VANCOUVER, BC, Nov. 2, 2023
/CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX:
CFP) today reported its third quarter of 2023
results1:
Overview
- Q3 2023 consolidated operating loss of $65 million, including a $49 million operating loss from the pulp
business; adjusted operating loss of $86
million; adjusted shareholder net loss of $19 million, or $0.16 per share
- Continued strong results in the US South; solid European
results despite seasonal downtime; another challenging quarter for
Western Canada
- Persistent pressure on global lumber market demand and pricing
through much of the quarter
- Market-driven curtailments in Western
Canada & seasonal downtime in Europe led to lower shipments
- Confirmed future investment of approximately $200 million in a new, state-of-the-art
manufacturing facility in Houston,
British Columbia
- Challenging results for Canfor Pulp despite stable global pulp
market fundamentals; Northwood NBSK Pulp Mill scheduled maintenance
completed as planned; restart delayed due to operational
challenges
Financial Results
The following table summarizes selected financial information
for the Company for the comparative periods:
|
|
Q3
|
|
Q2
|
|
YTD
|
|
Q3
|
|
YTD
|
(millions of Canadian
dollars, except per share amounts)
|
|
2023
|
|
2023
|
|
2023
|
|
2022
|
|
2022
|
Sales
|
$
|
1,312.3
|
$
|
1,446.0
|
$
|
4,143.7
|
$
|
1,666.4
|
$
|
6,053.4
|
Reported operating
income (loss) before amortization
|
$
|
42.6
|
$
|
41.0
|
$
|
(22.1)
|
$
|
211.5
|
$
|
1,672.5
|
Reported operating
income (loss)
|
$
|
(65.1)
|
$
|
(66.7)
|
$
|
(340.3)
|
$
|
108.6
|
$
|
1,382.1
|
Adjusted operating
income (loss) before amortization1
|
$
|
21.8
|
$
|
(16.4)
|
$
|
(38.2)
|
$
|
300.0
|
$
|
1,760.4
|
Adjusted operating
income (loss)1
|
$
|
(85.9)
|
$
|
(124.1)
|
$
|
(356.4)
|
$
|
197.1
|
$
|
1,470.0
|
Net income
(loss)2
|
$
|
(23.1)
|
$
|
(43.9)
|
$
|
(209.0)
|
$
|
87.4
|
$
|
995.2
|
Net income (loss) per
share, basic and diluted2
|
$
|
(0.19)
|
$
|
(0.36)
|
$
|
(1.74)
|
$
|
0.71
|
$
|
8.05
|
Adjusted net income
(loss)1, 2
|
$
|
(19.4)
|
$
|
(44.3)
|
$
|
(208.6)
|
$
|
98.5
|
$
|
1,007.2
|
Adjusted net income
(loss) per share, basic and diluted1, 2
|
$
|
(0.16)
|
$
|
(0.36)
|
$
|
(1.73)
|
$
|
0.80
|
$
|
8.15
|
1 Adjusted
results referenced throughout this news release are defined as
non-IFRS financial measures. For further details, refer to the
"Non-IFRS Financial Measures" section of this document.
|
2 Attributable to equity shareholders
of the Company.
|
For the third quarter of 2023, the Company reported a
consolidated operating loss of $65.1
million, which included a $49.3
million operating loss from Canfor Pulp Products Inc.
("CPPI"). This compares to a consolidated operating loss of
$66.7 million in the second quarter
of 2023, $37.9 million of which was
attributed to CPPI.
Results in the current quarter include a net $20.8 million reversal of a previously recognized
inventory write-down, principally driven by the lumber segment, as
well as a net duty recovery of $43.3
million (US$34.7 million)
resulting from the finalization of countervailing ("CVD") and
anti-dumping duty ("ADD") rates applicable to the fourth period of
review ("POR4").
Commenting on the Company's third quarter results, Canfor's
President and Chief Executive Officer, Don
Kayne said "Although global lumber markets remained under
pressure in the quarter, our US South operations continued to
deliver strong earnings. When combined with solid earnings from
Europe and slightly better results
from our Western Canadian operations, this outcome underscores the
importance of our global diversification strategy. For our pulp
business, this was a difficult quarter as global pulp market
conditions continued to be challenged with the oversupply of
product and tepid demand, and our operations faced significant
planned and unplanned downtime that continued into the fourth
quarter."
Lumber Segment Highlights and Outlook
For the lumber segment, adjusted results increased $59.7 million quarter-over-quarter. In the US
South, results remained solid quarter-over-quarter as a 5% increase
in the Southern Yellow Pine ("SYP") East 2x6 #2 price and higher
production and shipment volumes, largely driven by the newly
constructed sawmill in DeRidder,
Louisiana, ("DeRidder"), were offset by a 7% decline in the
SYP East 2x4 #2. Earnings in Europe in the current period principally
reflected a modest improvement in market pricing in the
United Kingdom ("UK"), offset by
the Company's regular summer downtime in the period and a 3%
stronger Canadian dollar (versus the Swedish Krona ("SEK")). In
Western Canada, the ongoing
challenging results primarily reflected a 17% increase in the
average North American Random Lengths Western Spruce/Pine/Fir
("SPF") 2x4 #2&Btr price offset by lower production and
shipment volumes quarter-over-quarter mainly driven by an increase
in market-related downtime in the current period as well as a full
quarter impact of mill closures, which took effect in April.
Lumber market fundamentals remained relatively subdued through
most of the third quarter of 2023. Market-related curtailments and
wildfires, particularly in Western
Canada, continued well into the current quarter constraining
North American lumber supply. These supply pressures were met with
solid repair and remodeling activity and a slight uptick in new
home construction in July, despite ongoing affordability challenges
tied to high interest rates and persistent inflation. As a result,
most North American US-dollar benchmark lumber prices posted modest
gains early in the period but softened through the balance of the
quarter as supply constraints eased.
Notwithstanding affordability headwinds, high home prices and
low inventory in the existing home market led to an increase in US
housing starts in July, particularly for single-family units which
consume approximately three times the volume of lumber compared to
multi-family homes. Extreme heat across much of the Southern US in
August, however, hindered building activity through the balance of
the period. As a result, for the current quarter overall, US
housing starts averaged 1,359,000 units on a seasonally adjusted
basis, down 6% from the previous quarter, reflecting a 3% increase
in single-family starts and a 24% decline in multi-family starts.
In Canada, housing starts averaged
259,000 units on a seasonally adjusted basis in the third quarter
of 2023, up 4% from the previous quarter, primarily driven by a 5%
increase in the construction of multi-family homes, with a
consistent level of activity seen for single-family homes.
Offshore lumber pricing to Asian markets remained relatively
stable in the third quarter of 2023, as improved demand in
China and Japan was met with elevated inventory levels
in those regions, due in part to an influx of supply from
Russia and Europe in the previous quarter.
In Europe, lumber demand and
pricing saw a modest improvement quarter-over-quarter, especially
in the UK, driven largely by ongoing strength in the repair and
remodeling segment.
Operationally, in the US South, the Company continued to
successfully ramp-up its greenfield DeRidder facility and transitioned effectively
to two shifts in August. The ramp-up of this facility is
progressing well and is forecast to continue to improve through the
balance of 2023.
In Western Canada, the Company
announced its plan to invest approximately $200 million in a new, state-of-the-art
manufacturing facility in Houston,
British Columbia ("BC"). This decision followed a
comprehensive evaluation of the availability of economic fibre in
the region, as well as customer requirements, to support a
successful investment. The low cost, high efficiency facility will
have an annual production capacity of approximately 350 million
board feet. In the fourth quarter of 2023, work began on detailed
project engineering and permitting requirements. Vendor and
equipment selection is anticipated to be finalized in early 2024,
with demolition and site preparation scheduled for the spring.
Looking ahead, although longer-term lumber market fundamentals
remain positive, affordability constraints are anticipated to
continue to weigh on demand in the near to mid-term. High mortgage
rates, persistent inflation and geopolitical tensions are forecast
to exert pressure on new home construction activity through the
balance of the year and into 2024. On the positive side, persistent
underlying demand for housing in North
America, coupled with low supply of existing home
inventories, are projected to support the housing sector in the
long-term. In the repair and remodeling segment, demand is
anticipated to be muted through the fourth quarter of 2023 due to
affordability constraints combined with seasonal factors.
Offshore lumber demand in Japan
is projected to remain somewhat muted through the balance of 2023,
reflecting general economic uncertainty and a slowed housing
market. The same demand trend is anticipated for China, despite the introduction of government
stimulus measures mid-year. Pricing to China, however, is estimated to improve
slightly in the coming months, due to reduced European imports and
a continued draw-down of inventories in that region.
European lumber pricing is forecast to face downward pressure
through the fourth quarter of 2023 driven mainly by low levels of
residential construction activity, moderated to a degree, by
continued strength in the do-it-yourself space.
Looking forward from an operational perspective, there remains
significant uncertainty with regards to the availability of
economically viable fibre in BC. This uncertainty is driven by
recent wildfire events, combined with the lasting impacts of the
Mountain Pine Beetle epidemic, uncertainties associated with
unsettled land and title claims by various Indigenous Nations and
outstanding policy, land use decisions and legislative initiatives
by the BC Government. While the Company has taken a number of
actions in recent years in response to these fibre constraints, the
near-term outlook in BC remains challenging. As a result, the
Company continues to anticipate sustained log cost pressures in BC
for its sawmills and a challenging fibre supply environment for
CPPI's pulp mills (both for sawmill residual chips and whole-log
chips). With these continued log cost pressures and the projected
weaker North American lumber market demand and pricing, the Company
will continue to adjust operating rates to align with demand and
economically available timber supply.
Pulp and Paper Segment Highlights and Outlook
For the pulp and paper segment, the adjusted operating loss was
$51.3 million for the third quarter
of 2023, compared to an adjusted operating loss of $31.0 million for the second quarter of 2023.
These results principally reflected the continuation of soft global
pulp market conditions throughout most of the current period
combined with extensive downtime at CPPI's Northwood Northern
Bleached Softwood Kraft ("NBSK") pulp mill ("Northwood") driven by
supply chain disruptions and scheduled maintenance, as well as
persistent reliability challenges and a delayed restart. When
combined, these factors drove a significant unfavourable timing lag
in CPPI's shipments (versus orders) and led to a substantial
decline in CPPI's NBSK pulp sales unit realizations in the current
quarter.
Global softwood pulp market fundamentals were relatively flat
through the current quarter, following a significant decline in the
preceding quarter. Later in the period, however, buyers started to
regain some market confidence, with lower global pulp pricing
leading to a slight increase in purchasing activity, as producers
worked to reduce their higher-than-average inventory levels.
Consequently, US-dollar NBSK list prices to China, the world's largest pulp consumer, saw
some positive momentum towards the end of the quarter, ending
September at US$715 per tonne. As a
result, average US-dollar NBSK pulp list prices to China for the current quarter were
US$680 per tonne, up US$12 per tonne, or 2%, from the previous
quarter. Notwithstanding the slight uplift in US-dollar NBSK list
prices to China in the current
period, CPPI's average NBSK pulp unit sales realizations
experienced a significant decrease compared to the previous
quarter, principally driven by an unfavourable timing lag in
shipments (versus orders), which was exacerbated by CPPI's reduced
pulp production in the current quarter, and was combined with the
ongoing deterioration in pulp market conditions and pricing to
other global regions, including North
America.
Looking forward, global softwood pulp markets are anticipated to
experience a slight improvement in the fourth quarter of 2023, as
elevated inventory levels slowly begin to normalize following the
seasonally slower summer months. These factors are projected to be
tempered by general global economic uncertainty and pressures.
CPPI's results in the fourth quarter of 2023 will reflect the
aforementioned operational challenges at Northwood associated with
the delayed startup, with a projected 30,000 tonnes of reduced NBSK
pulp production, combined with higher associated maintenance costs
and lower shipment volumes. These factors are also anticipated to
give rise to a larger-than-normal unfavourable timing lag in
shipments (vs orders) and thus it is estimated that fourth quarter
results will reflect persistently lower NBSK pulp sales unit
realizations, regardless of any uptick in US-dollar NBSK list
prices that may arise.
While no major maintenance outages are planned at CPPI's
operations in the fourth quarter of 2023, given the ongoing
uncertainty with regards to the availability of economically viable
fibre in BC, and a projected weaker North American lumber market,
CPPI anticipates a challenging fibre supply environment for its
pulp mills (both for sawmill residual chips and whole-log chips).
CPPI will continue to monitor operating conditions and will adjust
operating rates, to align with economically viable fibre supply,
through the balance of 2023 and into 2024.
Additional Information and Conference Call
A conference call to discuss the third quarter's financial and
operating results will be held on Friday,
November 3, 2023, at 8:00 AM Pacific
time. To participate in the call, please dial Toll-Free
1-888-390-0546. For instant replay access until November 17, 2023, please dial Toll-Free
1-888-390-0541 and enter participant pass code 364295#. The
conference call will be webcast live and will be available at
www.canfor.com. This news release, the attached financial
statements and a presentation used during the conference call can
be accessed via the Company's website at
www.canfor.com/investor-relations/webcasts.
Non-IFRS Financial Measures
Throughout this press release, reference is made to certain
non-IFRS financial measures which are used to evaluate the
Company's performance but are not generally accepted under IFRS and
may not be directly comparable with similarly titled measures used
by other companies. The following table provides a reconciliation
of these non-IFRS financial measures to figures reported in the
Company's condensed consolidated interim financial statements:
(millions of Canadian
dollars)
|
|
Q3
2023
|
|
Q2
2023
|
|
YTD
2023
|
|
Q3
2022
|
|
YTD
2022
|
|
|
|
|
|
Reported operating
income (loss)
|
$
|
(65.1)
|
$
|
(66.7)
|
$
|
(340.3)
|
$
|
108.6
|
$
|
1,382.1
|
Inventory write-down
(recovery), net
|
$
|
(20.8)
|
$
|
(57.4)
|
$
|
(16.1)
|
$
|
88.5
|
$
|
87.9
|
Adjusted operating
income (loss)
|
$
|
(85.9)
|
$
|
(124.1)
|
$
|
(356.4)
|
$
|
197.1
|
$
|
1,470.0
|
Amortization
|
$
|
107.7
|
$
|
107.7
|
$
|
318.2
|
$
|
102.9
|
$
|
290.4
|
Adjusted operating
income (loss) before amortization
|
$
|
21.8
|
$
|
(16.4)
|
$
|
(38.2)
|
$
|
300.0
|
$
|
1,760.4
|
|
|
|
|
|
|
|
|
|
|
|
After-tax impact, net
of non-controlling interests
(millions of Canadian dollars)
|
Q3
2023
|
|
Q2
2023
|
|
YTD
2023
|
|
Q3
2022
|
|
YTD
2022
|
Net income
(loss)3
|
$
|
(23.1)
|
$
|
(43.9)
|
$
|
(209.0)
|
$
|
87.4
|
$
|
995.2
|
Foreign exchange (gain)
loss on term debt
|
$
|
6.4
|
$
|
(6.7)
|
$
|
(0.7)
|
$
|
10.6
|
$
|
12.5
|
(Gain) loss on
derivative financial instruments
|
$
|
(2.7)
|
$
|
6.3
|
$
|
1.1
|
$
|
0.5
|
$
|
(0.5)
|
Adjusted net income
(loss)3
|
$
|
(19.4)
|
$
|
(44.3)
|
$
|
(208.6)
|
$
|
98.5
|
$
|
1007.2
|
3
Attributable to equity shareholders of the Company.
|
Forward Looking Statements
Certain statements in this press release constitute
"forward-looking statements" which involve known and unknown risks,
uncertainties and other factors that may cause actual results to be
materially different from any future results, performance or
achievements expressed or implied by such statements. Words such as
"expects", "anticipates", "projects", "intends", "plans", "will",
"believes", "seeks", "estimates", "should", "may", "could", and
variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are
based on Management's current expectations and beliefs and actual
events or results may differ materially. There are many factors
that could cause such actual events or results expressed or implied
by such forward-looking statements to differ materially from any
future results expressed or implied by such statements.
Forward-looking statements are based on current expectations and
Canfor assumes no obligation to update such information to reflect
later events or developments, except as required by law.
Canfor is a leading integrated forest products company based
in Vancouver, BC with interests in
BC, Alberta, North and
South Carolina, Alabama, Georgia, Mississippi, Arkansas and Louisiana, as well as in Sweden with its majority acquisition of the
Vida Group. Canfor produces primarily softwood lumber and also owns
a 54.8% interest in CPPI, which is one of the largest global
producers of market Northern Bleached Softwood Kraft Pulp and a
leading producer of high performance kraft paper. Canfor shares are
traded on The Toronto Stock Exchange under the symbol CFP. For more
information visit canfor.com.
SOURCE Canadian Forest Products Ltd.