CANFOR REPORTS RESULTS FOR FIRST QUARTER OF 2024

VANCOUVER, BC, May 1, 2024 /CNW/ - Canfor Corporation ("The Company" or "Canfor") (TSX: CFP) today reported its first quarter of 2024 results:

Overview

• Q1 2024 operating loss of $86 million; shareholder net loss of $65 million, or $0.54 per share
• Sustained pressure on global lumber markets and pricing, especially for Southern Yellow Pine ("SYP")
• Solid earnings from Europe; US South results directly impacted by weak SYP lumber pricing; Western Canadian results remained challenging despite uplift in Western Spruce/Pine/Fir lumber pricing
• Modest uptick in NBSK pulp unit sales realizations, 7% increase in pulp production quarter-over-quarter
• Continued execution of the Company's US South growth strategy with the announced agreement to acquire the El Dorado lumber manufacturing facility in Arkansas, as well as plans to optimize the Company's Alabama operational footprint
• Ongoing constraints accessing economically viable fibre in British Columbia impacting lumber and pulp operating rates in the near-term and through the balance of 2024

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
						2024		2023		2023
Sales					$	1,382.7	$	1,282.9	$	1,385.4
Reported operating income (loss) before amortization					$	19.8	$	(89.1)	$	(105.7)
Reported operating loss					$	(85.8)	$	(191.3)	$	(208.5)
Adjusted operating loss before amortization^1					$	(10.4)	$	(130.2)	$	(43.6)
Adjusted operating loss^1					$	(116.0)	$	(232.4)	$	(146.4)
Net loss^2					$	(64.5)	$	(117.1)	$	(142.0)
Net loss per share, basic and diluted^2					$	(0.54)	$	(0.98)	$	(1.17)
Adjusted net loss^1, 2					$	(52.1)	$	(127.2)	$	(144.9)
Adjusted net loss per share, basic and diluted^1, 2					$	(0.44)	$	(1.06)	$	(1.20)

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.

The Company reported an operating loss of $85.8 million for the first quarter of 2024, compared to an operating loss of $191.3 million in the fourth quarter of 2023. After taking into consideration a net $30.2 million reversal of a previously recognized inventory write-down, the Company's adjusted operating loss was $116.0 million for the first quarter of 2024, compared to a similarly adjusted operating loss of $232.4 million for the fourth quarter of 2023. These results largely reflected an improvement in the lumber segment.

Commenting on the Company's first quarter results, Canfor's President and Chief Executive Officer, Don Kayne, said, "Although global lumber markets remained under pressure in the first quarter, especially Southern Yellow Pine, our global lumber footprint helped mitigate some of these market-related pressures, as our European operations delivered positive results and our Western Canadian operations benefited from an uplift in Western Spruce/Pine/Fir lumber pricing. Going forward, we anticipate the benefits of our global diversification strategy to be further enhanced by our acquisition of the El Dorado sawmill in Arkansas, as well as the optimization of our Alabama facilities. In British Columbia, the operating conditions remain challenging, as we continue to face persistent constraints associated with a lack of economically viable fibre."

"For our pulp business" added Kayne, "generally balanced global softwood pulp market conditions and steady pulp production led to a modest uplift in our pulp business results quarter-over-quarter. Our pulp operations, however, continue to navigate a constrained fibre supply environment both in the short and long-term."

First Quarter Lumber Segment Highlights

For the lumber segment, the adjusted operating loss was $87.3 million for the first quarter of 2024, compared to the previous quarter's adjusted operating loss of $192.4 million. These results were primarily driven by a 12% uplift in the average North American Western Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price and slightly higher market pricing in the United Kingdom ("UK"). In contrast, a challenging pricing environment for SYP combined with modestly higher unit manufacturing and product costs in that region, tempered results from the Company's US South operations in the current quarter.

North American lumber market conditions remained under pressure through most of the current quarter. Despite strong underlying fundamentals supported by low inventories of new homes and favourable demographics, prospective homebuyers remained cautious in the current period due to overarching affordability concerns. These factors, combined with weather-related disruptions early in the current quarter, led to a reduction in US residential construction activity quarter-over-quarter. Steady activity, however, in the repair and remodel sector, coupled with the impact of reduced supply stemming from fibre and market-related curtailments, most notably in Western Canada, resulted in an uptick in most North American benchmark prices in the latter part of the period.

US housing starts declined to 1,375,000 units in January as severe winter weather disrupted homebuilding activity. As conditions improved in February, housing starts posted significant gains but dropped again in March, averaging 1,415,000 units on a seasonally adjusted basis for the first quarter of 2024, down 5% from the previous quarter. This decline reflected a 1% increase in single family homes and a 20% decrease in multi-family starts, with the latter mainly driven by an accumulated surplus of multi-family homes under construction, particularly in the US South. In Canada, housing starts averaged 244,000 units on a seasonally adjusted basis in the first quarter of 2024, unchanged from the previous quarter.

Offshore lumber demand and pricing in Asia remained relatively flat quarter-over-quarter. In China, despite previously introduced government stimulus measures and a gradual draw-down of high inventory levels in the region, a depressed real estate market and general economic uncertainty continued to weigh on demand. In Japan, demand and pricing experienced some improvement in the current quarter as inventories moved towards more normalized levels and homebuilder incentives helped to ease affordability pressures.

In Europe, increased activity in the do-it-yourself sector, particularly in the UK, partially alleviated the ongoing impact of low levels of new home construction in that region. This improved demand was combined with reduced lumber supply in the region and led to a moderate improvement in the UK and overall European lumber pricing quarter-over-quarter.

Lumber Segment Outlook

Looking ahead, North American lumber market pricing is projected to experience some weakness through the second quarter of 2024, particularly for SYP. Despite an anticipated seasonal uptick in residential construction activity and the benefit of concessions offered by new home builders, demand is forecast to be challenged by ongoing affordability headwinds in the near-term, especially in the multi-family segment. Demand in the repair and remodeling sector, however, is projected to remain steady through the second quarter of 2024. On the supply side, ongoing fibre and market-related downtime, especially in Western Canada, is anticipated to continue to reduce inventories to more balanced levels.

Offshore lumber demand and pricing in Asia is projected to show some improvement in the second quarter of 2024 primarily due to the benefit of various government stimulus measures, particularly in Japan, and the ongoing reduction of lumber inventories in that region.

In Europe, lumber market pricing is forecast to improve slightly in the second quarter of 2024, as steady activity in the do-it-yourself sector and some persistent lumber supply constraints, tied in part to reduced log availability and increasing log costs in the region, are met with ongoing low levels of European residential construction activity.

In the US South, subsequent to quarter-end, in April 2024, the Company announced the decision to permanently close its Jackson, Alabama, facility at the end of the second quarter of 2024 and expand production at its Fulton, Alabama, facility through a second shift. These steps, together with the previously announced construction of a new, state-of-the art greenfield sawmill in Axis, Alabama, are anticipated to grow the Company's regional manufacturing platform by 100 million board feet of annual production capacity and consolidate operations at modern facilities that are well positioned to be competitive for the long-term.

On the acquisition front, today the Company announced that it has entered into an agreement with Resolute Forest Products Inc., an affiliate of Domtar Corporation, to purchase its El Dorado lumber manufacturing facility located in Union County, Arkansas, for US$73 million, including working capital. The facility, which is close to key end-markets, produces dimensional lumber and specialty wood products and is expected to increase Canfor's annual SYP lumber capacity by 175 million board feet after US$50 million of planned upgrades. The transaction is anticipated to close later in 2024 following the completion of customary closing conditions.

In Western Canada, there remains significant uncertainty with regards to the availability of economically viable fibre in British Columbia ("BC"). The Company continues to anticipate sustained log cost pressures and persistent constraints accessing economically viable fibre in BC for its sawmills, as well as a challenging fibre environment for CPPI's pulp mills. With these ongoing fibre-related pressures, the Company continues to evaluate its options and will adjust its operating rates in BC to align with demand and economically available timber supply in the near-term and through the balance of 2024.

First Quarter Pulp and Paper Segment Highlights

For the pulp and paper segment, the adjusted operating loss was $15.7 million for the first quarter of 2024, compared to an adjusted operating loss of $26.0 million for the fourth quarter of 2023. These results were largely driven by a modest uplift in Canfor Pulp Product Inc.'s ("CPPI") average Northern Bleached Softwood Kraft ("NBSK") sales unit pulp realizations in the current quarter combined with a 7% increase in pulp production compared to the fourth quarter of 2023.

Global softwood pulp markets remained flat through most of the current quarter, principally tied to generally subdued demand, particularly from Asia, combined with stable pulp producer inventory levels. Late in the current quarter, however, NBSK pulp prices to China, the world's largest pulp consumer, showed some upward momentum, largely driven by global pulp supply concerns, tied in part, to Finland's national transport workers' strike. As any related price changes will be realized in subsequent quarters, for the current quarter overall, average US-dollar NBSK pulp list prices to China were US$745 per tonne, broadly in line with the previous quarter.

Pulp and Paper Segment Outlook

Looking forward, global softwood kraft pulp market conditions are anticipated to strengthen somewhat through the second quarter of 2024, largely in response to global pulp supply disruptions, stemming from the transportation labour dispute in Finland, as well as pulp producer downtime.

In the second quarter of 2024, maintenance outages are scheduled at CPPI's Intercontinental ("Intercon") pulp mill and at its paper machine, which are projected to reduce NBSK market pulp production by 5,000 tonnes and reduce paper production by 5,000 tonnes.

Given the ongoing uncertainty with regards to the availability of economically viable fibre in BC, and the continued weakness in North American lumber markets, CPPI anticipates a challenging fibre supply environment for its pulp mills (both for sawmill residual chips and whole log chips), through the balance of 2024. CPPI will continue to evaluate its operating conditions and will adjust operating rates at its pulp mills to align with economically viable fibre supply, which will impact CPPI's production, shipments and cost structure. These factors could also affect CPPI's operating plan, liquidity, cash flows and the valuation of long-lived assets.

Additional Information and Conference Call 

A conference call to discuss the first quarter's financial and operating results will be held on Thursday, May 2, 2024, 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 16, 2024, please dial Toll-Free 1-888-390-0541 and enter participant pass code 012200#.

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)						Q1		Q4		Q1
						2024		2023		2023
Reported operating loss					$	(85.8)	$	(191.3)	$	(208.5)
Inventory write-down (recovery), net					$	(30.2)	$	(41.1)	$	62.1
Adjusted operating loss					$	(116.0)	$	(232.4)	$	(146.4)
Amortization					$	105.6	$	102.2	$	102.8
Adjusted operating loss before amortization					$	(10.4)	$	(130.2)	$	(43.6)

After-tax impact, net of non-controlling interests						Q1		Q4		Q1
(millions of Canadian dollars)						2024		2023		2023
Net loss^3					$	(64.5)	$	(117.1)	$	(142.0)
Foreign exchange (gain) loss on term debt					$	6.6	$	(5.3)	$	(0.4)
(Gain) loss on derivative financial instruments					$	5.8	$	(4.8)	$	(2.5)
Adjusted net loss^3					$	(52.1)	$	(127.2)	$	(144.9)

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 global leader in the manufacturing of high-value low-carbon forest products including dimension and specialty lumber, engineered wood products, pulp and paper, wood pellets and green energy. Proudly headquartered in Vancouver, British Columbia, Canfor produces renewable products from sustainably managed forests, at more than 50 facilities across its diversified operating platform in Canada, the United States and Europe. The Company has a 70% stake in Vida AB, Sweden's largest privately owned sawmill company and also owns a 54.8% interest in Canfor Pulp Products Inc. Canfor shares are traded on The Toronto Stock Exchange under the symbol CFP. For more information visit canfor.com.

SOURCE Canfor Corp

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