Canfor Pulp reports results for the third quarter of 2024

VANCOUVER, BC, Oct. 25, 2024 /CNW/ - Canfor Pulp Products Inc. ("The Company" or "CPPI") (TSX: CFX) today reported its third quarter of 2024 results:

Overview.

• Q3 2024 operating loss of $209 million, includes a $211 million asset write-down and impairment charge in the pulp segment resulting from further deterioration in economic fibre availability following recent British Columbia Interior sawmill closure announcements.
• After taking into consideration one-time items, Q3 2024 operating income of $2 million compared to similarly adjusted operating loss of $6 million in Q2 2024.
• Modest improvement in NBSK pulp unit sales realizations driven by steady North American pulp pricing through most of the third quarter and favourable timing lag in shipments, despite weak demand in China and notable increase in pulp producer inventory levels.
• Orderly wind down of one production line at Northwood NBSK pulp mill completed in August.

Financial results.

The following table summarizes select financial information for CPPI for the comparative periods:

(millions of Canadian dollars, except per share amounts)			Q3 2024			Q2 2024			YTD 2024		Q3 2023		YTD 2023
Sales		$	193.2		$	220.0		$	635.5	$	188.8	$	681.6
Reported operating income (loss) before amortization, asset write-down and impairment		$	18.8		$	11.0		$	31.0	$	(27.7)	$	(43.6)
Reported operating loss		$	(209.3)		$	(5.6)		$	(230.6)	$	(49.3)	$	(112.4)
Adjusted operating income (loss) before amortization, asset write-down and impairment^1		$	18.8		$	11.0		$	31.0	$	(29.7)	$	(35.1)
Adjusted operating income (loss)^1		$	1.7		$	(5.6)		$	(19.6)	$	(51.3)	$	(103.9)
Net loss		$	(156.1)		$	(6.3)		$	(164.8)	$	(35.7)	$	(82.9)
Net loss per share, basic and diluted		$	(2.39)		$	(0.10)		$	(2.53)	$	(0.55)	$	(1.27)
Adjusted net loss^1		$	(2.1)		$	(6.3)		$	(10.8)	$	(35.7)	$	(82.9)
Adjusted net loss per share, basic and diluted^1		$	(0.03)		$	(0.10)		$	(0.17)	$	(0.55)	$	(1.27)

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.

For the third quarter of 2024, the Company reported an operating loss of $209.3 million, including an asset write-down and impairment charge totaling $211.0 million within its pulp segment.

In recent years, the Company, like other pulp producers in central and northern British Columbia ("BC"), has experienced a significant reduction in the supply of sawmill residual chips driven by extensive temporary and permanent sawmill curtailments and closures in the region. In response to these fibre constraints, the Company has taken several actions including securing additional fibre supply, prioritizing discretionary capital spending to maximize fibre utilization and recovery, as well as making rationalization decisions with respect to the Company's operating footprint. Notably, the Company permanently closed the pulp line at its Prince George pulp and paper mill in early 2023, and more recently, completed the wind down of one production line at the Company's Northwood Northern Bleached Softwood Kraft ("NBSK") pulp mill ("Northwood") in August. Collectively, these curtailments reduce the Company's annual market kraft pulp production by approximately 580,000 tonnes.

During the third quarter of 2024, these fibre challenges were further exacerbated by additional sawmill closure announcements in the BC Interior, which were in response to weak lumber market conditions, upcoming increases in US tariffs on lumber exports and various regulatory complexities. As a result, the reduction in fibre supply as well as the ongoing uncertainty surrounding economic fibre availability continue to impact the Company and consequently, an asset write-down and impairment charge of $211.0 million was recognized in the third quarter of 2024, as a reduction to the carrying value of the Company's pulp segment assets.

After adjusting for the asset write-down and impairment charge, the Company's operating income for the third quarter of 2024 was $1.7 million, a $7.3 million improvement compared to the second quarter of 2024. Despite some moderation in US-dollar pulp list prices to China during the current quarter, the Company's results largely reflected modestly higher NBSK pulp unit sales realizations, offset in part by reduced pulp production and shipment volumes in the period following the successful wind down of one production line at Northwood in August 2024.

Commenting on the Company's third quarter of 2024 results, CPPI's President and Chief Executive Officer, Kevin Edgson, said, "The Company continues to face persistent challenges accessing economic fibre, the results of which led to another curtailment of our operations this quarter. These decisions weigh heavily on our results, as well as our employees, their families and the local communities. Despite these challenges, our business realized improved adjusted operating earnings this quarter, and we executed a safe, smooth and efficient wind down of one line at Northwood."

Third quarter highlights.

Global softwood pulp market fundamentals experienced downward pressure throughout the third quarter of 2024 primarily driven by weak demand from China, as well as the introduction of additional global hardwood capacity. These factors, when combined with the traditional seasonal summer slowdown in global demand, led to a moderation in purchasing activity and prices during the current period. As a result, NBSK US-dollar pulp list prices to China, the world's largest consumer of pulp, declined in the quarter to a low of US$750 per tonne in August, before stabilizing through the balance of the period, ending September at US$754 per tonne. For the current quarter overall, US-dollar NBSK pulp list prices to China averaged US$771 per tonne, down US$40 per tonne, or 5%, from the prior quarter. Other global regions, including North America, experienced a delayed impact on price moderation, as prices remained steady for most of the third quarter, with slight declines seen towards the end of the period. As a result of these market conditions, particularly in China, global softwood pulp producer inventories experienced a notable increase in the current period to well above the balanced range, ending August at 50 days of supply, an increase of 12 days compared to June 2024.

Pulp production was 125,000 tonnes for the third quarter of 2024, down 5,000 tonnes, or 4%, from the second quarter of 2024, principally reflecting the wind down of one pulp line at the Company's Northwood pulp mill, which was completed safely and efficiently in August 2024 (approximately 50,000 tonnes).

The Company's paper segment experienced an operating loss of $0.8 million in the current quarter, compared to operating income of $1.9 million in the previous quarter. This decline was largely driven by reduced paper production and shipments in the current period, primarily as a result of minor mechanical failures at the paper machine.

Outlook.

Looking forward, global softwood pulp market conditions are anticipated to experience a slight improvement through the fourth quarter of 2024, as demand from the Chinese market is forecast to gradually recover and as elevated inventory levels slowly begin to normalize following the end of the seasonally slower summer months.

Results in the fourth quarter of 2024 will reflect the full wind down of one production line at the Company's Northwood pulp mill, including the impact on pulp production (a reduction of approximately 300,000 tonnes of market kraft pulp annually), shipments and costs. Looking forward, the Company remains focused on optimizing its operating footprint, enhancing operational reliability and closely managing manufacturing and fibre costs.

In addition, the Company will continue to evaluate operating conditions and adjust operating rates at its pulp mills to align with economically viable fibre supply. These factors could also affect the Company's operating plan, liquidity, cash flows and the valuation of long-lived assets.

Demand for bleached kraft paper is projected to weaken somewhat through the fourth quarter of 2024 with a modest slowdown in kraft paper demand anticipated. 

No major maintenance outages are planned for the fourth quarter of 2024. 

Additional information and conference call.

A conference call to discuss the third quarter's financial and operating results will be held on Monday, October 28, 2024, at 8:00 AM Pacific time. To participate in the call, please dial Toll-Free 1-888-510-2154. For instant replay access until November 11, 2024, please dial Toll-Free 1-888-660-6345 and enter participant pass code 89443#.

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 2024		Q2 2024		YTD 2024			Q3 2023	YTD 2023
Reported operating loss			$	(209.3)	$	(5.6)	$	(230.6)	$	(49.3)	$	(112.4)
Asset write-down and impairment			$	211.0	$	-	$	211.0	$	-	$	-
Inventory write-down (recovery)			$	-	$	-	$	-	$	(2.0)	$	8.5
Adjusted operating income (loss)			$	1.7	$	(5.6)	$	(19.6)	$	(51.3)	$	(103.9)
Amortization			$	17.1	$	16.6	$	50.6	$	21.6	$	68.8
Adjusted operating income (loss) before amortization, asset write-down and impairment			$	18.8	$	11.0	$	31.0	$	(29.7)	$	(35.1)

(millions of Canadian dollars)		Q3 2024		Q2 2024		YTD 2024			Q3 2023	YTD 2023
Net loss		$	(156.1)	$	(6.3)	$	(164.8)	$	(35.7)	$	(82.9)
Asset write-down and impairment, net of tax		$	154.0	$	-	$	154.0	$	-	$	-
Adjusted net loss		$	(2.1)	$	(6.3)	$	(10.8)	$	(35.7)	$	(82.9)

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.

About Canfor Pulp Products Inc.

Canfor Pulp Products Inc. ("Canfor Pulp" or "CPPI") is a leading global supplier of pulp and paper products with operations in the northern interior of British Columbia ("BC"). Canfor Pulp operates two mills in Prince George, BC with a total capacity of 780,000 tonnes of Premium Reinforcing Northern Bleached Softwood Kraft ("NBSK") pulp and 140,000 tonnes of kraft paper. CPPI shares are traded on the Toronto Stock Exchange under the symbol CFX. For more information visit canfor.com.

SOURCE Canfor Pulp Products Inc.

Media contact: Mina Laudan, VP, Corporate Affairs, [phone], [email protected]; Investor contacts: Pat Elliott, CFO and SVP, Sustainability, [phone], [email protected]; Dan Barwin, Director, Corporate Finance, [phone], [email protected]