CANFOR REPORTS RESULTS FOR FIRST QUARTER OF 2022

VANCOUVER, BC, May 3, 2022 /CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its first quarter of 2022 results:

Overview

• Q1 2022 reported operating income of $742 million driven by strong lumber segment results with near record-high North American lumber pricing and strong earnings for the Company's European lumber operations
• Shareholder net income of $534 million, or $4.29 per share
• Completed acquisition of Millar Western Forest Products Ltd.'s ("Millar Western") solid wood operations and associated tenure for $440 million, including net working capital
• Announced $165 million (US$130 million) investment in the US South to significantly upgrade and expand Urbana's sawmill and planer facility
• Announced the implementation of a comprehensive plan to achieve net-zero carbon emissions by 2050

Financial Results

The following table summarizes selected financial information for the Company for the comparative periods:

(millions of Canadian dollars, except per share amounts)						Q1		Q4		Q1
						2022		2021		2021
Sales					$	2,213.3	$	1,571.3	$	1,941.8
Reported operating income before amortization and impairments					$	830.7	$	321.7	$	696.7
Reported operating income (loss)					$	741.9	$	(66.8)	$	602.6
Adjusted operating income before amortization and impairments^1					$	829.6	$	311.3	$	694.5
Adjusted operating income^1					$	740.8	$	216.3	$	600.4
Net income (loss)^2					$	534.0	$	(23.1)	$	427.8
Net income (loss) per share, basic and diluted^2					$	4.29	$	(0.19)	$	3.42
Adjusted net income^1, 2					$	529.0	$	154.6	$	434.2
Adjusted net income per share, basic and diluted^1, 2					$	4.25	$	1.24	$	3.47
^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.
^2Attributable to equity shareholders of the Company.

For the first quarter of 2022, the Company reported operating income of $741.9 million compared to an operating loss of $66.8 million in the fourth quarter of 2021. After taking account of adjusting items, largely comprised of asset impairments in the previous quarter, the Company's adjusted operating income for the current quarter of $740.8 million was $524.5 million higher than adjusted operating income of $216.3 million reported for the fourth quarter of 2021, primarily reflecting a significant increase in lumber segment earnings, and to a much lesser extent, improved pulp and paper segment results.

Commenting on the Company's first quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "We are very pleased to see the sustained strength in global lumber markets continuing into 2022 and while our pulp business continued to face challenges, we also saw improved results in the quarter. A solid operating performance across all of our lumber operating regions allowed us to capitalize on these favourable market fundamentals and execute on our diversification strategy with the recent acquisition of Millar Western. Despite these factors, the global supply chain crisis continues to negatively impact our operations and has resulted in curtailed and reduced lumber and pulp operating schedules. We will continue to assess the effects of this crisis and will make adjustments to our operating schedules as conditions evolve. We greatly appreciate our employees' ongoing resilience in managing through the supply chain challenges."

In the lumber segment, adjusted earnings increased $509.7 million quarter-over-quarter principally reflecting an extensive uplift in Western Spruce/Pine/Fir ("SPF") and Southern Yellow Pine ("SYP") US-dollar benchmark pricing in the current period, with the average North American Random Lengths Western SPF 2x4 #2&Btr price up US$563 per Mfbm, or 79%, and the average SYP East 2x6 #2 up US$564 per Mfbm, or 105%. The near record-high benchmark lumber pricing in the current quarter was combined with higher production and shipment volumes for the Company's North American lumber operations, albeit moderated in part by the ongoing global supply chain challenges, especially in Western Canada. Current quarter results also reflected strong earnings for the Company's European operations principally attributable to moderately higher European lumber unit sales realizations and, to a lesser extent, lower unit manufacturing costs, offset in part by a 5% stronger Canadian dollar (versus the Swedish Krona ("SEK")). 

North American market conditions remained very strong through much of the first quarter of 2022, primarily led by continued strength in new home construction activity. Significant demand against a backdrop of tight supply, largely stemming from supply chain disruptions, resulted in the aforementioned increase in North American benchmark lumber prices in the current quarter. Towards the end of the current quarter, however, elevated material costs, tied to the raised benchmark lumber prices, combined with growing concerns around housing affordability and higher interest rates, dampened consumer spending in the "do-it-yourself" sector.   

Offshore lumber demand in Asia weakened somewhat in the first quarter of 2022, particularly in China. In addition, lumber inventories in the region were higher than seasonal norms due to delays in the prior quarter on inbound shipments.

After a modest decline in the prior quarter, Western Europe and Scandinavian lumber demand strengthened throughout the first quarter of 2022 supported by increased activity in the repair and remodeling sector and relatively stable residential construction activity.

Results in the pulp and paper segment principally reflected supply-driven increases in Northern Bleached Softwood Kraft ("NBSK") pulp US-dollar prices that were significantly moderated by the ongoing impacts of global supply chain challenges and transportation disruptions in British Columbia ("BC") on Canfor Pulp Products Inc.'s ("CPPI") operations and shipments. As a result, CPPI's NBSK pulp and Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") unit sales realizations were broadly in line with the previous quarter. In addition, current quarter results included the impact of capital-related downtime at CPPI's Northwood NBSK pulp mill ("Northwood") related to the rebuild of the lower furnace of recovery boiler number one ("RB1"). The lower furnace replacement was completed mid-April, with a total capital cost of approximately $30.0 million and total reduction in NBSK pulp production of 90,000 tonnes (10,000 tonnes in the fourth quarter of 2021, 70,000 tonnes in the current quarter and a further 10,000 tonnes in April 2022).

Looking ahead, global lumber market fundamentals are anticipated to remain strong through the second quarter of 2022. New home construction in North America is projected to show continued strength in the near term, supported by lean home inventory, an aging housing stock and high levels of homeowner equity. As the year progresses, however, new home construction activity is estimated to face increased headwinds due to high inflation, rising interest rates and decreasing housing affordability. Demand in the repair and remodeling sector is anticipated to soften somewhat, principally reflecting inflationary cost pressures and competing uses for discretionary spending.

Offshore lumber demand in Asia is forecast to experience some downward pressure in the second quarter of 2022 before improving through the balance of the year as inventories in the region move back into balance. The outlook for European markets remains positive moving into the second quarter but is anticipated to face increasing challenges associated with rising inflation and Russia's recent invasion of the Ukraine which has disrupted regional supply networks.

Results in the second quarter will reflect reduced operating schedules across the Company's Western Canadian lumber operations as a result of the cumulative effects of the supply chain crisis that has been ongoing for several months. The Company will continue to closely monitor the supply chain situation and will adjust future lumber operating schedules, as appropriate, through the balance of the second quarter and into latter half of 2022.

In addition, the permanent reduction of 150 million board feet of production capacity at the Company's Plateau sawmill in BC is anticipated to take effect at the end of the second quarter of 2022. The resizing will align the facility with the reduction in available, sustainable timber supply in the region following the Mountain Pine Beetle infestation and other constraints on the timber harvesting land base.

For the pulp and paper segment, results in the second quarter of 2022 are anticipated to reflect in part, the near record-high US-dollar pulp list pricing seen in the first quarter of 2022. However, the intermittent and limited rail service experienced in BC in the first quarter of 2022 is projected to continue well into the second quarter, putting sustained pressure on CPPI's operations and shipments through the coming months, including, as previously announced, the extension of a transportation-related curtailment at CPPI's Taylor BCTMP mill ("Taylor") by at least a further six-weeks, with a projected 25,000 tonnes of reduced BCTMP production. CPPI will continue to closely monitor the ongoing supply chain challenges and will adjust future operating plans accordingly, through the balance of the second quarter and 2022.

In addition, CPPI's results in the second quarter of 2022 will reflect the impact of the RB1 capital-related outage at Northwood into mid-April (approximately 10,000 tonnes), as well as a scheduled maintenance outage at Northwood in the latter part of the second quarter, with a projected 25,000 tonnes of reduced NBSK pulp production. With the RB1 rebuild now complete, a key focus of CPPI's kraft pulp mills for the balance of 2022 will be on improving operational reliability and closely managing manufacturing and fibre costs.

Additional Information and Conference Call 

A conference call to discuss the first quarter's financial and operating results will be held on Wednesday, May 4, 2022 at 8:00 AM Pacific time. To participate in the call, please dial Toll-Free 1-888-390-0546. For instant replay access until May 18, 2022, please dial Toll-Free 1-888-390-0541 and enter participant pass code 210218#. 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 http://www.canfor.com/investor-relations/.

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)						Q1		Q4		Q1
						2022		2021		2021
Reported operating income (loss)					$	741.9	$	(66.8)	$	602.6
Asset impairments					$	-	$	293.5	$	-
Inventory write-down (recovery), net					$	(1.1)	$	1.1	$	(2.2)
Restructuring, mill closure and other items, net					$	-	$	(11.5)	$	-
Adjusted operating income					$	740.8	$	216.3	$	600.4
Amortization					$	88.8	$	95.0	$	94.1
Adjusted operating income before amortization and impairments					$	829.6	$	311.3	$	694.5
After-tax impact, net of non-controlling interests						Q1		Q4		Q1
(millions of Canadian dollars)						2022		2021		2021
Net income (loss)					$	534.0	$	(23.1)	$	427.8
Foreign exchange (gain) loss on term debt					$	(3.0)	$	0.2	$	(2.6)
(Gain) loss on derivative financial instruments					$	(2.0)	$	3.0	$	9.0
Asset impairments					$	-	$	182.9	$	-
Restructuring, mill closure and other items, net					$	-	$	(8.4)	$	-
Adjusted net income^3					$	529.0	$	154.6	$	434.2
^3Attributable 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 and Arkansas, 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 Canfor Pulp Products Inc., 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 Canfor Corporation

Media Contact: Michelle Ward, Senior Director, Communications & GR, [phone], [email protected]; Investor Contacts: Pat Elliott, CFO & SVP, Sustainability, [phone], [email protected]; Dan Barwin, Director, Corporate Finance, [phone], [email protected]