Q1 2024 Canfor Corp Canfor Pulp Products Inc Earnings Call

Operator: Good morning, my name is Jenny, and I will be your conference operator today. Welcome to Canfor and Canfor Polk's First Quarter Analyst Call. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Jenny and I will be your conference operator today.

Operator: 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 record the request for leases for the associated risks of such states. I would now like to turn the meeting over to Mr. Don Kayne, Canfor Corporation's President and Chief Executive Officer. Please go ahead, Mr. Kayne.

Operator: Welcome to Canfor and Canfor pulp first quarter analyst call.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Donald B. Kayne: During this call.

Donald B. Kayne: And Canfor pulp Chief Financial Officer.

Donald B. Kayne: I'm, referring to a slide presentation.

Donald B. Kayne: Billable, India Investor Relations section of the company's website.

Operator: So 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.

Operator: Right.

Operator: I would now like to turn the meeting over to Mr. Don Kayne, Canfor Corporation's President and Chief Executive Officer.

Donald B. Kayne: Please go ahead Mr Kayne.

Donald B. Kayne: Thank you, operator, and good morning, everyone. Thank you for joining the Canfor and CanforPulp Q1 2024 results conference call. I'm going to make a few comments before I turn things over to Kevin Edgson, Canfor 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, Senior Vice President of Sales and Marketing.

Donald B. Kayne: Thank you operator, and good morning, everyone. Thank you for joining the Canfor and Canfor pulp Q1, 2020 results conference call I'm going to make a few comments before I turn things over to Hudson.

Donald B. Kayne: Canfor pulp President and Chief Executive Officer, Elliott, Chief Financial Officer of Kemper Corporation.

Donald B. Kayne: At our senior Vice President of sustainability and.

Donald B. Kayne: In addition, we are joined by Kevin Pankratz, Senior Vice President of sales and marketing.

Donald B. Kayne: Before talking about our financial results, I'll share a few Q1 business updates. As you know, over the past decade, we have been focused on building a globally diversified operating platform by increasing our footprint in the US South and Europe, while working towards a smaller but stronger presence in British Columbia. Although global lumber markets remained under pressure in Q1, thanks to this strategy, we have a more resilient organization that has been better able to mitigate market-related pressures and the persistent constraints we continue to face accessing economically viable fiber in British Columbia.

Donald B. Kayne: Before talking about our financial results and share a few Q1 business update as you know over the past decade.

Donald B. Kayne: Building a globally diversified operating platform.

Donald B. Kayne: Leasing our footprint in the U S.

Donald B. Kayne: We are working towards a smaller of a strong stronger process in British Columbia.

Donald B. Kayne: Although global lumber markets remained under pressure in Q1, thanks to the strategy, we have a more resilient organization that is better able to mitigate market related pressures and the persistent constraints, we continue to pace accessing economically viable fiber in British Columbia.

Donald B. Kayne: Through a targeted and expansive capital investment program, we have been growing and transforming our manufacturing facilities in fiber-rich regions to be low-cost leaders that are globally competitive over the long term. As part of this effort and our plans to optimize our operational footprint in Alabama, this quarter, we announced that we will permanently close our Jackson facility in June and expand production at our nearby Bolton facility with a second shift.

Donald B. Kayne: Through a targeted and expansive capital investment program, we have been growing and transforming our manufacturing facilities fiber rich regions could be low cost leaders that are globally competitive over the long term.

Donald B. Kayne: Part of this effort and our plans to optimize our operational footprint in this.

Donald B. Kayne: This quarter, we announced that we will permanently close our Jackson facility in June and expand production at our nearby facilities with a second shift.

Donald B. Kayne: These steps, together with our new state-of-the-art Greenfield sawmill being built in Axis, Alabama, and the pending closure of our Mobile sawmill, will improve our cost structure, optimize the fiber supply in Alabama, and add 100 million more feet of Southern Yellow Pine production capacity in the region. By consolidating and expanding our Alabama operations, we will be better positioned to serve our global customers from a modern, competitive operating platform while providing more sustainable jobs and improved working conditions for our valued employees.

Donald B. Kayne: These steps together with our new state of the art Greenfield saw mill being built axis, Alabama pending closure optimal appeal sawmill will improve our cost structure optimize the fiber supply in Alabama, and add $100 million heartbeat of southern yellow pine production capacity in the region.

Donald B. Kayne: Consolidating and expanding our Alabama operations, we will be better positioned to serve our global customers from a modern competitive operating platform, while providing more sustainable jobs and improve working conditions for our valued employees.

Donald B. Kayne: Similarly, as part of our continued growth strategy in the U.S. South, yesterday we announced an agreement with Resolute Forest Products to acquire their El Dorado Lumber Manufacturing Facility in Union County, Arkansas. Bringing this facility to Canfor will create synergies and vertical integration opportunities, given its complementary geographic fit with our existing operations in the region. These include our El Dorado laminating plant as well as our Urbana plant, which is progressing with its $130 million U.S. dollar modernization that will increase production by 115 million bore feet to a total of 285 million bore feet next year.

Donald B. Kayne: All early as part of our continued growth strategy in the U S. South yesterday, we announced an agreement resolute.

Donald B. Kayne: <unk> products to acquire their El Dorado lumber manufacturing facility in Union County, Arkansas.

Donald B. Kayne: This facility to can for <unk>.

Donald B. Kayne: Synergies at vertical integration opportunities given its complementary geographic fit with our existing operations in that region.

Donald B. Kayne: These include our El Dorado, laminating plant as well as our pipeline.

Donald B. Kayne: Which is progressing in its $130 million dollar U S. Dollar modernization that increased production by 115 billion board feet to a total of 285 million board feet next year.

Donald B. Kayne: The Eldorado acquisition will capitalize on our regional manufacturing footprint to optimize our product portfolio and maximize value. We anticipate investing a further $50 million to upgrade the sawmill, which will increase its production capacity to 175 million feet per year.

Donald B. Kayne: The El Dorado acquisition will capitalize on our regional manufacturing footprint to optimize our product portfolio and maximize value. We anticipate investing a further $50 million U S dollars to upgrade the saw mill, which will increase its production capacity to $175 million square feet per year.

Donald B. Kayne: As we look forward to ongoing growth, we remain deeply committed to sustainability, which is embedded throughout our entire operations from the forest to the customer. This quarter, we released our 2023 sustainability report, highlighting the activities and our performance to advance our sustainability strategy. We have an ambitious plan to be a leader in sustainable business focused on three key areas: people, planet, and product. Our report tracks our progress across 13 material topics, each with discrete goals to significantly shift the way we do business.

Donald B. Kayne: As we look forward to ongoing growth, we remain deeply committed to sustainability, which is embedded throughout our entire operations probably the for us to the customer.

Donald B. Kayne: This quarter, we released our 2023 sustainability report highlighting the activities at our performance to advance our sustainability strategy. We have an ambitious plan to be a leader in sustainable business focused on three key areas people planet products.

Donald B. Kayne: Ah report tracks, our progress across 13 material topics each with discrete goals to significantly shift way, we do business naturally. This includes a focus on climate change through our targets on scope, one two and three emissions.

Donald B. Kayne: Naturally, this includes a focus on climate change through our targets for scope one, two, and three emissions. But it also includes improving safety, expanding relationships with indigenous nations, increasing support for our operating communities, and further enhancing the diversity of our work.

Donald B. Kayne: Also includes improving safety expanding relationships with indigenous patients increasing support for our operating communities and further enhancing the diversity of our workforce through.

Donald B. Kayne: Through these actions and our carbon-friendly products, Canfor is well positioned to be part of the solution to climate change. Turning to our financial results, our lumber business benefited from solid lumber pricing and earnings in Europe, and a strong contribution from BIDA, highlighting the value of our diversification strategy. In North America, weak lumber markets continue to reflect ongoing affordability issues related to inflation and the current interest rate environment, in addition to a significant decline in multifamily construction activity.

Donald B. Kayne: Through these actions and our carbon friendly products category is well positioned to be part of the solution to climate change.

Donald B. Kayne: Turning to our financial results, our lumber business benefited from solid lower pricing on our earnings in Europe.

Donald B. Kayne: Strong contribution from beta highlighting the value of our diversification strategy in <unk>.

Donald B. Kayne: With America weak lumber markets continue to reflect ongoing affordability issues related to inflation and the current interest rate environment. In addition to a significant decline in multifamily construction activity.

Donald B. Kayne: While our Western Canadian operations benefited from improved pricing in the first quarter, our financial results continue to reflect the impact of weak North American lumber prices and challenges accessing economically viable fiber supply in British Columbia. While lumber prices are anticipated to remain under pressure in the short term, Canfor has seen steady underlying demand in the repair and remodel sector, and we continue to believe the medium to long-term market fundamentals remain strong. Notwithstanding current market conditions, our balance sheet remains strong, supporting continued reinvestment in our operations over the next several years. I will now turn it over to Kevin to provide an overview of Canfor Paul Quinn.

Donald B. Kayne: While our western Canadian operations benefited from improved pricing in the first quarter, our financial results continue to reflect the impact of weak North American lumber pricing.

Kevin: John just accessing economically viable fiber supply in British Columbia, while lumber prices are anticipated to remain under pressure in the short term canfor has seen steady underlying demand in the repair and remodel sector and we continue to believe the medium to long term market fundamentals remain strong notwithstanding current market conditions.

Kevin: Balance sheet remains strong so Marty continued.

Donald B. Kayne: Reinvestment in our operations for several years I will now turn it over to Kevin to provide an overview.

Donald B. Kayne: Okay.

Kevin Edgson: Thank you, Don, and good morning, everyone. Canfor Pulp generated improved financial results in the first quarter, supported by a 7% quarter-over-quarter increase in pulp production and steady global pulp markets. Notwithstanding the impacts of extreme winter weather in January, we continue to see improvements in our operating performance. Given projected weakness in North American lumber markets in the short term, combined with ongoing uncertainty with regard to the availability of economically available fiber in B.C., we continue to evaluate our operating conditions and remain focused on improving our operating performance and cost structure while optimizing the available fiber supply.

Kevin: Thank you Don and good morning, everyone Canfor pulp generated improved financial results in the first quarter supported by a 7% quarter over quarter increase in pulp production and steady global pulp markets notwithstanding the impacts of extreme winter weather in January we continue to see improvements in our operating performance given projected weakness in North American <unk>.

Kevin Edgson: Markets in the short term combined with ongoing uncertainty with regards to the availability of economically available fiber in BC, we could.

Kevin Edgson: To evaluate our operating conditions to remain focused on improving our operating performance and cost structure, while optimizing the available fiber supply.

Kevin Edgson: I would like to thank our employees for their resilience and continued efforts to enhance our operational performance as we respond to the external pressures facing our business. Turning to pulp markets, while softwood pulp markets were steady in the first quarter, pricing has increased considerably to start the second quarter, driven by global supply disruptions and pulp producer downtime. Looking ahead, we continue to believe strong global pulp market fundamentals will remain over the medium to long term, supporting our capital reinvestment plan. The magnitude of the spend will be modest in 2024, with future spending completed as market and financial circumstances allow. I will now turn it over to Pat to provide an overview of our financial results.

Kevin Edgson: I would like to thank our employees for their resilience and continued efforts to enhance our operational performance.

Pat: Bond to the external pressures facing our business.

Pat: Turning to pulp markets, while softwood pulp markets were steady in the first quarter pricing has increased considerably to start the second quarter, driven by global supply disruptions and pulp producer downtime.

Pat: Looking ahead, we continue to believe strong global pulp market fundamentals will remain over the medium to long term supporting our capital reinvestment plan.

Pat: The magnitude of spend will be modest in 2024 with future spending completed its market and financial circumstances allow.

Kevin Edgson: I'll now turn it over to Pat to provide an overview of our financial results.

Patrick A. J. Elliott: Thanks, Kevin, and good morning, everyone. The Canfor and Canfor Pulp first quarter results were released yesterday morning. In my comments this morning, I'll speak to the first quarter financial highlights, a summary of which is included in our overview slide presentation located in the Investor Relations section of the Canfor website. Our lumber business generated an operating loss of $57 million in the first quarter, which included a $30 million recovery of our previously recorded breakdown of inventory in Western Canada and a non-cash duty expense of $15 million related to our anti-dumping duty accrual rate.

Pat: Thanks, Kevin and good morning, everyone, Canfor and Canfor pulp first quarter results released yesterday morning. My comments. This morning, I'll speak to the first quarter financial highlights summary of which is included in our overview slide presentation located in the Investor Relations section of the <unk> website.

Patrick A. J. Elliott: Adjusting for these non-cash items, our lumber business generated an operating loss of $72 million in the first quarter, compared to a similarly adjusted loss of $111 million in the previous. Notwithstanding an improvement quarter over quarter, these results continue to reflect losses associated with our PC operations due to weak lumber prices and a persistent lack of economically viable fiber. While our Western Canadian operations benefited from an uplift in SPF lumber prices, lumber markets remained under pressure in the first quarter, particularly for Southern Yellow Pine.

Patrick A. J. Elliott: Our lumber business generated an operating loss of $57 million.

Patrick A. J. Elliott: This quarter, which included a $30 million recovery of previously recorded write down of inventory in Western Canada, and a noncash expense of $15 million related to our antidumping duty accrual rates.

Patrick A. J. Elliott: Adjusting for these noncash items lumber business generated an operating loss of $72 million.

Patrick A. J. Elliott: Quarter compared to a similarly adjusted loss of $111 million in the prior quarter.

Patrick A. J. Elliott: Withstanding an improvement quarter over quarter. These results continued to reflect losses associated with our PT operations due to weak lumber pricing the persistent lack of economically viable fiber.

Patrick A. J. Elliott: Our western Canadian operations benefited from an uplift SPF lumber pricing lumber markets remained under pressure in the first quarter, particularly for southern yellow pine.

Patrick A. J. Elliott: Our European operations continued to perform well and contributed $31 million in cash earnings in the first quarter, reinforcing the value of our diversification strategy. These results reflect the benefit of higher production and shipping volumes, as well as improved sales realization.

Patrick A. J. Elliott: European operations continued to perform well and contributed $31 million in cash earnings in the first quarter reinforcing the value of our diversification strategy. These results reflect the benefit of higher production and shipment volumes as well as improved sales realizations.

Patrick A. J. Elliott: Canfor Pulp generated an adjusted operating loss of $16 million in the first quarter, an improvement of $10 million in the second quarter. These results largely reflected a modest uplift in pulp sales realizations, combined with the increased pulp production previously mentioned by Kevin, which more than offset the impact of a challenging January related to extreme winter weather. Canfor, excluding Canfor Pulp, ended the quarter with net cash of approximately $225 million following a seasonal build of working capital in Western Canada.

Patrick A. J. Elliott: Canfor pulp generated an adjusted operating loss of $16 million in the first quarter, an improvement of $10 million quarter.

Patrick A. J. Elliott: These results largely reflected a modest uplift pulp sales realizations combined with the increased pulp production previously mentioned by Kevin which more than offset the impact of a challenging January related to extreme winter weather.

Patrick A. J. Elliott: And four excluding Canfor pulp ended the quarter with net cash of approximately $225 million.

Patrick A. J. Elliott: Following a seasonal build of working capital and Western Canada, Notwithstanding current market dynamics of our balance sheet remains strong supporting the continued reinvestment in our level of business at.

Patrick A. J. Elliott: Notwithstanding current market dynamics, our balance sheet remains strong, supporting the continued reinvestment in our lumber. At the end of the first quarter, Canfor Palm had net debt of $85 million and $148 million in available liquidity, of which $80 million is restricted for use towards future reinvestment in Northwood's Recovery Boiler No. 1. On a consolidated basis, capital expenditures were approximately $103 million in the first quarter, including approximately $12 million for capital. We anticipate capital expenditure of approximately $450 million in the lumber segment in 2024, including remaining expenditure on our Alabama greenfield, planned capital investment at the Eldorado sawmill, and various organic growth initiatives in the U.S. South and Sweden. For Canfor Polk, we're currently forecasting capital expenditure of approximately $40 million in 2024, including capital expenditure. In addition, we anticipate Canfor will continue to allocate a modest amount of capital to opportunistically repurchase shares throughout the year.

Patrick A. J. Elliott: At the end of the first quarter Canfor pulp had net debt of $85 billion and $148 million available liquidity, which $80 million restricted for east towards future reinvestment you parse words recovery boiler number one.

Patrick A. J. Elliott: On a consolidated basis capital expenditures were approximately $103 million to the first quarter, including approximately $12 million for accounts.

Patrick A. J. Elliott: We anticipate capital spending of approximately $460 million in the <unk>.

Patrick A. J. Elliott: Lumber segment in 2024, including remaining spend on our Alabama Greenfield planned capital investment at the El Dorado Saab.

Patrick A. J. Elliott: This organic growth initiatives in the U S south.

Patrick A. J. Elliott: For Canfor pulp, we're currently forecasting capital spend of approximately $40 million in 2024, including capitalized peanuts in.

Patrick A. J. Elliott: Should we anticipate <unk> will continuously allergy modest amount of capital to Opportunistically repurchase shares throughout the year.

Donald B. Kayne: And with that, Don, I'll turn the call back. Great. Thanks, Pat.

Patrick A. J. Elliott: And with that Don I'll turn the call back to you.

Donald B. Kayne: Great. Thanks, Pat. And with that, I'll turn it back to you, Operator. And so we're now ready to take questions from Adelaide.

Don: Great. Thanks, Pat.

Speaker Change: That I will turn it back to you operator, we're now ready to take questions from analysts.

Operator: We will now take questions from financial analysts. If you have a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please lift your receiver and then press star 1. If at any time you wish to cancel your question, please press star 2. Please press star 1 now if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience. Your first question is from Ben Isaacson from Scotiabank. Please ask your question.

Donald B. Kayne: We will now take questions from financial analysts.

Benjamin Isaacson: A question. Please press star one on your telephone keypad.

Benjamin Isaacson: Using a speaker phone.

Benjamin Isaacson: Please let's Georgia steeper and then press star one.

Benjamin Isaacson: Any time you wish to cancel your question. Please.

Operator: Please press star two.

Benjamin Isaacson: Chris Starwood now like do you have a question.

Operator: There will be a brief call. It slow participants register for questions. Thank you for your patience.

Operator: Your first question is from Ben Isaacson from Scotiabank. Please ask your question.

Benjamin Isaacson: Thank you very much and good morning everyone. First question on Southern Yellow Pine, having come off quite a bit over the last quarter or so, can you talk about how that has impacted export economics from Europe? Are you starting to see a pullback, and can you just give some color on the dynamics there?

Benjamin Isaacson: Thank you very much and good morning, everyone.

Benjamin Isaacson: First question on <unk>.

Benjamin Isaacson: Southern yellow pine.

Benjamin Isaacson: Having come off quite a bit over the last quarter or so can you talk about how has that impacted export economics from Europe are you starting to see a pullback in could you just give some color on the dynamics there.

Donald B. Kayne: Kevin, why don't you go ahead here and speak a bit about how to find situations. Sure.

Benjamin Isaacson: Kevin Why don't you go ahead RP business maturation sure.

Kevin Pankratz: Sure. So more Yellow Pine pricing, for sure, and also SPF pricing, Ben, has impacted it. So we're finding even with ourselves, our volumes from Sweden to the U.S. are down a few, you know, a percentage or two. And we're actually seeing less volume coming from Central Europe. And the big reason they got better is alternative options at higher values to ship their product, be it the U.K., the Middle East, North Africa, and Asia. So we expect to go back to maybe more historical levels for European imports and not what we saw in January Q1 of the previous year.

Kevin Edgson: Yellow pine pricing for sure and also SPF pricing benefit impacted it so.

Kevin Pankratz: We're finding even with ourselves or volumes from Sweden into the U S are down.

Kevin Pankratz: What percentage of deals and we're actually seeing less volume coming from central Europe, and the big reasons, They got better our alternative options at higher values too.

Kevin Pankratz: Would it be at the UK Middle East North Africa.

Kevin Pankratz: And in Asia. So we expect to go back to maybe more historical levels for European imports and not what we saw January Q1 of the previous year.

Kevin Pankratz: And how do you think about the spread between SPF and SYP? Obviously, it's kind of disconnected from what it's usually at, and do you think that's sustainable going forward?

Kevin Pankratz: And how do you think about the spread between Sps and that's why Pete obviously, it's kind of disconnected from what it's usually got and do you think thats sustainable going forward.

Kevin Pankratz: I think the dynamics are, for sure, changing versus the historical spreads there have been and as, you know, production out of Western Canada comes under more pressure and is reduced. I think you're going to see maybe a reversal or a trend change where SPF 2 by 4 could be at a premium with just clearly less volume, and with more volume coming from the south, that dynamic, I think, will change in the future.

Ben: I think the dynamics are pressure changing versus historical spreads, they're bad and as you know.

Kevin Pankratz: Production out of Western Canada. It comes under more pressure and reduced I think youre going to see maybe.

Kevin Pankratz: A reversal of trend change word SPF two by four it could be at a premium, but just purely that's volume and with more volume coming onto that felt that dynamic I think will trend will change in the future.

Kevin Pankratz: Yes.

Donald B. Kayne: And just last one for me quickly. You know, I know it's early days, it's only the start of May, but we're hearing that the wildfire season could be more intense than it was last year. Do you have any color in terms of how that's progressing? And what is the risk for Canfor?

Speaker Change: And just last one for me quickly.

Kevin Pankratz: I know it's early days, it's only the start of May but we are hearing that the wildfire season could be more intense than it was last year.

Donald B. Kayne: Do you have any color in terms of how that's progressing and what is the risk for <unk>.

Donald B. Kayne: Sure, well, you know, certainly the wildfire situation continues to be a concern. And, you know, I think we continue to learn over the last five years as a lot of difficult years there have been. So we spent a lot of time, as I think the government has to try to understand it better and to try to put in more mitigating actions to try to, you know, get in front of that a bit.

Speaker Change: Sure certainly the wildfire situation continues to be a concern that I think we continue to learn about the last five years.

Donald B. Kayne: A lot of typical years their pants.

Donald B. Kayne: A lot of time as I think as the government has to try to understand it better and to try to get more mitigating.

Donald B. Kayne: Actions to try to get in front of that a bit and I think that's happening, but clearly no traveling up to the mills last week all of our operations are concerned about it there's been a few hires particularly in Alberta.

Donald B. Kayne: And I think that's what's happening, but clearly, you know, traveling up to the middle last week a bit, all our operations are concerned about it. There have been a few fires, particularly in Alberta, out of the gate that we've been working through. But without a doubt, it's I think that's something that we need to just basically conclude that it's going to be an issue for several years. And so I think we learn each year more about it and how to fight it, how to prevent it, and so forth, and we'll continue to do that. And maybe that's all I can really say about that. If that makes sense. Thank you so much.

Donald B. Kayne: Out of the gate that we've been working through but without a doubt I think thats something that we need to just basically conclude there is quite a bit for several years.

Donald B. Kayne: We learn each year more about it in a way that prevent them and so forth and we will continue to do that.

Donald B. Kayne: Maybe thats all I can really stable patents.

Speaker Change: That makes sense. Thank you so much.

Speaker Change: Thanks Pat.

Sean Steuart: Thank you. Your next question is from Sean Steuart from TDC Church in Callen. Please ask your question.

Donald B. Kayne: Thank you. Your next question is from Sean Stewart from TD Securities Cowen. Please ask your question.

Sean Steuart: Thanks, good morning everyone. I have a couple questions. First on El Dorado, I appreciate your comments with respect to the synergies I suppose with your other assets in the region, but based on my previous coverage of other companies, this asset has a Checkered History. Can you give a little bit of context on how this transaction materialized and the timeline to invest the remaining $50 million to get capacity up to 175 million board feet? A little bit more detail on that. Yeah, for sure. I mean, we, you know, again, down there.

Sean Steuart: Thanks, Good morning, everyone.

Sean Steuart: Couple of questions first on El Dorado.

Sean Steuart: I appreciate your comments with respect to the.

Sean Steuart: The synergies I suppose with your other assets in the region, but.

Sean Steuart: Based on my previous coverage of other companies this asset is.

Sean Steuart: Checkered history can you give a little bit of context on how this transaction materialize then.

Sean Steuart: Timeline to invest the remaining $50 million to get capacity up to 175 million board feet, a little bit more detail on that front.

Donald B. Kayne: Yeah, for sure. We, you know, again, down there, have been, you know, really thoughtful and patient in terms of opportunities as they arise and which ones kind of make sense to us, and which ones don't. And that one, you know, is one that we've looked at for a number of years, mainly because of the fiber synergies that it provides with our Urbana facility there and some of the synergies that it provides in terms of raw material supply to some of our vertically integrated facilities, particularly the Eldorado glulam plant. You know, that's always been an opportunity that we'd like to expand on. So that's one of the main reasons.

Sean Steuart: Yeah for sure I mean, we can all again down there.

Donald B. Kayne: I think real thoughtful and patient in terms of opportunities as they arise and which ones kind of makes sense to us and which was built at that one.

Donald B. Kayne: One that we've looked at for a number of years and mainly because of the fiber synergies. It provides so with our bank facility there in some of the synergies.

Donald B. Kayne: It provides in terms of raw material supply to some of our vertically integrated facilities, particularly in the El Dorado plant.

Donald B. Kayne: That's always been.

Donald B. Kayne: Opportunity that we'd like to expand on so that's one of the main reasons, but it has been something we've looked at for a long time, but we've also known through the period that we needed to spend some money. There we felt it was probably a bit under capitalized.

Donald B. Kayne: But it, you know, it has been something we've looked at for a long time. But we've also known through that period that we needed to spend some money there; we felt it was probably a bit undercapitalized before. And we believe that, and we're very confident that, with our folks, if we put in the amount of money we talked about there, we can make that into a solid operation going forward in a fiber-rich area with some competitive fiber and high-quality fiber. So those are all the things that we kind of considered. And so anyway, so we're happy to be able to conclude that.

Donald B. Kayne: And we believe we're very confident.

Donald B. Kayne: With our folks that if we put in the amount of money, we talked about there we can make that into a solid operation going forward in a fiber rich area with some competitive fiber and high quality fiber. So those are all the things that we've kind of considered.

Donald B. Kayne: So anyway, so we're happy to be able to conclude that.

Donald B. Kayne: and timeline on when you expect to get to 175 million board feet for that asset.

Donald B. Kayne: And timeline on when you expect to get to 175 million board feet for that asset.

Donald B. Kayne: Yeah, that's going to be sometime probably towards the early part of next year, so you know, middle of next year or something like that.

Speaker Change: Yes, that's going to be some time, probably towards the early part of next year.

Donald B. Kayne: Next year something like that.

Donald B. Kayne: Okay.

Donald B. Kayne: Don, any update on the Houston potential reinvestment plan milestones that you need to advance that initiative? Has there been any progress on that? Yeah, for sure, Sean.

Donald B. Kayne: Don any update on the Houston potential reinvestment plan milestones that you need to advance that initiatives they have been in the us.

Don: Has there been any progress on that front.

Donald B. Kayne: For sure, Sean, a good question. And I think maybe what I would say there is, as we have talked about in several previous calls, we certainly remain concerned about the challenging policy and operating environment here in British Columbia. For us, as a result of that, we continue to assess the impacts of some of those changes that I speak about. Today, I would also say that we're even more concerned than we were before.

Don: Yes for sure Sean Good question and I think maybe what I can say there is as we have talked about in several previous calls maybe.

Donald B. Kayne: Maybe we certainly remain concerned about the challenging policy operating environment here in British Columbia.

Donald B. Kayne: As a result of that we continue to assess the impacts of some of those changes that I speak about today I would say also though that we are even more concerned that we worked for Paul.

Donald B. Kayne: The policy environment that I speak about here continues to change, seems to be quite dynamic, and, as a result, is very uncertain. So, like I say, we're going to continue to assess those impacts. And at the same time, Sean, I will say, though, that we are doing some pre-planning, that's still ongoing, and also some permitting.

Donald B. Kayne: Policy environment I speak about it Youre continues to change seems to be quite dynamic.

Donald B. Kayne: And as a result.

Donald B. Kayne: Sure like I say, we're going to continue to assess those impacts and at the same time, Shawn I will say, though that we are doing some pre planning still ongoing.

Donald B. Kayne: And also some permitting.

Donald B. Kayne: Okay.

Sean Steuart: Okay, thanks for that update, Don. That's all I have. Okay, take care. Peace out.

Sean Steuart: Okay. Thanks for that update on that's all I have.

Sean Steuart: Okay take care.

Sean Steuart: Okay.

Hamir Patel: Thank you. Your next question is from Hamir Patel from CIBC Capital Markets. Please ask your question.

Sean Steuart: Thank you. Your next question is from <unk> Patel from CIBC capital markets. Please ask your question.

Hamir Patel: Hi, good morning. Don, it seems like you've been seeing stronger R&R take away than some of your peers. Do you think you've been gaining share in that big box channel?

Hamir Patel: Good morning.

Hamir Patel: Dan It seems like you've been seeing stronger R&R takeaway than some of your peers do you think you've been gaining share in that big box channel.

Donald B. Kayne: I think so, but I'll let... Kevin's been doing a lot of work on that. He's an expert on that. I have air, so I'll let him speak on that.

Hamir Patel: I think so but I'll, let Kevin has been doing a lot of work on that is the expert on that.

Kevin: Javier so I'll, let him speak to that so.

Kevin Pankratz: Yeah, so I mean, when we're talking about growth there, we're talking about volume based on dollar base, just to be clear, because I think sometimes that gets mixed up with the headlines. And so from our experience, for sure, January was a tough start for most people and most markets in the US, largely because of weather.

Kevin Pankratz: We're talking like the growth there we're talking on a volume base got dollar base just to be clear because I think sometimes that gets a mixed up headline and so from our experienced pressured January was a tough start for most people and most of the markets in the U S largely because of weather and and there might be things with books. There. Since then we've seen a really.

Kevin Pankratz: And, and in my meetings with folks there since then, we've seen a really good recovery in February and March. And so, year to date, we're actually pretty flat versus 2023. And that's why the poor start in January sort of speaks to the gain momentum that we're seeing in the latter part of the quarter. And, and, you know, this segment continues to evolve and grow, and we are growing market share.

Kevin Pankratz: Recovery in February and March so year to date, we're at.

Kevin Pankratz: Pretty flat versus 2023, and Thats, what the poor start in January sorry to sort of speaks to the gain momentum that we're seeing the latter part of the quarter.

Kevin Pankratz: And.

Kevin Pankratz: And this segment continues to evolve and grow and our growing market share.

Speaker Change: I hope that helps.

Kevin Pankratz: That's helpful. And then, Kevin, when you think about the weakness in Southern Yellow Pine and what's been driving that. I know your outlook commented on weakness in multifamily, but I know, you know, we always think it's single family starts using three times as much lumber as multifamily. So maybe you could speak more to why, uh, perhaps that weakness in multifamily is dragging down some of the all-time prices and and if you're seeing any signs of uh improvement that that

Speaker Change: Okay. That's helpful and then Kevin when you think about.

Kevin Pankratz: Weakness in southern yellow pine and what's what's been driving that I know your outlook.

Kevin Pankratz: I had commented on weakness in multifamily but.

Kevin Pankratz: We think its single family starts is using three times as much lumber as a multi so maybe you could speak more to why.

Kevin: Perhaps that weakness in multi is dragging down southern yellow pine prices and if youre seeing any signs of improvement there.

Kevin Pankratz: Yes, sure. I think that's one segment here. It's going to take a bit of time for that market to recover. It's so dependent on the interest rate piece and just a longer time period to get those projects, you know, planned, engineered, and permitted. So they can't react as fast as single-family homes. I think the other economic dynamic that's impacting multi-family is that rents for the last year have declined. So when they're looking at projects, either the rents have to come up or interest rates have to come down to make the economics work.

Kevin: Yeah sure I think that's one segment there is going to have it's going to take a bit of time for that market to recover its so dependent on the interest rate piece of it just a longer time period to get those projects.

Kevin Pankratz: <unk> engineered permitted so they can't react as fast as single family homes.

Kevin Pankratz: So I think the other economic dynamic that's impacting multifamily is that rents over the last year a decline so when they're looking at projects either rents have to come up or interest rates have to come down to make the economics work and when you're talking to a lot of folks in this space, it's going to be basically when do you start to see a recovery mid 2025, then maybe not fully enrolling.

Kevin Pankratz: And when you're talking to a lot of folks in this space, it's going to be basically maybe start to see a recovery mid-2025 and then maybe not fully rolling until 2026. And you know, the U.S. cell, just like it's heavy for single-family, it's really heavy for multi-family. Over 50% of multi-family projects are in the U.S. cell.

Kevin Pankratz: Until 2026 and.

Kevin Pankratz: Yes, the U S. South just like it is heavy for single family, it's really heavy for multifamily over 50% of multifamily projects are in the U S South and so disproportionately yellow pine is more impacted youre right three to one on the volume for lumber, but it's not zero and there's a lot of lumber <unk>, especially as that goes into steel plates.

Kevin Pankratz: And so disproportionately, Yellow Pines is more impacted. You're right, 3 to 1 on the volume for lumber, but it's not zero. And there's a lot of lumber, 2 by 4 especially, that goes into sill plates and into trusses and spans. And so I think that's a dynamic that is playing out right now that is contributing to the Yellow Pine price pressures that we're seeing.

Kevin Pankratz: And into trusted and spans and so I think thats a dynamic that is playing out right now that is contributing to the yellow pine price pressures that we're seeing.

Hamir Patel: Great. Thanks a lot, Kevin. That's all I had. I'll turn it over.

Speaker Change: Great. Thanks, Thanks for that Kevin that so that's all I had I'll turn it over.

Ketan Mamtora: Thank you. Your next question is from Ketan Mamtora from BMO Capital Markets. Please ask your question.

Hamir Patel: Your next question is from Keith <unk> from BMO capital markets. Please ask your question.

Ketan Mamtora: I'd like to start with a question on log inventory in BC. How is that for you guys at this point? There's been some talk that because of the warm weather, log inventories have not been able to be in that position where they should be for this time of year. How are you guys positioned?

Ketan Mamtora: Thank you and good morning.

Ketan Mamtora: Maybe first question on log inventory.

Ketan Mamtora: In in BC.

Ketan Mamtora: Call US back for you guys at this point there has been some thought back because of the warm weather.

Ketan Mamtora: Log inventories have not been able to be in that position that it should be for this time of day or how are you guys positioned.

Donald B. Kayne: Yeah, for sure, Ketan. Basically, we're in decent shape, for sure, and mostly that was the result of, you know, Polar in Houston and also Chatwin being down. So, you know, we're in good shape as a result of that.

Speaker Change: Yes for sure.

Speaker Change: We're basically we're in decent shape for sure and mostly that go as a result.

Donald B. Kayne: Polar Houston.

Speaker Change: Yes, probably polar and Houston also chocolate being down so we're in good shape as a result of that.

Donald B. Kayne: Okay.

Ketan Mamtora: And so you don't anticipate any sort of, you know, production challenges as we go through Q2 here in terms of where your log positions are and how much you need to produce off in a seasonally stronger time.

Speaker Change: Understood. So you don't anticipate any startup.

Ketan Mamtora: <unk> challenges as we go through Q2 here in terms of you know.

Ketan Mamtora: A lot positions out and how much you need to produce off in a seasonally stronger time.

Donald B. Kayne: Yeah, I mean, overall, as a result of everything, we're not anticipating any more downtime if that's where you're getting those production levels. Going forward at all, we were basically, you know, kind of a locked situation and, unless, you know, but we will continue to look at it from a different angle. I mean, if I understood your question correctly, because I missed part of it, I think, but in terms of, you know, what we've said numerous times, I think internally and externally, we focus hard on matching production demand with our production with market demand.

Ketan Mamtora: Yes.

Ketan Mamtora: I think overall as a result of everything we don't we're not anticipating any more downtime industrial production levels going forward at all where we're basically lock situation and unless Joe, but we will continue to look at it.

Donald B. Kayne: Your question correctly, because that was part of it I think but in terms of.

Donald B. Kayne: What we've said numerous times I think over the.

Donald B. Kayne: Internally and externally.

Donald B. Kayne: As hard on matching production to bandwidth our production with market demand and will continue to do that and we keep a close eye on that.

Donald B. Kayne: And we'll continue to do that. And we keep a close eye on that. And we need to take some downtime because of markets. Market demand will force us to do that. And we're not afraid to do that.

Donald B. Kayne: It takes some downtime because of markets market demand will do that and we're not afraid to do that we'll continue to do that.

Ketan Mamtora: Got it, that's helpful. And then maybe one for Pat. Pat, on the capital allocation side, I'm just curious, you know, as you think about sort of M&A and the acquisition that you just announced yesterday, between that and, you know, share repurchases given where the stock is, how do you think about evaluating those two options? Perhaps, you know, you can provide some color on that.

Speaker Change: Got it that's helpful and then maybe one for Pat.

Pat: On the capital allocation side I'm, just curious as you.

Pat: As you think about sort of M&A and the acquisition that you just announced yesterday.

Ketan Mamtora: Between back and.

Pat: Share repurchases, given where the stock is how do you sort of think about evaluating those two options.

Pat: Perhaps you can provide some color on that.

Patrick A. J. Elliott: Yeah, so Ketan, I think we've been fairly consistent over the last number of years that, you know, the diversification of our business into the US South and into Sweden is paramount, frankly, to improving our operating results over time. While buying back the stock clearly, you know, in straight math, you can see the value; we bought back about 2 million shares in the last year. So it's not like we haven't been active.

Ketan Mamtora: Yes.

Pat: I think we've been fairly consistent on this the last number of years that Joe.

Patrick A. J. Elliott: The diversification of our business into the U S South and into Sweden is Paramount frankly to improving our operating results over time, while buying back the stock clearly straight math you'd see the value we bought back about 2 million shares in the last year. So it's not like we haven't been active but we really see the priority is continue to invest in low cost assets in the right regions and.

Patrick A. J. Elliott: But we really see the priority is continuing to invest in low-cost assets in the right regions, and that's our priority. And even the Eldorado, you know, when you look at it on a cost per 1000 basis, I think it's highly competitive, the price that we paid, so we're not going to go out and buy any asset, but we're gonna act opportunistically. And then the reinvestment in our own business through the greenfield, I think sets us up really well for the future. So I think we've been pretty consistent on that, and that's, that's our plan going forward as well. Sorry, that's how it's like.

Patrick A. J. Elliott: And that's our priority and even the El Dorado when you look at it on a cost per thousand basis, I think its highly competitive on the.

Patrick A. J. Elliott: The price that we paid so we're not going to go in and buy any asset but.

Patrick A. J. Elliott: We're going to Opportunistically, and then reinvest apparel business or the Greenfield I think sets us up really well for the future. So I think we've been pretty consistent on that that's our plan going forward as well.

Patrick A. J. Elliott: Yes.

Ketan Mamtora: All right, that's helpful. I'll turn it over to you. Good luck.

Speaker Change: Alright, that's helpful. Good.

Speaker Change: Good luck.

Ketan Mamtora: Yeah.

Speaker Change: Thanks, Craig.

Matthew McKellar: Thank you. Your next question is from Matthew McKellar from RBC Capital Markets. Please ask your question.

Ketan Mamtora: Thank you. Your next question is from Matthew Mckellar from RBC capital markets. Please ask your question.

Matthew McKellar: Hi, good morning. Thanks for taking my questions. First, I'd just like to ask about the polar mill. I think when that originally went down, when you announced it in November, you were talking about maybe a six-month sort of period of curtailment there. Is there a path back to restarting that mill in 2024, given what you're seeing around access to economic fiber in the province?

Matthew McKellar: Hi, good morning, Thanks for taking my questions.

Matthew McKellar: Firstly I just like to ask about the polar mill I think when that originally went down.

Matthew McKellar: November Youre talking about maybe a six month sort of period of curtailment. There is there a path back to restarting that mill in 2020 forward, given what you're seeing around access to economic fiber in the province.

Donald B. Kayne: Yeah, maybe for sure. I'll try to answer that, I guess.

Speaker Change: Yes, maybe for sure I'll try to answer that I guess.

Donald B. Kayne: You know, in British Columbia, as I mentioned in the question earlier about Houston, the operating conditions are still quite challenging here as we continue to face the ongoing constraints associated with a lack of economically viable fiber. And we've said that a lot, and that continues to be the case. And in Western Canada, there still remains significant uncertainty with regard to the availability of that fiber. So we continue to anticipate sustained log cost pressures and persistent constraints accessing that fiber in BC at all of our sawmills.

Speaker Change: In British Columbia, as I've mentioned on the question earlier about Houston, the operating conditions are still remaining quite challenging year as we continue to face constraints associated.

Donald B. Kayne: Associated with the lack of economically viable fiber and we've said that a lot and that continues to be the case in western Canada.

Donald B. Kayne: There still remains significant uncertainty with regards to that availability of that fiber. So we continue to anticipate sustained log cost pressures and persistent constraints accessing that fiber NBC at all of our software and <unk> as.

Donald B. Kayne: And as well, it's been a challenging fiber environment for pulp mills too. So with all that going on, we continue to evaluate some of the options, and we'll adjust our operating rates in BC to align with that demand, as I mentioned earlier, and the economically available timber supply in the near term. And we'll continue to do that through 2024. That's not going to change, like I think I mentioned earlier, right? So you know, polar bears fall into that category.

Donald B. Kayne: As well as its been a challenging environment fiber environment for our pulp mills to so with all that going on we continue to evaluate evaluate some of the options and we will adjust our operating ratio we seem to align with that Matt as I mentioned again earlier.

Donald B. Kayne: And the economics available timber supply in the near term. It will continue to do that through 2024, and that's not going to change like that I think I mentioned earlier right. So.

Donald B. Kayne: Polar falls into that category.

Matthew McKellar: Okay, thanks for that, Keller. Next, I'd like to just follow up on Ben's question around forest fires. I think last quarter you noted a slower approval process in BC in regards to the salvage harvest following last year's fires. Could you give us a sense of how things have evolved on that front over the past couple of months?

Speaker Change: Okay. Thanks for that color.

Matthew McKellar: Next I'd like to just follow up on Ben's question around Forest fires I think last quarter, you noted a slower approval process in DC in regards to the salvage harvest.

Matthew McKellar: Following last year's fires could you give us a sense of how things have evolved on that front over the past couple of months.

Donald B. Kayne: Yeah, for sure. I'm not sure I can answer that question 100% in terms of where we're at on that other than, like I mentioned earlier, there are lots of initiatives underway here to try to get ahead of the situation of wildfires. For sure, in BC. But Alberta, you know, for sure, I will say this: Alberta is pretty good. They're on top of things for sure, and not that BC isn't, but the bigger impact here is definitely in BC.

Keller: Yes, Scott.

Donald B. Kayne: Sure.

Donald B. Kayne: Sure I can answer that question, 100% in terms of where we're at on that other than like I mentioned in earlier theres lots of lots of initiatives underway here to try to get ahead of it.

Donald B. Kayne: The situation of wildfires.

Donald B. Kayne: For sure NBC.

Donald B. Kayne: The Alberta.

Donald B. Kayne: For sure I will say this Alberta is pretty good there on top of things for sure and not the PC is bigger.

Donald B. Kayne: The bigger impact here is what we see for sure.

Matthew McKellar: Okay, thank you. And then last question for me just on the Canfor pulp side. We're seeing some competitors out there with a couple of price increases for kraft paper in the market. With that backdrop, how should we be thinking about your realizations over the balance of 24?

Speaker Change: Okay. Thank you and then.

Speaker Change: Last question for me just on the Canfor pulp side, we're seeing some competitors out there with a couple of price increases for Kraft paper in the market.

Matthew McKellar: With that backdrop, how should we be thinking about your realizations over the balance of 'twenty four.

Unknown Executive: Thanks very much for the question, Matthew. We expect to see on the pulse side that there's another round of increases coming in May. We think the step up through the first half of the year has been really solid, and we're looking more stable out the back end. Given that it's driven largely by supply constraints, we need the market, the paper market, to catch up. On the graph paper side, we'll be announcing or have announced an increase, a somewhat modest increase for the second quarter that we expect to be in place by June. Paper is moving slower than pulse. And so we continue to expect some increases through the back half of the year on paper.

Speaker Change: Alright, thanks, very much for the question Matthew.

Unknown Executive: We expect to see on the pulp side.

Matthew McKellar: Great, thanks. That's all for me. I'll turn it back.

Unknown Executive: Another round of increases coming in in May.

Matthew McKellar: The step up through the first half of the year has been really solid and we're looking more and.

Matthew McKellar: More stable out the back end.

Matthew McKellar: Even that it's driven largely by supply constraints, we need the market the paper market to catch up on the Kraft paper side, we will be announcing.

Matthew McKellar: They have announced that increase.

Matthew McKellar: Somewhat modest increase for the second quarter.

Matthew McKellar: We expect to be in place by June.

Matthew McKellar: Paper is moving slower than pulp and so we continue to expect some increases through the back half of the year on paper.

Speaker Change: Great. Thanks, that's all for me and I'll turn it back.

Operator: Thank you. There are no further questions. I will now turn it over to Don Kayne for closing comments. Go ahead, Mr. Kayne. Thanks, Operator, and thanks, everyone, for participating.

Matthew McKellar: Thank you there are no further questions I will now turn it over to John Payne for closing comments well head Mr. Kane.

Donald B. Kayne: Thanks, Operator, and thanks, everyone, for participating in this morning's call. We appreciate your support, and we look forward to talking to you at the end of the call.

Donald B. Kayne: Thanks, operator, and thanks to everyone for participating in this morning's call. We appreciate your support and we look forward to talking to you at the end of <unk>.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining us. You may all disconnect.

Donald B. Kayne: Good quarter.

Speaker Change: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.