rise as steeper and more difficult terrain increases harvesting complexity.

Stephen Williams: From a market perspective, North American lumber consumption typically increases as we move into more active spring season, we plan to continue to match production to market demand.

Stephen Williams: Stephen that concludes my comments.

Stephen Williams: Thanks, Steve so turning to our market outlook.

Stephen Williams: We are seeing some near-term positive signs of improving demand and prices for certain lumber products. However, in the second half of 2024, demand will vary based on product lines and be dependent on global macroeconomic conditions.

Stephen Williams: We are seeing some near term positive signs of improving demand and prices and certain lumber products.

Stephen Williams: However, in the second half of 'twenty 'twenty four it will vary based on product lines that would be dependent on global macro or macroeconomic conditions.

Stephen Williams: Cedar demand and prices for timber and premium appearance products are expected to remain stable, and demand and prices for decking products are firming up as we head into the spring. Cedar demand for trim and fencing products is expected to remain soft until market inventory rebalances. In Japan, we anticipate quarterly lumber volumes to remain similar to those achieved in the first quarter of 2024. Lumber prices are expected to remain stable but may be impacted by weakness in the Japanese Yen to U.S. dollar exchange rate.

Stephen Williams: Cedar demand and prices for timber in premium at parents products are expected to remain stable.

Stephen Williams: And demand and price for decking products are firming up as we head into the spring.

Stephen Williams: Cedar demand for trim and fencing products are expected to remain soft until market inventory rebalancing.

Stephen Williams: In Japan, we anticipate quarterly number volumes to remain similar to those achieved in the first quarter of 2024.

Stephen Williams: Lumber prices are expected to remain stable, but may be impacted by weakness in the Japanese yen to U S dollar exchange rate.

Stephen Williams: Demand for our industrial lumber products will be product line specific but is expected to remain stable over the near term. North American demand and prices for our commodity products are expected to marginally improve over the remainder of the second quarter but are expected to remain volatile through the second half of 2024. In China, lumber demand and prices may slightly weaken as we progress through 2024. Overall, we currently have a second quarter order file of approximately 137 million boards. Looking ahead, we remain focused on returning our business to profitability while executing on our strategic priorities and maintaining a strong balance sheet. With that, Operator, we can open the call to questions.

Stephen Williams: Demand for our industrial lumber products will be product line specific but are expected to remain stable over the near term.

Stephen Williams: North American demand and prices for commodity products are expected to marginally improve over the remainder of the second quarter.

Stephen Williams: But are expected to remain volatile through the second half of 2024.

Stephen Williams: And China lumber demand and prices may slightly weaken as we progress through 2024.

Stephen Williams: Overall, where we're currently have a second quarter order file of approximately 137 million board feet.

Stephen Williams: Looking ahead, we remain focused on returning our business to profitability, while executing on our strategic priorities and maintaining a strong balance sheet.

Stephen Williams: With that operator, we can open the call up to questions.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1 on your device's keypad. When prompted by the system, please clearly state your name to register your question. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a The first question is from:

Speaker Change: Thank you we will now take questions from the telephone line. If you have a question. Please press star one on your devices keypad when prompted by the system. Please clearly state your name to register your questions.

Operator: You may cancel your question at any time by pressing star two.

Operator: Please press star one at this time, if you have a question.

Operator: The first question is from.

Operator: Okay.

Hamir Patel: Amir Patel please.

Speaker Change: Please go ahead.

Amir: Hi, good afternoon. Steve and Stephen, I'm just, you know, thinking through the outlook you've given. It's been a couple quarters now of negative E, but based on what you're seeing in April, do you think you're set up to get back to positive EVDA from Q2?

Speaker Change: Hi, good afternoon.

Speaker Change: Steve and Steven I'm, just you know.

Amir: Thinking through the outlook, you've given it's been a couple quarters now of negative EBITDA.

Amir: Based on what you're seeing in April do you think your.

Amir: Set up to get back to positive EBITDA from Q2.

Steve: Hi, Amir. It's Steve here. I think, as we indicated, the markets have been a little bit firmer in our outlook and highlighted some progress, I think, on the order file type of thing. So, you know, give guidance specifically around EBITDA, but I think, you know, again, things are trending positive.

Amir: Hi, it's Steve here I think as we indicated.

Steve: You know the markets have been a little bit firmer in our outlook and are highlighted.

Steve: You know some progress I think on order file type of thing So we don't give guidance specifically.

Steve: Around EBITDA, but I think.

Steve: Again things are trending positive leasing.

Stephen Williams: Thanks. Thanks, Steve. That's helpful. And, you know, we've seen one of your peers on the West Coast undergoing some restructuring. What do you think the potential impact could be for your end market?

Amir: Thanks, Thanks, Steve that's helpful and you know we've seen I'm wondering if you're at your peers on the West coast are undergoing some.

Stephen Williams: Some restructuring.

Amir: Do you think the potential impact could be for your at your end markets.

Stephen Williams: Well, we've known Dick and Tom a long time, and we have a high degree of respect for their entrepreneurial spirit and how they run their business. Obviously, the news is unfortunate, and we hope the best for all those affected. You know, from our standpoint, we really believe that having a...

Stephen Williams: Well we've known.

Stephen Williams: <expletive> and Tom a long time, and we have a.

Stephen Williams: A high degree of respect for their entrepreneurial spirit and how they run their business.

Stephen Williams: Obviously, the news is unfortunate and we hope.

Stephen Williams: The best for all those impacted.

Stephen Williams: You know from our standpoint, we really believe that having a.

Stephen Williams: A robust primary sawmilling industry is important to the long-term success of the BC coast. We do have some product overlap in Western Red Cedar, and we do buy and sell logs with Teal Jones. Currently, we don't have any material financial exposure to their process. But yeah, we're certainly aware of their situation and hoping for the best as they go through their process, and once they're back up and running, we'll re-engage and be a strong business partner with them as we have in the past.

Stephen Williams: Robust primary saw milling industry is important to the long term success of the B C coast.

Stephen Williams: We do have some product overlap and western Red Cedar and and we do buy and sell logs with a T. L. Jones currently we don't have any.

Stephen Williams: Material financial exposure to their process.

Stephen Williams: But yeah we're.

Stephen Williams: We're certainly are aware of the situation in and hoping for the best as they go through their process and and once they're back up and running we'll we'll reengage an M B a.

Stephen Williams: As you know a strong business partner with them as we have in the past.

Unknown Speaker: Great. Thanks, Stephen. That's all I had. I'll turn it over to you. Thank you.

Speaker Change: Great. Thanks, Stephen that's a totally idle I'll turn it over.

Speaker Change: Thank you.

Operator: The next question is from:

Speaker Change: The next question is from <unk>.

Jon Stewart: Jon Stewart.

Speaker Change: Please go ahead.

Sean Steuart: Hi guys, good afternoon. A few questions. With Albany Pacific curtailed now, I think the wording is still exploring options for the property, and I guess selling a property could be one of those options. Can you give us a bit more insight on your thinking there and thoughts on valuation parameters, if that is the approach you're taking?

Speaker Change: Hi, guys good afternoon.

Sean Steuart: A few questions.

Sean Steuart: With Alberta Pacific curtailed now I think the wording is still exploring options for the property, which I guess selling a property could be one of those options.

Sean Steuart: You give us a bit more insight on your thinking there and thoughts on valuation parameters.

Speaker Change: That is the approach we're taking.

Unknown Executive: Yeah, Sean. Thanks for the question. You know, we've been very focused on trying to find a partner that either could take the facility and do something with it as an ongoing manufacturing facility, or someone who might be a bit more creative on a higher, better use. Unknown Speaker Unfortunately, we have not been able to conclude a transaction up to this point, but we are actively engaged in a couple of new opportunities for that property. We expect to be able to have some positive news to share here in the next quarter.

Speaker Change: Yeah, Sean Thanks for the question.

Unknown Executive: Clearly, we've been very focused at trying to find.

Unknown Executive: Our partner that are either could take the facility in and do something with it as an ongoing manufacturing facility.

Unknown Executive: Or someone who might be a bit more creative on a higher better use oh.

Unknown Executive: Outcome for that property.

Unknown Executive: Unfortunately, we've not been able to conclude a transaction up to this point.

Unknown Executive: But we are actively engaged in a couple of new opportunities for that are for that property and.

Unknown Executive: We expect to be able to you'll have some positive news to share here in the next in the next quarter.

Sean Steuart: Okay, thanks for that. A couple questions on the kiln projects. I'm just trying to wrap my head around how you guys think about incremental EBITDA and returns from salt air and the projects you're going to move ahead with. Can you give us a sense of the price uplift you get on the dried product and how that factors into your return calculations? Just a bit more granularity.

Unknown Executive: Okay.

Speaker Change: Thanks for that.

Sean Steuart: A couple of questions on the the kiln projects.

Sean Steuart: Just trying to wrap my head around how you guys think about incremental EBITDA and returns from salt there and the projects are you going to move ahead with can you give us a sense of the price uplift you get on the dry products.

Sean Steuart: How that factors into your return calculations, just a bit more granularity on.

Sean Steuart: On that topic.

Glen Douglas Nontell: Yeah, Sean, it's Glen. Just specifically on the salt air kiln, you know, that's probably where the majority of the uplift comes from, you know, that incremental margin you can realize on a KD product versus a green product. You know, there are some cost savings of drying internally versus externally, but you know, the larger margin comes from that uplift in product values.

Sean Steuart: Yes, Hi, it's Glenn just on specifically on the Salt Air Kill you know, that's probably where the majority of the uplift comes as you know the incremental margin you can realize on a KD product versus a green product. You know there are some cost savings of driving internally versus externally, but.

Glen Douglas Nontell: The larger margin comes from that uplift in the product values.

Glen Douglas Nontell: And a reminder, Glen, on how you think about returns or payback periods for those investors. Yeah, so we have

Speaker Change: As a reminder, Glenn on how.

Speaker Change: How are you thinking that returns or payback periods for those investments.

Glen Douglas Nontell: Yeah, so we have a threshold of a 20% return on capital for any strategic investments. I mean, I can speak to that kiln. It ends up costing us on a net basis around $12 million. Our target EBITDA return related to that kiln would be $9 million in incremental EBITDA annually. So, very, very, very high return on capital employed.

Glen: Yeah. So we have a threshold of 20% for sure on capital for a strategic investments I mean, I can speak on that killing it at a cost that's a net basis around $12 million.

Glen Douglas Nontell: Our target EBITDA return related to that kill them would be $9 million in incremental EBITDA annually.

Glen Douglas Nontell: So very very very high return on capital employed.

Glen Douglas Nontell: Yes.

Sean Steuart: OK, thanks very much, guys. That's all I have for now. Thanks, Sean.

Speaker Change: Okay. Thanks, very much guys. That's all I have for now.

Speaker Change: Thanks, Sean.

Operator: The next question is from:

Speaker Change: The next question is from.

Matthew McKellar: Matthew Kelley.

Speaker Change: Please go ahead.

Matthew McKellar: Hi, good afternoon. Thanks for taking my questions. Maybe first, I just wanted to drill in a little bit on the reductions in your CapEx budget this year, which I think was a $15 million reduction. I think he called out maybe a couple of million specifics on the CDK spending, but is there anything else you can tell us about what's been removed from the budget?

Speaker Change: Hi, good afternoon, Thanks for taking my questions maybe.

Matthew McKellar: Maybe first just just wanted to drill in a little bit on the.

Matthew McKellar: Reductions in your Capex budget, this year, which I think is a $15 million reduction I think you called out maybe a couple of million specifics to the CDK spending but is there anything else you can tell us about what's been removed from the budget.

Glen Douglas Nontell: No, Matt, Glen, you know, the mix of everything across the board, whether maintenance or other strategic projects, I think we thought it was just prudent, just given the first quarter penciled out and, you know, our outlook, as much as it's positive for the rest of the year, to reduce or defer some of that spending.

Speaker Change: No Matt Glenn.

Glen Douglas Nontell: Mix of everything across the board whether maintenance other strategic projects I think we thought it was just prudent.

Glen Douglas Nontell: Just given your first quarter pencil it out and Joe look as much as it's positive for the rest of the year without the prudent move just.

Glen Douglas Nontell: Just to reduce or defer some of that spending.

Matthew McKellar: Thanks, that's helpful. Then maybe one on just a couple of different end markets. I think your commentary on China was that things could weaken there as you progress through 2024, which is a little bit weaker than I think you were talking about previously. Can you expand on that at all? And then I think Coppers and Stella Jones talked about a bit of a slowdown in utility polls. I was wondering if you'd seen any impact on your utility cross arms business.

Speaker Change: Thanks, that's helpful.

Matthew McKellar: And then maybe maybe what I've just a couple of different end markets I think your your commentary on China was that things could weaken there as you progress through 24, which is a little bit weaker than I think you were talking about previously can you expand on that at all and then I.

Matthew McKellar: I think koppers and Stella Jones talked about a bit of a slowdown in utility Poles I was wondering if you'd seen any impact to your utility cross arms business.

Bruce Alexander: Yeah, hi, it's Bruce here. Maybe I'll speak to China and then leave the cross arm or utility pole question for Stephen. Yeah, we've actually seen an increase in demand and prices in China, but we're starting to see some weakness in pricing there. The Russians have recently reduced their pricing and really the inventory built through the quarter, but in April here, we've actually seen those come off a little bit, but the fundamental driver there is residential housing, and they're seeing a 10% decline year over year. So we're expecting some weakness, particularly as we head into the summer period, which is their seasonally weaker market period.

Matthew McKellar: Yes, hi, its Bruce here, maybe I'll speak to China, and then I'll leave the cross arm.

Bruce Alexander: Our utility pole question for Stephen Yeah, we've seen actually through the first quarter, an increase in demand and price in China, but we're starting to see some weakness in pricing there or the Russians.

Bruce Alexander: Recently reduced their pricing and really the inventories built through the through the quarter.

Bruce Alexander: In April here, we've actually seen those come off a little bit but the fundamental driver there is it in residential housing in there.

Bruce Alexander: <unk> seen a 10% decline year over year. So we're expecting some weakness, particularly as we head into the summer period, which is the seasonal seasonally more weaker market period.

Stephen Williams: And maybe I'll just share a couple of comments on the poll and the peeler question. You know, certainly within our, in our Timberland group. Our ability to manufacture cedar and Dougfir poles is a real key competitive advantage. We have a couple of TFLs that have a number of high-quality stands where we're able to extrapolate a fairly high volume of poles from those areas. And then we've had a long-term focus on both dougfir and hempfir peeler grade logs as well.

Speaker Change: Then maybe I'll just share a couple of comments around the pool and the and the pillar question.

Stephen Williams: Certainly within our in our Timberland group.

Stephen Williams: Our ability to manufacture cedar in Doug fir pools is a real key competitive advantage. We have a couple of tfl's that have you know a number of.

Stephen Williams: High quality stands where we're able to extrapolate a fairly high volume of polls are from those areas and then we've had a long time focus on both the Doug fir and hemp for peeler grade logs as well with respect to the pool side of it we have.

Matthew McKellar: With respect to the pole side of it, we have a couple of different customers, and we continue to ensure that we have the right diversification, the right volume being allocated out to that customer base. And we would really view this as a bit of a short-term slowdown, mostly around some capacity issues and having the poles treated both in Canada and in the U.S. But if you look at the overall long-term trends around electrification and demand for infrastructure, we see this as a long-term, high-value opportunity for us to continue to be focused on. So a little bit of a slowdown for Stella, but we don't see it as being something that's going to be a step change down beyond kind of a short time frame.

Matthew McKellar: A couple of different customers and and we continue to you know.

Matthew McKellar: Sure that we have the right diversification a rate volume being allocated out to that customer base and would really view this as a a bit of a.

Matthew McKellar: A short term slowdown mostly around some capacity issues and having the poles treated.

Matthew McKellar: Both Canada and in the U S. But if you look at the overall long term trends around electrification.

Matthew McKellar: You know demand on on infrastructure, we see this as a.

Matthew McKellar: Long term high value opportunity for us to continue to be focused on so little bit of a slowdown for stellar but we don't see it as being something that's going to be.

Matthew McKellar: A step change down beyond kind of a short timeframe.

Speaker Change: Thanks, that's helpful. I appreciate the color.

Speaker Change: And then last one for me.

Matthew McKellar: We've seen a couple of transactions related to our claims to softwood lumber duty refunds lately.

Matthew McKellar: Is that an option that you would consider at the right price.

Matthew McKellar: Thanks, that's helpful. I appreciate the color. And then last one for me.

Matthew McKellar: Hey, Matt It's Glenn you know more generally when you look and consider all opportunities to monetize noncore assets, which we believe will be value accretive to our shareholders. This has included our softwood lumber duties.

Glen Douglas Nontell: We've seen a couple of transactions related to claims for softwood lumber duty refunds lately. Is that an option that you would consider at the right price?

Matthew McKellar: Hey, Matt, it's Glen. You know, more generally, we look at and consider all opportunities to monetize non-core assets, which we believe will be value-added to our shareholders. You know, this has included our softwood lumber duties. I'd say it's based on some preliminary discussions we've had around softwood lumber duties. You know, the implied cost of financing and monetizing a portion of them is well beyond the financing rates which are available to us.

Glen Douglas Nontell: It's based on some preliminary discussions we've had around the softwood lumber duties.

Matthew McKellar: The implied cost of financing of monetizing a portion of them you know us well beyond the financing rates, which are available to us depending on.

Matthew McKellar: You know, depending on the expectation around when duties might be returned and, you know, what's the expectation around the timeline of that, based on our math, the implied cost of financing is pushing somewhere around 20%.

Matthew McKellar: The expectation around when duties might be returned.

Matthew McKellar: With expectations around timeline of that.

Matthew McKellar: Based on our math the implied cost of financing is pushing somewhere around 20%.

Matthew McKellar: Okay.

Matthew McKellar: Great, I appreciate the color. That's all for me. I'll turn it back. Thanks.

Matt: Great I appreciate the color that's all for me I'll turn it back thanks.

Speaker Change: Great. Thank you.

Operator: The next question is from Ben Isaacson at Scotiabank.

Matthew McKellar: The next question is from Isaac Senate Scotia Bank. Please go ahead.

Operator: Ben Isaacson at Scotiabank. Please go on.

Ben Isaacson: Hi, thank you very much. Actually, most of my questions have been answered; there are only a couple left. The first one is on Japan. Can you just give a quick update in terms of how you see that market evolving over the balance of the year, similar to what you just talked about in China?

Benjamin Isaacson: Alright. Thank you very much actually most of my questions have been answered only a couple left the first one is on Japan can you just give a quick update in terms of how you see that market evolving over the balance of the year similar to what you just talked about on the China.

Bruce Alexander: Yeah, Bruce here again. Yeah, inventories in Japan at the moment at the ports are relatively stable and are actually at reasonable levels. Supply has been limited to that market out of Europe due to a number of challenges there, including transportation and so on. So our volumes and, actually, pricing into Japan have been quite stable. The one downside really is the yen exchange rate, which is obviously impacting the affordability of North American lumber to the Japanese end user, and that could have an impact on prices as we head into the third quarter. But in general, we see the market as positive and stable through Q2, and we have a strong order file for into Q3.

Bruce Lindsay Alexander: Yeah, Bruce here again.

Bruce Alexander: Yeah inventories really in Japan at the moment at the ports are relatively stable and are actually at reasonable.

Bruce Alexander: Level of supply has been limited into that market out of Europe due to a number of challenges there, including transportation and so on so our volumes and actually pricing into Japan has been quite stable.

Bruce Alexander: The one downside really is the yen exchange rate, which is obviously impacting the affordable affordability of North American lumber to the Japanese.

Bruce Alexander: The end user and that could have an impact on prices as we head into the third quarter, but in general we see that.

Bruce Alexander: Market is as positive and stable through Q2 strong order file and into.

Bruce Alexander: Into Q3.

Ben Isaacson: That's helpful. And then just the last one for me is, I think you mentioned at the start of the call that the book value is about $1.80 or $1.83 per share, and the stock is, you know, 53 cents. Can you just talk about what you think that means from an investor perspective? Is the market, do you think the market is pricing in or thinking about a write-down or some kind of impairment, and kind of where do you stand on that? Is there anything that would be kind of next up that would need to be assessed? Thank you.

Bruce Alexander: That's helpful. And then just last one for me is that I think you mentioned at the start of the call, but book value with about $1 80, or $1 83 per share in the stock as you know 53 cents.

Ben Isaacson: Can you just talk about what do you think that means from an investor.

Ben Isaacson: Our perspective is the market do.

Ben Isaacson: Do you think the market is pricing in or work or are you thinking about a write down or some kind of impairment and.

Ben Isaacson: Where do you stand on that is is there anything that would be kind of next up that would need to be assessed. Thank you.

Glen Douglas Nontell: And it's Glen here. You know, I think I'll make a couple of comments. You know, there's no question that, relative to our share price, we view the shares as being very undervalued. I think, you know, that said, we need to demonstrate to the market that we've gone, you know, seven quarters of not having positive EBITDA, and we need to demonstrate to the market, you know, a return to positive EBITDA to gain back the confidence of investors to really, you know, help close that gap.

Glenn: Ben It's Glenn here.

Speaker Change: I'll make a couple comments you know Theres no question that you thought the book value relative to our share price. We view the shares are being very undervalued I think you know that said.

Speaker Change: Yeah, we need to demonstrate to the market we've gone.

Glen Douglas Nontell: Seven quarters of not having positive EBITDA, we need to demonstrate to the market.

Glen Douglas Nontell: A return to positive EBITDA two came back the confidence of investors to really you know help close that gap.

Ben Isaacson: That makes sense. Thanks so much. I appreciate it.

Speaker Change: That makes sense. Thanks, so much appreciate it.

Speaker Change: Thanks Pat.

Operator: There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Offer. OK.

Speaker Change: There are no further question registered at this time I would like to.

Operator: I'd now like to turn the meeting over to Mr. Ofer.

Stephen Williams: Okay, thanks everyone for joining our call today. We appreciate your interest in our company and look forward to our next call in August. Have a great afternoon.

Offer: Okay. Thanks, everyone for joining our call today, we appreciate your interest in our company and look forward to our next call in August have a great afternoon.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

Offer: Thank you. The conference has now ended please disconnect your lines at this time. Thank you for your participation.

Operator: Okay.

Operator: Okay.