Canfor Announces 2022 and Fourth Quarter of 2022 Results
Canfor Corporation (“The Company” or “Canfor”) reported its 2022 and fourth quarter of 2022 results1:
- 2022 adjusted operating income of $1.3 billion; adjusted shareholder net income of $880 million, or $7.15 per share
- Q4 2022 adjusted operating loss of $164 million; adjusted shareholder net loss of $127 million or $1.04 per share
- Significant weakness in lumber market demand in Q4 2022 led to a sharp deterioration in lumber pricing late in the year
- Q4 lumber production impacted by the continuation of reduced operating schedules in Western Canada; pulp production impacted by fibre shortages and challenging winter weather conditions
- After year end, announced restructuring of lumber and pulp operations in British Columbia to better align manufacturing capacity with available long-term fibre supply and create a stronger and more sustainable footprint
2022 was another strong year for Canfor, with the strength in global lumber market fundamentals experienced late in 2021 continuing well into the current year. Significant lumber demand led by solid activity in both new home construction and the repair and remodel segment, encountered tight supply due to supply chain disruptions. The result was ongoing global pricing pressure and high benchmark lumber prices through the first part of the year. As the year progressed, rising interest rates and inflation put significant downward pressure on housing affordability and global lumber market demand, leading to a rapid decline in global lumber market pricing in the latter part of the year. In response, the Company implemented reduced operating schedules at its Western Canadian operations. The Company’s strong earnings, however, reflect the continued benefit of its global diversification strategy which helped to moderate these challenges in British Columbia (“BC”).
Early in 2023, after an extensive analysis of its pulp mill operating footprint and the long-term supply of economic residual fibre, Canfor Pulp made the decision to permanently close the pulp line at its Prince George Pulp and Paper Mill (“PG”). Similarly, in order to create a more sustainable operating footprint in BC and to better align manufacturing capacity with the available long-term fibre supply, the Company made the difficult decision to restructure its BC lumber operations by permanently closing its Chetwynd sawmill and pellet plant and temporarily closing its Houston sawmill for an extended period to facilitate a major redevelopment on the site. The Company intends to build a new, modern, globally competitive manufacturing facility that employs state of the art technology to produce high value products from the sustainable timber supply in that region. The Company is currently undertaking an evaluation of the availability of economic fibre and a thorough project financial analysis, and is targeting a final investment decision by the end of the second quarter of 2023.
Recognizing these permanent closures as well as the ongoing challenges to the business posed by fibre availability and costs, the Company recorded asset write-downs and impairments totaling $138.6 million in its results for the three and twelve months ended December 31, 2022.
Before taking account of adjusting items, largely comprised of the aforementioned asset write-down and impairment charges, the Company’s operating income was $1,306.2 million for the current year (adjusted shareholder net income per share of $7.15), down $897.8 million compared to the record-high adjusted operating earnings of $2,204.0 million for the prior year (adjusted shareholder net income per share of $12.25). The Company reported operating income of $1,074.1 million for 2022, versus operating earnings of $1,908.1 million for 2021.
For the fourth quarter of 2022, the Company reported an operating loss of $308.0 million. After taking account of adjusting items, the Company’s operating loss for the fourth quarter of 2022 was $163.8 million compared to an adjusted operating income of $197.1 million for the previous quarter, largely reflecting a material decline in both the lumber and pulp and paper segment results.
Commenting on the Company’s 2022 and fourth quarter of 2022 results, Canfor’s President and Chief Executive Officer, Don Kayne, said, “After a strong start to the year, unfavourable global lumber market conditions led to sharp pricing declines and temporary capacity reductions across our Western Canadian sawmills, which also disrupted the supply of fibre to our pulp mills. As a result, our lumber and pulp business both faced significant challenges in the fourth quarter which directly impacted our quarterly results. Early in 2023, we made the difficult but necessary decision to create a more sustainable operating footprint in BC. Our goal is to match mill capacity with the economically available fibre for harvest to enhance our ability to compete and to operate throughout the market cycles. This is what will ultimately create greater stability for our employees and communities, while ensuring we can continue to provide the high quality, low carbon products that are in demand by our customers around the world. We sincerely regret the impact these decisions have on our employees, their families, contractors, and the businesses that support our operations and the local community. We thank our employees for their hard work, resilience, and commitment to safety as we work together to navigate this very challenging environment.”
Lumber Segment Highlights and Outlook
For the lumber segment, adjusted results decreased $295.6 million in the current quarter primarily reflecting a challenging period for the Company’s Western Canadian operations. These results were principally driven by a significant decline in global lumber market prices, with the average North American Random Lengths Western Spruce/Pine/Fir (“SPF”) 2×4 2&Btr price down US$170 per Mfbm, or 29%, quarter-over-quarter, the average Southern Yellow Pine (“SYP”) East 2×4 #2 down US$271 per Mfbm, or 38%, and moderately lower market pricing in Europe. This material drop in global lumber pricing was combined with a 17% decline in North American shipment volumes and the continuation of production curtailments in Western Canada, which lowered SPF production by approximately 250 million board feet in the current period. These factors were partially offset by the benefit of higher production and shipments in Europe following the seasonal downtime taken in the prior quarter.
North American lumber market conditions remained under pressure through the fourth quarter of 2022, with supply continuing to exceed demand. Persistent inflationary pressures alongside rising interest rates continued to reduce housing affordability in the current period, which lowered residential construction activity, particularly for single-family units. Activity in the repair and remodeling sector also trended downwards in the current quarter principally driven by seasonal impacts, coupled with declining existing home sales.
Offshore lumber demand and prices in Asia continued to be negatively impacted by elevated global inventory levels combined with reduced consumption in the fourth quarter of 2022, particularly in China as a result of COVID-19 related lockdowns in that region through much of the current period. In Western Europe and Scandinavia, lumber demand and pricing declined due to an unseasonably high inventory build and weakness in both the home building and do-it-yourself sectors tied to high inflation and energy costs which lowered consumer spending.
Looking ahead, global lumber market conditions are anticipated to remain under pressure through the first quarter of 2023. High inflation and interest rates are projected to continue to weigh on housing affordability and slow down demand for new home construction, especially in the single-family sector. On the other hand, the repair and remodeling sector is anticipated to improve as existing homeowners look to “fix-up” in lieu of “moving-up” in a high interest rate environment. In the longer term, underlying global lumber market fundamentals are projected to be solid, principally reflecting strong demographic trends, consistent demand driven by an aging housing stock and low inventories of new homes available.
The weakness in offshore lumber demand in Asia that was experienced in the fourth quarter of 2022 is forecast to continue through the first quarter of 2023. However, this softness is anticipated to be mitigated in part by the introduction of government incentive packages in key Asian markets intended to revive economies in those regions. Lower lumber demand is also anticipated in Europe, driven for the most part by reduced activity in both the residential construction and do-it-yourself sectors.
Pulp and Paper Segment Highlights and Outlook
Results for the pulp and paper segment in the current quarter principally reflected modestly weaker global pulp market conditions, combined with the impact of material reductions in residual fibre supply and challenging winter weather conditions in BC, significantly impacting Canfor Pulp Products Inc.’s (“CPPI”) operating performance, particularly at its Intercontinental (“Intercon”) and Northwood Northern Bleached Softwood Kraft (“NBSK”) (“Northwood”) pulp mills. Pulp production in the current period also reflected ongoing downtime at CPPI’s Taylor Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) mill (“Taylor”), which commenced in the first quarter of 2022 and continued through the balance of the year. As a result of a reduction in the long-term supply of fibre in the Peace region, CPPI does not see a path forward to restarting the Taylor mill at this time and is exploring alternative uses for the site.
Following the strong global pulp market conditions experienced mid-year, market fundamentals came under modest pressure in the current quarter, driven by a decline in demand and purchasing activity, particularly from Asian markets, as well as an uptick in global pulp market supply, primarily from Europe and South America. These factors were combined with the sustained effect of elevated global softwood pulp producer inventories which, at the end of December 2022, remained on the high end of the balanced range at 43 days of supply.
In recent weeks, global softwood kraft pulp market conditions have experienced a modest uptick as unplanned global supply outages, principally stemming from fibre-related downtime in Western Canada, has more than outweighed weak global macroeconomic conditions. Reflecting this favourable momentum, CPPI announced a US$30 per tonne increase to its NBSK pulp list price to China in February 2023 to US$970 per tonne. Looking forward, global softwood kraft pulp markets are projected to remain relatively stable through the balance of the first quarter of 2023, as persistent high global pulp inventory levels and additional hardwood pulp capacity predicted to come online in 2023, combine with steady Chinese demand. Notwithstanding the projected increased supply, global pulp pricing is anticipated to remain above historic average price levels in the short-term.
Refer to the Company’s annual Management’s Discussion and Analysis for further discussion on the Company’s results for the fourth quarter of 2022 on page 32.
For the full fourth quarter results, click here.
|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.|
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.
Michelle Ward – Vice President, Corporate Communications – email@example.com – (604) 661-5225
Source: Canfor Corporation