Q3 2024 Canfor Corporation Canfor Pulp Products Inc Earnings Call
Good morning, my name is Joanna and I will be a CarfinS operator today. Welcome to Can4 and Can4 Pulse, third quarter analyst call.
Speaker Change: All lines have been placed on YouTube, prevent any background noise.
Speaker Change: During this call, Can4 and Care for Paul's Chief Financial Officer will be referring to a slide presentation that is available in the investigation section of the company's website.
Speaker Change: Also, the companies would like to point out that this call will include forward-looking statements. So please refer to the press releases for the Associate Resck of Such Statements. I will now let you turn the meeting over to Mr. Don Kayne, Can for corporations president and chief executive officer. Please go ahead, Mr. Kayne.
Don Kayne: Thank you, operator at Good Morning Everyone.
Don Kayne: Thank you for joining the Ken Point Kenfort Paul Q3 2020 for resource conference call.
Don Kayne: We're going to make a few comments before I turn things over to Padelia, our chief financial officer of counter corporation in California, all, and our senior vice president's sustainability. In addition, we are joined by Kevin Pancras, our senior vice president of Sales and Marketing.
Don Kayne: As you know, camper has been focused on building on his global universe of eye-roctoring times, for by increasing our footprint in Alberta, for U.S. South, Europe, will maintain a reduced presence in British Columbia.
Don Kayne: This quarter we've made some additional difficult decisions in British Columbia announcing the closure of our plateau and forcing John operations in northern BC.
Don Kayne: and the next. Combined with previous announcements, these closures will remove up a one billion poor feed of annual production capacity from our PC operations.
Don Kayne: These decisions were driven by the persistent challenge in accessing economically viable fiber and northern BC, which is not improving. This challenge was further exacerbated by the increase in US tariffs, which are expected to double again next year.
Don Kayne: Despite the challenges in the BC interior, our Cootney operations continue to perform well, supporting our specialty product and value added focus.
Don Kayne: including key high-marcher products such as MSR, Geograde and Home Center, Grace.
Don Kayne: Alberta, despite weak North American lumber pricing, our operations continue to provide positive earnings in Q3.
Don Kayne: and the US South, our focus was on executing on our capital plan.
Don Kayne: Today, our song in operations at our new facility in Axis El Abama, began production.
Don Kayne: When the Planner Bell is completed later this year, we expect the first shipment of finished longer. The new sawmill will have an annual capacity of 250 million board feet on a two-ship basis. Our mobile or mobile plant sea stock ratios earlier this month with decommissioned being conducted throughout the remainder of 2020 before.
Don Kayne: The acquisition of the former press-allute elder-radio mill in Arkansas, now called Iron Mountain, was completed on August 1.
Don Kayne: The Urbana upgrade project is in its final phase with startup last month and ramping up production in Q4. This project will increase capacity to 285 million more feet.
Don Kayne: with respect to Vida, although a result from March only better than expected, 24 has been challenging with log costs containing to increase.
Don Kayne: Our financial results are lumber business in North America, recorded significant losses in the third quarter of a due to persistent week lumber prices, increasing duties, and the lack of available economic fiber and British Columbia.
Don Kayne: Not the standing, increasing law costs combined with seasonal downtime, are European operations generated positive operating income in a third quarter.
Don Kayne: While Global Lumber to Mad remains tap it in the short term lumber prices have steadily increased over the last several weeks.
Don Kayne: with interest rates beginning to normalize me on anticipate affordability to gradually improve through 2025, which should support higher pricing into next year.
Don Kayne: While we anticipate a challenging fourth quarter we believe our lumber business is well positioned to capitalize on improving market conditions over the medium to long-term, supported by several significant capital investments.
Don Kayne: and the US. So, all of the people in the US have certain high costs assets across North America and restrom Europe-PM-PY.
Don Kayne: With respect to pump on an adjusted basis, our pump business generated improved financial results in the third quarter supported by higher sales realizations. pump production was modestly lowered in the previous quarter, with their northward mills successfully transitioning to a one-line operation at August.
Don Kayne: For Paul, continues to navigate the uncertainty associated with Fibre's blambers Columbia. We have seen a crew to operate themselves through the last several quarters and remain focused on improving our cost structure going forward. I will now turn it over to Pat to provide an overview on our financial results.
Pat: and John. Thanks, Don, and Designing. Good morning, everyone. In my comments this morning, I'll speak to our third quarter financial highlights. A summary which is included in our overview slide presentation located in the best relation section of Cancourt's website.
Pat: and this was a challenging quarter. With our lumber business generating operating loss of $336 million.
Speaker Change: These results include an asset right down and a fair amount charge of $100 million. Don Kayne, do you related to just spend some $121 million in several other items recorded in third quarter?
Speaker Change: Johnson for these one-time items are lumber business generated operating loss of $129 million compared to a single earlier just loss of $115 million in the park order.
Speaker Change: These results continue to reflect the impact of weak North American lumber markets, particularly for southern Yellow Pine, as well as an elevated cost structure to significant production, to kill the North America. Seasle, downtime in Europe and losses associated with certain high cost operations in British Columbia.
Speaker Change: We anticipated improvement in our underlying cost structure following the orderly wind down as several BC saw mills later this year.
Speaker Change: In addition, several major capital projects in the US-Selt air and completion, anticipate a gradual improvement in our unit cost structure as this low cost capacity begins to ramp up throughout 2025.
Speaker Change: Turning to our pulp business, Cam for pulp generated an operating loss of $29 million, including a $211 million asset right down in a parametrored.
Speaker Change: on an adjusted basis, Camp for Paul Paltz, Henry, and operating income of $2 million that improvement of $7 million a previous quarter largely driven by improved Paul unit sales realizations.
Speaker Change: In total, we reduced the net book value of our lumber and full assets in BC by approximately $311. Reflecting the right sizing of our operating footprint to balance sheet as a result of the recent closure announcements and the reduced availability of economic fiber supply in the province.
Speaker Change: At the end of the third quarter, Camper, Paul, had net debt of $68 million and $85 million of available liquidity, excluding a terminal commitment of $80 million, played a total potential reinvestment in North Switzerland's recovery.
Speaker Change: for excluding camp for pole and the $314 billion duty deposit loan completed in late September, and to the third quarter with that cash with approximately $330 million. On a consolidated basis, the camp was spent at a total of $17 million dollars per quarter.
Speaker Change: and the company, including $18 million for a camp or a pub. We anticipate capital spend approximately $450 million in the lumber frame, and including the remaining spend on our Alabama Greenfield, as well as various pro-searchers can be yourself as we've been.
Speaker Change: We anticipate a significant reduction in our campus spend in 2025 following the completion of these three major projects.
Speaker Change: For Camphor Paul, we are currently forecasting capital spend to approximately $50 million, $20, 24, including capitalized payments.
Speaker Change: Anderson, we anticipate Campbell will continue to LED to model a capital to opportunistically repurchased shares. And with that, Don, I'll turn the call back to you.
Don Kayne: Alright, thanks Pat. So, I'll pretty were okay now to take questions from Matt from Alex.
Don Kayne: Thank you.
Speaker Change: 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 speaker phone, please lift your receiver and then press star 1. If at any time you wish to cancel your question, please press star 2.
Speaker Change: Please press star one now if you have a question. There will be a brief pause for participants, register for questions. Thank you for your patience.
Speaker Change: Your first question comes from Ben Isaacson at Scoshabank. Please go ahead.
Speaker Change: Good morning. This is a perva on for Ben.
Speaker Change: My first question is, we've seen a bit of a general slowdown in European lumber imports.
Speaker Change: wondering if you could comment on what can for his volume out of the region look like.
Speaker Change: How much of that flow down is due to North American imports versus domestic demand in Europe.
Speaker Change: Thanks for having me, Kevin, you could comment on that. Thanks for the question, and yes, your opinion for it's our down, and that was largely predicated in something pricing here in North America that made it very competitive, or many of the operators there.
Speaker Change: are volume from Vita in to North America was actually relatively stable corner over quarter and a lot of that is committed to program business and a bunch of that with the home center business so I would say because of that our volumes are more stable but more I think transactional volume did see a shift.
Speaker Change: Thank you and then my second question if I can speak it in a minute is, can you provide us any update on how the modernization of urbanized going as well as the green field in access?
Speaker Change: Roughly how much incremental capacity do you expect will come online this year and then give in kind of work market conditions are today. Are you considering delaying or deferring any ramp up?
Speaker Change: Yes, so first of all, our bad at Alvista.
Speaker Change: We're commissioning that in Q42024 for sure and the Spenders, about 93% completed so far as a little bit more. We need to spend there. They just look about 15 million more feet.
Speaker Change: Thank you. And then perhaps as you mentioned, Axis also, the capacity there, that's also going to be complete. I think I mentioned in my comments and they're starting that up, but it's the capacity there will be 250 million more feet. And we're about basically that's all I need to say, our own axis. I can pronounce.
Speaker Change: Thank you. The next question comes from Kitana Muntora at Beemo Capital Market. Please go ahead.
Kitana Muntora: Good morning and thanks for taking my question. Maybe don't start with, you know, in general, I thought your release and your comments morning are...
Kitana Muntora: and the striking, a pretty cautious tone in terms of near-term demand and lumber. Some of the others that have reported are probably expecting a little more sort of recovery as we go through into Q4 and 25. I'm just curious.
Kitana Muntora: As you look at your demand and what you are hearing from your customers, can you comment at all in terms of repain-remotting demand, new residential demand, how that's holding up and how that is stranded through the quarter and into October. Thank you.
Don Kayne: Okay, so Kayne, Kayne, thanks for the question Kayne, and I'll maybe start real quick and I'll pass it over to our sales and marketing
Don Kayne: and I grew up here at Kevin. But first of all, just really on demand, I think we are cautious, but we've come, we've become a cautious, a last couple of three years right where and while we've been, we've done a fair bit of traveling lately in the United States. I think even in Japan.
Don Kayne: and overall I think the man looks fairly stable actually, it doesn't look disappointing us in any way. We're just being cautious for any major uptake.
Simon Edgson: and we're Simon Edgson.
Simon Edgson: and I think we're going to be able to do a lot of the increase in the school of comfort and supply reductions as opposed to demand increases, but overall, we're certainly not negative at all, and all the way to the matter of fact, we're looking forward to actually quite positive. And let's Kevin talk about that in 40 to. Patrick, I mean, the outlook actually looks a bit promising there, and we are a little bit cautious. However, with the state of what we had to, we had some major interest rate drops, and a lot of our ability and I guess it's just a question of timing. And once that affordability threshold gets achieved, I think the demand on luck is going to be pretty good. And more specifically, by talk like multifamily, that's been a big segment that's been
Simon Edgson: and we're starting to see that that has actually bought on the not helped demand down the road, but those are longer-term projects that take time to get done versus a single family. So that's why we're a little bit cautious going into Q1, up to 2025, but we do share that view that demand actually looks more promising, but really the uplift and pricing today has been largely driven by supply reductions.
Speaker Change: God, that's helpful context. And then, at one for you, you mentioned you expect a pretty meaningful reduction in 25, and 25, for lumber, order of magnitude.
Speaker Change: How should we thinking about that sort of reduction just rough numbers?
Speaker Change: We're fine tuning still, but I'd say it's like 250 to 300 million, which is 150 we spent this year that'd be the range I'd use.
Speaker Change: for the 50th pat, is that what he said? for Lumber? 250, 250, that's 300 million.
Speaker Change: I see, okay, perfect. That's all I had. I'll turn it over good luck.
Speaker Change: Thanks.
Speaker Change: Thank you. Next question comes from a Sean Stewart at TD Cowan. Please go ahead.
Sean Stewart: Thanks for morning everyone. A couple questions. I'll start with the loan against the duty receivable.
Sean Stewart: I hope you can give us some of your rationale there, given you already have a strong balance sheet.
Sean Stewart: and it looks like the borrowing costs depending on the timeframe here could be reasonably high.
Sean Stewart: I guess the read through is either your expecting this is going to be a very drawn out process towards any sort of resolution on the trade file or you feel the need to bolster and already strong balance sheet ahead of.
Speaker Change: and maybe a difficult market environment or a potential M&A opportunities. Can you give us some more context on the rationale, pat, or on that front?
Speaker Change: Yes sir Sean I mean you're right there's a timing call in there for sure I think on both sides of the equation I can't tell you when that's
Speaker Change: When this will settle, we're on the record as sort of identifying we don't see in the turn settlement.
Speaker Change: Kimford has over $725 billion dollars in deposit and with the rates increasing here to 16% that probably doubling or more again next year we're going to have a lot more in the deposit so for us the opportunity to take some of the money off the table even at a discount.
Speaker Change: is seeing to make some sense. There's no specific use of funds we have in mind, but just the flexibility and you know, these opportunities maybe don't come along all the time and took us a while to do it. And so while it was there we thought it was sort of proven to take sort of 40% of our current exposure off the table and that's how we came to do it now, Sean.
Sean Stewart: Okay, understood. Second question is on your pain fiber cost. You mentioned the pressure you've seen on that front and we've seen reports that soldier in Sweden is...
Speaker Change: I think we're seeing log cops again, it spells over the last week or so.
Sean Stewart: Can you speak to the general fiber cost environment, your ability to recoup that in local prices for lumber with the...
Sean Stewart: The quarterly contract system that seems to be more in place there, it's supposed just general comment on fiber costs in Europe.
Speaker Change: I thank you for all you.
Speaker Change: and I think that it's safe to say across Europe, the fiber cost of increased pretty dramatically from fairly low base to the start with but still they have definitely increased and Northern Europe, particularly having increased. I guess there is some offset there though in terms of quality of the fiber that we get there and as you know and we spoken about it before we have a very high percentage of high value product opportunities there that we...
Speaker Change: and we've been able to develop over years and be long before we came along even later.
Speaker Change: was forced on that before. So we're in BC, we're in Canada and even the US were 40 to 60% high value, there is more like 80-90% so significant.
Speaker Change: Recovery, a great recovery, improvements in Sweden compared to anywhere else really in the world. Probably, but certainly at the top of the...
Speaker Change: and the other thing there are two shonas, we fell off our flexibility of markets. We got the ability to move around to where the markets are, the highest value is well enough. Even though law costs have gone up.
Speaker Change: We certainly were worse than you know, never comfortable with increases, but we've got lots of options and with a high value percentage of our portfolio, feel good about that too.
Speaker Change: That's great detail. Thanks, Don. That's all I have for now.
Speaker Change: Thank you. Next question comes from Hamier Patel at CIBC Capital Markets. Please go ahead.
Speaker Change: Hey, good morning.
Hamier Patel: I wanted to get your thoughts on how much of the capacity that's been removed this year is gone for good versus maybe idle for a period of time and at risk of coming back in a stronger market and just thinking specifically in the US South.
Speaker Change: Good question is one that we wrestle with ourselves right and you know, ourselves we've just been a count where we got a couple of meals pound and out and you know, have a one-back kind of thing. But at the end of the day, hard to know that when a business difficult is a lot of the independence right they don't report they don't speak about it, but we can only tell by the performance in the last of the 12 to 18 months of the selling of a pilot operations overall that they've got to be under significant pressures. So our belief is a step late town. If you go back we talk with the school up, but if you went back two, three years when a lot of these barters.
Speaker Change: Mills, the 15 Big Mac and Mills Air Boys built through that, you know, a good construction.
Speaker Change: and I'm sure there's expected to be significant increases in the production. Of course this year, here today's public town, 7.8%.
Speaker Change: So it's not anywhere near the what was expected even a couple years ago.
Speaker Change: So our view is that the other is whether how much of that's permanently downhart tell, but I would say that there's a portion of that for sure is just hard to get a complete had a lot. But say to say though, I think that the deep, we're not going to see anywhere near the increases that we thought we would have seen based on forecast a couple years ago.
Speaker Change: Jason.
Jason: Okay, fair enough and does it have done? How do you think about Euro, your European exports to the US, just given the rationalization you've done to your BC platform? Do you expect that to grow and maybe you could speak to the relative attractiveness of selling?
Speaker Change: into the U.S. from Europe versus selling domestically.
Speaker Change: Yeah, I think there's, you know, that's one of the reasons why we beat.
Speaker Change: We diversified like we did, we wanted to be able to anticipate at the PC situation for a long time because of beetle and fires and everything else that you hear, trade issues and everything else. So that's why we invested in other markets to start with. So certainly, beetik is a small option there for sure. So we're looking at that in terms of what those are and can be going forward.
Speaker Change: So, yeah, there is a part to play for our view for Vita and that's already underway in a lot of cases already. And, okay, Vince, but we're kind of a lot of programs that are already just some of them. We'll be getting out about part of particularly in Bruce Columbia. So, yeah, so I think if you had to look at our that acquisition and what we believe to be the case, in terms of capitalizing on that diversification, I think that's plan as we thought of it.
Speaker Change: and I was told that the way he taught it.
Speaker Change: Great, thanks a lot. Last question I had was, you know, depending obviously with the US upcoming election, if we were to have another Trump administration.
Speaker Change: and the first, you know, that's he's talked about putting sort of across the board 10% tariff on imports.
Speaker Change: Is there any reason lumber would not also get hit with that additional 10% of that occurs I'm just thinking with the ongoing trade dispute and you know is that maybe risk that your duties which are ready I'm going to go up, go up, potentially even more
Speaker Change: With all due respect to him here, I think it's obviously a really, really difficult one to call because there's a lot of, it seems like weekly and annually week-to-week of those prizes on that subject, but hard to speculate at this point on that.
Speaker Change: and obviously, you know, it's just like the two of you said we're dealing with today, you know, you got pressure responses and timing and all of that. So really difficult when I answer this point.
Speaker Change: Okay, fair enough, but I'll turn it over. Thanks.
Speaker Change: Thanks for watching.
Speaker Change: Thank you next question comes from Matthew McCeller at RBC Capital Markets. Please go ahead.
Matthew McCeller: Good morning. Thanks for taking my question. Keep talking a bit about what you're seeing across the landscape for acquisitions and wood products today, both in North America and Europe, please.
Speaker Change: I mean, I just, you know, for our standpoint, I mean, we, you know, certainly we've been pretty active in the last three or four or five years in terms of acquisitions in the end of strategic geographies that we felt was important for the future of and that combined that with some of the capital projects that we've done with the two new greenfields and the pretty expensive brownfield that we've done in our banner. You know, overall, you know, clearly we're continuing to look at opportunities in Europe and there's lots of opportunities in Europe and there's lots of opportunities in Europe.
Speaker Change: All over the place, but right now we're just being a real real, focused on completing the capital that we've gotten to place there. We've got the startups that are coming here.
Speaker Change: and it will look at opportunities as they look forward. There's nothing that I can speak to at this point, at all. But you know, you've heard us talk before, in the case that we really like here. We really like Alberta and we really like the US.
Speaker Change: Thanks for that. Anyway, it could be.
Speaker Change: Okay, thank you. Edgson, we're clean up from the on-cap X. I think I heard 250, 250 to 300 million on the lumber side next year. Are you expecting the pulp side that 25 looks something like 24 or any comments around that please?
Simon Edgson: Yeah, I think given that we've rationalized the line at Norsewood, we'll be below 50. We're still working through that, but I don't just spit it out, but below 50.
Speaker Change: That's all, we'll thank you, I'll turn it back
Matthew McCeller: Thanks, Matthew.
Speaker Change: Thank you, we have no further questions, I'll turn it over to Don Kayne for closing comments. Go ahead, Mr. Kayne.
Don Kayne: Thank you.
Speaker Change: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.