2023
ANNUAL REPORT
CANFOR CORPORATION
I N T H I S R E P O RT
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M E S S AG E TO S H A R E H O L D E R S
05 2023 Management’s Discussion and Analysis
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2023 Highlights
Company Overview
Overview of Consolidated Results - 2023 Compared to 2022
Operating Results by Business Segment - 2023 Compared to 2022 - Lumber
Operating Results by Business Segment - 2023 Compared to 2022 - Pulp and Paper
Other Comprehensive Income (Loss)
Summary of Financial Position
Changes in Financial Position
Liquidity and Financial Requirements
Transactions with Related Parties
Environmental, Social and Governance (“ESG”) Strategy, Reporting and Related Risks
Selected Quarterly Financial Information
Three-Year Comparative Review
Fourth Quarter Results
Changes in Financial Position
Specific Items Affecting Comparability
Outlook
Non-IFRS Financial Measures
Critical Accounting Estimates
Risks and Uncertainties
Outstanding Share Data
Disclosure Controls and Internal Controls Over Financial Reporting
52 C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
53 Management’s Responsibility
Independent Auditors’ Report
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Consolidated Balance Sheets
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Consolidated Statements of Income (Loss)
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Consolidated Statements of Other Comprehensive Income (Loss)
62 Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
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Notes to the Consolidated Financial Statements
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A D D I T I O N A L I N F O R M AT I O N
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Directors and Officers
Corporate and Shareholder Information
MESSAGE TO SHAREHOLDERS
FROM THE PRESIDENT AND CEO
Around the world, forest products are being recognized for the
opportunities that they provide in the global fight against climate
change. From the way that our fibre is sourced, to how it is
manufactured, to the carbon-saving benefits of our products, our
high-value, low-carbon products are in demand. While markets have
been challenging over the past year, we remain optimistic about the
future of our business and continue to look for new opportunities
to create value through diversification, innovation, integration and
sustainability.
Market headwinds prevailed in 2023
2023 was a difficult year for wood product producers with prices
falling dramatically from the record highs reached in 2022. The
reasons for this downturn are multifaceted. On the global stage,
turmoil in Ukraine, Russia and the Middle East dramatically
increased geopolitical tensions, adding risk and uncertainty to
our business. As the war in the Middle East expanded, critical
shipping lanes in the Red Sea were disrupted, impacting global
trade flows and increasing transportation lead-times required to
get our products to market. With continued inflationary pressures,
aggressive action was taken by the Federal Reserve to increase
interest rates, which significantly impacted housing affordability,
consumer confidence and, ultimately, our overall returns and
financial performance. And, in Western Canada, record-breaking
wildfires ravaged forests in our operating regions.
In B.C., these natural factors, combined with a challenging policy
landscape, have constrained access to economic fibre to support our
sawmills and pulp mills. As a result, we had to make the difficult
decision to curtail or close operations in B.C. We recognize that this
situation has significantly impacted our employees, their families,
our suppliers, and our communities we operate within as well as our
customers.
Building a globally diversified operating platform
This volatility has underscored the importance of our globally
diversified operating platform. Over the past decade we have focused
on increasing our footprint in the US and Europe, while working
towards a smaller but stronger presence in Western Canada.
This provides us with the flexibility to move products and serve our
customers around the globe from our various operating regions.
As we look to the future, we continue to search for new opportunities
that will further diversify both our operating platform and product
offerings to help weather market downturns and commodity
price fluctuations, and increase reliability of supply to our global
customers.
Strengthening our core business to enhance customer experience
Through a targeted capital investment program and a diversified
business portfolio we continue to modernize and transform our
manufacturing facilities.
In April 2023, we opened our first greenfield mill in the US South
in DeRidder, Louisiana. The DeRidder facility is a model of next-
generation, best-in-class technology, with automation, optimization,
predictive analytics and smart, connected processes at every step,
from logs to lumber. This flagship operation has been purpose-built
to create a modern, efficient workplace for our employees, while
4
providing manufacturing flexibility to produce high-value lumber
products and better serve the growing Texas market. We are also
constructing a greenfield project in Axis, Alabama, that will replace
our existing operation in the City of Mobile. In Urbana, Arkansas, we
are investing in upgrades to our existing sawmill and planer facilities.
And, we’ve made the decision to invest $85 million to expand
production from 175 million board feet to 240 million board feet at
Vida’s Bruza sawmill in Hjältevad, Sweden.
Together, these investments will allow us to optimize and align our
production of the high-quality products the market demands, with
greater efficiencies, cost-effectiveness and sustainability.
Exploring opportunities in value-added sector
In addition to investing in our operations, we are also expanding our
product offerings to meet the global demand for our renewable forest
resource. We are exploring a number of opportunities to extract
additional value from our residual fibre, such as the chips, sawdust
and other wood waste that’s left over after we make dimension
lumber, to lower the carbon content of our broad spectrum of
products. Testing options for the development of bio-composites that
could be used for many products that are currently made of plastics
is now underway. Progress also continues at our biofuels joint
venture, Arbios Biotech. Construction of the facility in Prince George
is progressing well and we expect to produce first oil in the second
half of 2024.
Our people are our greatest asset
Nothing that we do would be possible without the perseverance and
commitment of our people, and their safety is our most important
priority. We continue to work on many safety initiatives, including our
global safety program, to ensure that best practices are shared and
implemented throughout the organization. As well, we are making
improvements to employee experience, and training and development
remains a foundational aspect of our employee development as we
build for the future.
Every member of our team has a role to play in our Company’s
success, and I want to thank each of them for their contributions.
My appreciation also goes out to our Board of Directors for their
guidance, and to our valued shareholders and customers for their
continued confidence in our Company. With the solid foundation
that we’ve built, I am optimistic about the future trajectory for our
Company.
Don Kayne
President and Chief Executive Officer
2023 MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) provides a review of Canfor Corporation’s (“Canfor” or “the
Company”) financial performance for the year ended December 31, 2023 relative to the year ended December 31,
2022, and the financial position of the Company at December 31, 2023. It should be read in conjunction with Canfor’s
Annual Information Form and its audited consolidated financial statements and accompanying notes for the years
ended December 31, 2023 and 2022 (available at www.canfor.com). The financial information contained in this MD&A
has been prepared in accordance with International Financial Reporting Standards (“IFRS”), which is the required
reporting framework for Canadian publicly accountable enterprises.
Throughout this discussion, reference is made to Operating Income (Loss) before Amortization, Asset Write-Downs
and Impairments, Adjusted Operating Income (Loss) before Amortization, Asset Write-Downs and Impairments, and
Adjusted Operating Income (Loss) which Canfor considers to be a relevant indicator for measuring trends in the
performance of each of its operating segments and the Company’s ability to generate funds to meet its debt repayment
and capital expenditure requirements. Reference is also made to Adjusted Shareholder Net Income (Loss) (calculated
as Shareholder Net Income (Loss) less specific items affecting comparability with prior periods – for the full calculation,
see reconciliation included in the section “Overview of Consolidated Results – 2023 Compared to 2022”) and Adjusted
Shareholder Net Income (Loss) per Share (calculated as Adjusted Shareholder Net Income (Loss) divided by the
weighted average number of shares outstanding during the period). Operating Income (Loss) before Amortization,
Asset Write-Downs and Impairments, Adjusted Operating Income (Loss) before Amortization, Asset Write-Downs and
Impairments, Adjusted Operating Income (Loss), Adjusted Shareholder Net Income (Loss) and Adjusted Shareholder
Net Income (Loss) per Share are not generally accepted earnings measures under IFRS and should not be considered
as an alternative to net income (loss) or cash flows as determined in accordance with IFRS. As there is no standardized
method of calculating these measures, Canfor’s Operating Income (Loss) before Amortization, Asset Write-Downs and
Impairments, Adjusted Operating Income (Loss) before Amortization, Asset Write-Downs and Impairments, Adjusted
Operating Income (Loss), Adjusted Shareholder Net Income (Loss), and Adjusted Shareholder Net Income (Loss) per
Share may not be directly comparable with similarly titled measures used by other companies. Reconciliations of
Operating Income (Loss) before Amortization, Asset Write-Downs and Impairments to Operating Income (Loss) and
Adjusted Shareholder Net Income (Loss) to Net Income (Loss) reported in accordance with IFRS are included in the
“Non-IFRS Financial Measures” section of this MD&A.
Also in this MD&A, reference is made to net debt (cash), net debt (cash) to total capitalization and return on invested
capital (“ROIC”) which the Company considers to be relevant performance indicators that are not generally accepted
under IFRS. Therefore, these indicators, defined herein, may not be directly comparable with similarly titled measures
used by other companies. Refer to the “Non-IFRS Financial Measures” section of this MD&A for further details.
Factors that could impact future operations are also discussed. These factors may be influenced by known and unknown
risks and uncertainties that could cause the actual results to be materially different from those stated in this discussion.
Factors that could have a material impact on any future oriented statements made herein include, but are not limited
to: general economic, market and business conditions; product selling prices; raw material and other operating costs;
currency exchange rates; interest rates; changes in law and public policy; the outcome of labour and trade disputes;
and opportunities available to or pursued by Canfor.
All financial references are in millions of Canadian dollars unless otherwise noted. Certain comparative amounts have
been reclassified to conform to current presentation. The information in this report is as at March 5, 2024.
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.
5
2023 HIGHLIGHTS
2023 was a challenging year for Canfor, as the weak global lumber market conditions experienced late in 2022
continued throughout the current year. Ongoing inflationary pressures and high interest rates gave rise to persistent
affordability concerns for consumers, reducing global lumber demand and increasing lumber inventory levels in most
global regions. Despite the economic uncertainty, demand in the repair and remodel segment remained strong through
2023, especially in North America, exceeding levels observed before the pandemic.
In response to these global market conditions as well as a constrained fibre supply environment, the Company reduced
production at its Western Canadian operations by a total of 760 million board feet in 2023. In the US South, the
Company successfully started-up its greenfield sawmill in DeRidder, Louisiana, early in 2023, and continues work on
two major growth projects at Urbana, Arkansas and Axis, Alabama.
In British Columbia (“BC”), the Company continued to face significant challenges accessing economically viable fibre,
both logs and residuals, to support BC operations, resulting in closure announcements early in 2023. Canfor Pulp
Products Inc. (“CPPI”) made the decision to permanently close the pulp line at its Prince George Pulp and Paper Mill
(“PG”). In connection with this closure, CPPI’s Intercontinental (“Intercon”) Northern Bleached Softwood Kraft (“NBSK”)
pulp mill was successfully converted to provide slush pulp to its specialty paper facility, formerly supplied by PG.
In addition, the Company made the difficult decision to further restructure its lumber operations in BC, by permanently
closing its Chetwynd sawmill and pellet plant and temporarily closing its Houston sawmill. Late in 2023, the Company
also announced a fibre-driven indefinite curtailment at its Polar sawmill starting in January 2024.
For 2023, Canfor reported an operating loss of $531.6 million, compared to operating income of $1,074.1 million in
2022. After taking account of adjusting items, including inventory valuation adjustments and an asset write-down and
impairment charge in 2022, the Company’s adjusted operating loss was $588.8 million for the current year (adjusted
shareholder net loss per share of $2.79), compared to adjusted operating earnings of $1,306.2 million for the prior
year (adjusted shareholder net income per share of $7.15).
2023 Lumber Segment Highlights
For the lumber segment, the adjusted operating loss for 2023 was $403.5 million compared to the adjusted operating
earnings of $1,421.9 million in 2022. These results were mostly driven by a substantial decline in global lumber market
prices in the current year, principally reflecting a 50% decline in the average Western Spruce/Pine/Fir (“SPF”) 2x4
#2&Btr, a 44% decline in the average Southern Yellow Pine (“SYP”) East 2x4 #2 price and a 40% decline in the
average SYP East 2x6 #2 price year-over-year. This downward pricing pressure was coupled with modestly lower
production and shipment volumes in 2023, mainly due to the permanent and temporary curtailments at the Company’s
Western Canadian sawmills, slightly offset by a 3 cent, or 4%, weaker Canadian dollar (versus the US-dollar) in the
current year.
North American lumber market conditions were under pressure for most of 2023, as persistent affordability constraints
and a resultant decline in new home construction, was combined with an influx of lumber supply from Europe early in
the year, which led to an uptick in North American lumber inventory levels and, consequently, a substantial drop in
North American benchmark lumber prices. Despite these market conditions, the repair and remodel sector demand
remained strong, especially in the first half of the year, with demand well above pre-pandemic levels throughout 2023,
largely tied to an aging housing market.
Offshore lumber markets and pricing in Asia remained relatively soft throughout 2023, most notably in Japan and
Korea, due to the combined impact of high inflation and interest rates, as well as elevated lumber inventory levels in
those regions. In China, despite the introduction of government stimulus measures early in the year, lumber demand
and pricing continued to be negatively impacted by high inventory levels through most of 2023 with an influx of supply
from Europe and Russia into that region.
For 2023 overall, Europe also experienced a decline in lumber market conditions compared to the prior year. Early in
the current year, European lumber demand and pricing saw a modest improvement, driven largely by a slight uptick in
residential construction activity, particularly in the United Kingdom (“UK”) combined with restricted lumber supply from
Russia and Belarus. Despite remaining relatively stable through to the middle of the year, European lumber demand
and pricing declined significantly in the latter part of 2023 primarily correlated with a substantial reduction in home
building activity.
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2023 Pulp and Paper Segment Highlights
For the pulp and paper segment, 2023 was a difficult year, as a deterioration in global pulp market fundamentals was
combined with ongoing cost and operational impacts driven by sustained fibre shortages in BC.
While global pulp market conditions were positive heading into 2023, market fundamentals experienced a sharp decline
late in the first quarter of 2023 and remained challenging through most of the year, as purchasing activity waned and
global pulp producer inventories climbed well above the balanced range. As a result, prices to China, the world’s largest
consumer of softwood pulp, dropped from a high of US$913 per tonne in February to a low of US$648 per tonne in
June. Late in the year, however, as global producer inventories began to reduce, global pulp pricing saw some modest
upward momentum, with China pulp prices finishing the year at US$730 per tonne. For the 2023 year as a whole,
NBSK pulp list prices to China averaged US$747 per tonne, a decrease of US$202 per tonne, or 21%, from the average
price in 2022.
As a result, CPPI’s adjusted operating loss was $129.9 million for the current year compared to an adjusted operating
loss of $58.6 million for the prior year. These results largely reflected substantially lower average NBSK pulp unit sales
realizations, tied directly to the weak global pulp market conditions through most of the year, offset somewhat, by the
4% weaker Canadian dollar. Operationally, current year results were impacted by reduced pulp production and
shipments associated with the aforementioned operational changes that took effect early in the year. Improved pulp
productivity at CPPI’s Northwood NBSK pulp mill (“Northwood”) and Intercon pulp mill year-over-year however, helped
mitigate, to a degree, the impact of the PG pulp mill closure, combined with improved pulp unit manufacturing costs
and higher energy revenues in 2023.
While CPPI did not record any additional asset write-down and impairment charge in 2023, CPPI continues to closely
monitor the direct and indirect impacts associated with the constraints on economic fibre, especially in the near-term.
If the availability of economically viable fibre within BC is further reduced, CPPI’s production, shipments and cost
structure will be further affected. These factors could impact CPPI’s operating plan, liquidity, cash flows and the
valuation of long-lived assets.
COMPANY OVERVIEW
Canfor is a global leader in manufacturing high-value, low-carbon forest products, including dimension and specialty
lumber, engineered wood products, pulp and paper, wood pellets, and green energy. Headquartered in Vancouver, BC,
Canfor produces renewable products from sustainably managed forests, at more than 50 facilities across its diversified
operating platform in Canada, the United States (“US”), and Europe. The Company has a 70% interest in the Vida
Group (“Vida”), one of Sweden’s largest sawmilling companies, and also owns a 54.8% interest in CPPI, which is one
of the largest global producers of NBSK pulp and a leading producer of high-performance kraft paper. As of December
31, 2023, Canfor employed 7,580 people, of which 1,004 were employed by CPPI.
Significant changes to the Company’s business in 2023 and early in 2024 include the following:
•
On January 3, 2023, the Company announced an extension of BC sawmill curtailments in the month due to ongoing
weak market conditions and lack of available economic fibre.
•
•
On January 25, 2023, the Company announced the restructuring of its BC operations to better align manufacturing
capacity in the region with available long-term fibre supply, resulting in the permanent closure of its Chetwynd
sawmill and pellet plant and the temporary closure of its Houston sawmill for an extended period to facilitate a
potential redevelopment on the site. The permanent and temporary curtailment of these aforementioned facilities
were completed in April 2023 following an orderly wind-down, removing approximately 750 million board feet of
annual Western SPF production capacity. Subsequently, on September 14, 2023, the Company announced its plan
to invest approximately $200 million in a new, state-of-the-art manufacturing facility in Houston, British Columbia.
The facility will have an annual production capacity of approximately 350 million board feet.
Also, in January 2023, CPPI announced the decision to restructure its operating footprint to align its manufacturing
capacity with the long-term supply of economic residual fibre and, as a result, in April 2023, CPPI wound down
and permanently closed the pulp line at its PG NBSK pulp and paper mill. In connection with this closure, Intercon
was successfully converted to provide slush pulp to its specialty paper facility. The combined impact of these
operating structure changes was a reduction of approximately 280,000 tonnes of market kraft pulp production
annually.
7
•
•
•
•
In July 2023, NBSK pulp production was impacted by a labour dispute at the Ports of Vancouver and Prince Rupert,
which put pressure on an already constrained logistics network in BC. As a direct result, with pulp mill inventories
at capacity, CPPI curtailed Northwood for approximately one week, with 10,000 tonnes of reduced NBSK pulp
production. Furthermore, while Northwood successfully completed its scheduled maintenance in September 2023,
the restart was delayed into the fourth quarter of 2023 by numerous operational challenges unrelated to the
scheduled maintenance downtown, resulting in approximately 40,000 tonnes of reduced NBSK pulp production
late in 2023.
On November 14, 2023, the Company announced an indefinite curtailment of its Polar facility due to the shortage
of economically available fibre in that region. The curtailment will reduce Western SPF production by approximately
140 million board feet over the first six months of 2024.
On December 7, 2023, Vida announced that it will invest approximately $85 million (700 million SEK) at its Bruza
Sawmill in Hjältevad, Sweden, increasing its annual production capacity by approximately 65 million board feet.
Construction will commence in the spring of 2024 and is expected to be completed in 2026.
On February 7, 2024, CPPI announced that it had entered into an asset purchase agreement to sell its Taylor
Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) mill site for a price of $7.0 million. The transaction is
anticipated to close in the first quarter of 2024.
Lumber
As at December 31, 2023, Canfor’s lumber operations had an annual production capacity of approximately 6.7 billion
board feet. The majority of lumber produced by Canfor from its facilities is construction and high-value specialty grade
dimension lumber that ranges in size from one by three inches to two by twelve inches and in lengths from six to
twenty-six feet. A significant and increasing proportion of Canfor’s lumber production is comprised of specialty products
that command premium prices and high-value products, including Square Edge lumber for the North American market,
J-grade lumber for the Japanese market, and machine stress rated (“MSR”) lumber used in engineered applications
such as roof trusses and floor joists. As a result of its recent acquisitions, Canfor has expanded its product offering to
include high-value engineered wood products, higher-grade MSR lumber, premium one-inch boards, as well as an array
of custom specialty products, including strength-rated trusses, beams, and tongue-and-groove timber.
Canfor’s North American lumber operations also include one finger-joint plant, two glulam plants, one whole log
chipping plant, and a trucking division. As at December 31, 2023, the Company operated a pellet plant at the Fort St.
John sawmill site. Canfor’s North American lumber business segment also includes a 60% interest in Houston Pellet
Inc., which has an annual capacity of approximately 200,000 tonnes of wood pellets. Canfor’s European lumber
operation includes its 70% interest in Vida’s ten value-added facilities (including the manufacturing and selling of wood
packaging, modular housing, industrial products and energy).
As at December 31, 2023, Canfor held approximately 9.9 million cubic metres (including Mackenzie) of annual
harvesting rights for its solid wood operations under various forest tenures located in the interior region of BC and
northern Alberta and harvests logs from those tenures to supply its Western Canadian lumber operations. Any mill
requirements shortfalls are made up of wood purchased from other tenure holders in those areas. The wood fibre
requirements in the US and Europe are met through open market purchases, substantially from private timberland
owners.
Canfor markets lumber products throughout North America and overseas through its sales offices in Canada, the US,
Japan, Sweden, the UK, Denmark, the Netherlands and Australia. In addition to its production, Canfor also markets
lumber produced externally to complement its product line. While a significant proportion of Canfor’s product is sold to
markets in the US, shipments into Europe have increased following the acquisition of Vida. In contrast, volumes to
other offshore markets remain steady. The Company transports substantially all lumber shipped domestically (in the
US, Canada, and Sweden) by truck and rail, while the vast majority of products sold offshore are transported by
container ship and breakbulk.
8
Pulp and Paper
During 2023, Canfor’s pulp and paper segment was comprised of two NBSK pulp mills, one NBSK pulp and paper mill
located in Prince George, BC, and a BCTMP mill located in Taylor, BC, all of which are owned by CPPI. As at December
31, 2023, CPPI produces NBSK pulp and specialty paper. NBSK is a primarily bleached product, although unbleached
and semi-bleached grades were also produced by CPPI.
As at December 31, 2023, CPPI had an annual production capacity of approximately 780,000 tonnes of northern
softwood market kraft pulp, the significant majority of which was bleached to become NBSK pulp, and approximately
140,000 tonnes of kraft paper.
As at December 31, 2023, CPPI also owned the Taylor BCTMP mill, located in Taylor, British Columbia. Subsequent to
year-end, CPPI entered into an asset purchase agreement to sell its Taylor BCTMP mill site for total proceeds of $7.0
million. The transaction is anticipated to close in the first quarter of 2024.
Canfor supplies CPPI with residual wood chips and hog fuel (principally bark) produced at certain, specified sawmills.
Prices paid by CPPI for residual wood chips are based on a pricing formula to reflect market prices and conditions, with
hog fuel purchased by CPPI at market prices. CPPI also has fibre supply agreements with third parties to supplement
its supply of wood chips and hog fuel.
Business Strategy
Canfor’s overall business strategy and purpose is to be a global leader in supplying high-value, low-carbon forest
products, including dimension and specialty lumber, engineered wood products, pulp and paper, wood pellets, and
green energy to high-value customers, accomplished by:
•
•
•
•
•
•
•
Attaining world-class safety performance;
Achieving top-quartile margin performance while producing high-value products and maximizing the value
from all available fibre sources;
Implementing a sustainability strategy aimed at helping to protect our planet, supporting our people and
communities, and producing forest and pulp and paper products that are an important part of a low-carbon
economy;
Growing an enterprise-wide culture of innovation, inclusion, diversity, respect, and engagement by attracting,
retaining, and developing our employees;
Expanding geographical markets, increasing market share of value-added products, and building strong long-
term partnerships with valued customers;
Attaining world-class supply chain performance and providing excellence in customer service; and
Focusing on an efficient allocation of capital and deployment of resources to sustain top-quartile operational
performance, capitalizing on attractive growth opportunities.
9
OVERVIEW OF CONSOLIDATED RESULTS – 2023 COMPARED TO
2022
Selected Financial Information and Statistics
(millions of Canadian dollars, except for per share amounts)
Sales
Operating income (loss) before amortization, asset write-downs and impairments1,2
Operating income (loss)
Adjusted operating income (loss) before amortization, asset write-downs and
impairments1,2,3
Adjusted operating income (loss)3
Net income (loss)
Net income (loss) attributable to equity shareholders of the Company
Net income (loss) per share attributable to equity shareholders of the Company,
basic and diluted
Adjusted net income (loss)3
Adjusted net income (loss) per share, basic and diluted3
ROIC – Consolidated3
Average exchange rate (US$ per Cdn$1.00)4
Average exchange rate (SEK per Cdn$1.00)4
$
$
$
$
$
$
$
$
$
$
$
2023
5,426.6
$
(111.2) $
(531.6) $
(168.4) $
(588.8) $
(348.5) $
(326.1) $
(2.71) $
(335.8) $
(2.79) $
(11.4%)
0.741
$
7.856
2022
7,426.7
1,609.9
1,074.1
1,703.4
1,306.2
861.1
787.3
6.39
880.4
7.15
26.0%
0.768
7.753
1 Amortization includes amortization of certain capitalized major maintenance costs.
2 Adjusted for asset write-down and impairment charges of $138.6 million in 2022.
3 Adjusted results and consolidated ROIC are non-IFRS financial measures. Refer to the “Non-IFRS Financial Measures” section for further details.
4 Source – Bank of Canada (monthly average for the period).
10
2023
2022
(348.7) $
(127.5) $
(55.4) $
1,237.2
(106.0)
(57.1)
(531.6) $
1,074.1
420.4
-
$
$
397.2
138.6
(111.2) $
1,609.9
162.8
$
(24.2) $
(33.8) $
100.7
60.4
154.7
$
$
$
(587.0) $
(33.6) $
(96.1) $
(44.3) $
(59.4) $
(62.3) $
-
$
(6.7) $
10.6
(724.1)
$
$
86.7
(12.2)
(462.6)
(156.3)
47.5
1,113.0
(625.3)
(21.1)
(0.4)
(78.9)
-
(62.8)
(434.0)
26.9
(12.6)
(95.2)
2022
787.3
10.8
(2.5)
84.8
93.1
880.4
6.39
0.76
7.15
Selected Cash Flow Information
(millions of Canadian dollars)
Operating income (loss) by segment:
Lumber
Pulp and Paper
Unallocated and Other
Total operating income (loss)
Add: Amortization5
Add: Asset write-downs and impairments
Total operating income (loss) before amortization, asset write-downs and
impairments
Add (deduct):
Working capital movements
Defined benefit plan contributions, net
Income taxes paid, net
Adjustment to accrued duties6
Other operating cash flows, net7
Cash from operating activities
Deduct:
Capital additions, net
Finance expenses paid
Repayments and conversion of term debt
Share purchases
Purchase of long-term investments
Distributions to non-controlling interests
Acquisition of Millar Western
Foreign exchange gain (loss) on cash and cash equivalents
Other, net7
Change in cash / operating loans
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5 Amortization includes amortization of certain capitalized major maintenance costs.
6 Adjusted to true-up preliminary anti-dumping duty deposits to the Company’s current accrual rates.
7 Further information on cash flows can be found in the Company’s annual consolidated financial statements.
Analysis of Specific Items Affecting Comparability of Shareholder Net Income (Loss)
After-tax impact, net of non-controlling interests
(millions of Canadian dollars, except for per share amounts)
Shareholder net income (loss), as reported
Foreign exchange (gain) loss on term debt
Gain on derivative financial instruments
Asset write-downs and impairments
Net impact of above items
Adjusted shareholder net income (loss)8
Shareholder net income (loss) per share (EPS), as reported
Net impact of above items per share
Adjusted shareholder net income (loss) per share8
2023
(326.1)
(6.0)
(3.7)
-
(9.7)
(335.8)
(2.71)
(0.08)
(2.79)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8 Adjusted shareholder net income (loss) is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
11
OPERATING RESULTS BY BUSINESS SEGMENT – 2023 COMPARED
TO 2022
The following discussion of Canfor’s operating results relates to the operating segments and the non-segmented items
as per the Segment Information note in the Company’s consolidated financial statements. Canfor’s operations include
the Lumber and Pulp and Paper segments.
Lumber
Selected Financial Information and Statistics – Lumber
Summarized results for the Lumber segment for 2023 and 2022 are as follows:
(millions of Canadian dollars, unless otherwise noted)
Sales9
Operating income (loss) before amortization, asset write-down and impairment9
Operating income (loss)9
Asset write-down and impairment
Inventory write-down (recovery), net
Adjusted operating income (loss)10
Capital expenditures (before acquisitions)
Average Western SPF 2x4 #2&Btr lumber price in US$11
Average Western SPF 2x4 #2&Btr lumber price in Cdn$11,13
Average SYP 2x4 #2 lumber price in US$12
Average SYP 2x4 #2 lumber price in Cdn$12,13
Average SYP 2x6 #2 lumber price in US$12
Average SYP 2x6 #2 lumber price in Cdn$12,13
US housing starts (thousand units SAAR)14
Production – Western SPF lumber (MMfbm)15
Production – SYP lumber (MMfbm)15
Production – European lumber (MMfbm)15
Shipments – Western SPF lumber (MMfbm)16
Shipments – SYP lumber (MMfbm)16
Shipments – European lumber (MMfbm)16
$
$
$
$
$
$
$
$
$
$
$
$
$
2023
4,551.1
$
(16.0) $
(348.7) $
-
$
(54.8) $
2022
6,341.3
1,623.9
1,237.2
89.0
95.7
(403.5) $
1,421.9
$
$
$
$
$
$
$
510.4
391
528
468
632
386
521
1,415
2,071
1,727
1,319
2,119
1,716
507.7
783
1,020
829
1,079
642
836
1,551
2,321
1,618
1,363
2,325
1,610
1,550
9 2023 includes sales of $1,333.2 million, operating income of $80.3 million and operating income before amortization of $149.1 million from European
operations (2022 – sales of $1,611.1 million, operating income of $420.8 million and operating income before amortization of $486.8 million). Operating
income from the European operations in 2023 includes $36.7 million (2022 - $37.2 million) of incremental amortization and other expenses driven by
the purchase price allocation at the acquisition date.
10 Adjusted operating income (loss) is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
11 Western Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths Publications, Inc.)
12 Southern Yellow Pine, Eastside, per thousand board feet (Source – Random Lengths Publications, Inc.)
13 Average lumber prices in Cdn$ calculated as average price in US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of
Canada monthly average for the period.
14 Source – US Census Bureau, seasonally adjusted annual rate (“SAAR”).
15 Excluding production of trim blocks.
16 Includes Canfor produced lumber, as well as lumber purchased for resale, remanufacture and engineered wood, excluding trim blocks, wholesale
shipments and lumber sold on behalf of third parties.
1,532
Markets
The weak global lumber market conditions and pricing seen at the end of 2022 lasted well into 2023, with global lumber
market fundamentals remaining under pressure for most of the current year. General economic uncertainty, persistent
inflationary cost pressures and a high interest rate environment continued throughout 2023, significantly impacting
affordability and leading to lower levels of residential construction activity across the globe. Market-related curtailments
and wildfires, particularly in Western Canada, as well as operational disruptions associated with geopolitical tensions,
constrained lumber supply at certain times of the year and led to intermittent and short upticks in North American
benchmark pricing. In the repair and remodeling sector, demand remained strong throughout 2023, particularly in the
first half of the year, principally driven by an aging housing stock in North America. Despite the benefit of these supply
12
pressures and the continued strength in the repair and remodel segment, affordability constraints weighed heavily on
overall North American demand and US-dollar benchmark lumber prices throughout most of 2023.
US housing starts, on a seasonally adjusted basis, averaged 1,415,000 units17 in 2023, a decrease of 9% from 2022
(Chart 1). Single-family starts, which consume approximately three times as much lumber as multi-family starts,
averaged 943,000 units17, down 6% from 2022, principally reflecting the aforementioned persistent affordability
challenges stemming from high inflation and rising interest rates through most of 2023. Multi-family starts experienced
more pronounced decreases than that seen in single-family, declining from the near-record high levels in 2022 to
average 459,000 units17 in 2023, down 14% from the prior year.
Chart 1
In Canada, the housing market continued to weaken through 2023 with a seasonally adjusted annual rate of 242,000
units18, a decline of 8% from 2022 (Chart 2), with multi-family starts making up 75% of overall starts in 2023 (2022 –
70%). Despite falling from 2022 levels, Canadian housing starts remained well above historical norms as underlying
demand for housing continued to be solid, largely due to favorable demographic trends, particularly in urban centres.
Chart 2
17 US Bureau of the Census
18 Canada Mortgage and Housing Corporation (“CMHC”)
13
Offshore lumber markets and pricing in Asia remained relatively soft throughout 2023, most notably in Japan and
Korea, due to the combined impact of high inflation and interest rates, as well as elevated lumber inventory levels in
those regions. In China, despite the introduction of government stimulus measures early in the year, lumber demand
and pricing continued to be negatively impacted by high inventory levels through most of 2023 with an influx of supply
from Europe and Russia into that region.
For 2023 overall, Europe also experienced a decline in lumber market conditions compared to the prior year. Early in
the current year, European lumber demand and pricing saw a modest improvement, driven largely by a slight uptick in
residential construction activity, particularly in the UK combined with restricted lumber supply from Russia and Belarus.
Despite remaining relatively stable through to the middle of the year, European lumber demand and pricing declined
significantly in the latter part of 2023 primarily correlated with a substantial reduction in home building activity19 (Chart
3).
Chart 3
19 Eurostat
Sales
Revenues for the lumber segment were $4.6 billion for 2023, down 28% from $6.3 billion in 2022. This decline was
primarily due to significantly lower lumber unit sales realizations across all of the Company’s operating regions, driven
by the substantial drop in global lumber pricing year-over-year (Chart 4). This was coupled with a 2% decline in
shipment volumes, and offset slightly by a 3 cent, or 4%, weaker Canadian dollar (versus the US-dollar) in the current
year.
Total lumber shipments were approximately 5.37 billion board feet for the year, down 2% from 5.49 billion board feet
shipped in the previous year, largely associated with a 3% decrease in production volumes year-over-year, most notably
in Western Canada.
The average North American Random Lengths Western SPF 2x4 #2&Btr price began the year at a low of US$335 per
Mfbm, climbed to US$460 per Mfbm early in the first quarter, then declined throughout most of the year with a slight
uptick in the third quarter, ending the year at US$440 per Mfbm. For the year overall, the Western SPF 2x4 #2&Btr
price averaged US$391 per Mfbm, down US$392 per Mfbm, or 50%, from 2022, with similar notable decreases seen
across key grades and wider-widths of Western SPF lumber, as outlined in the table below. As a result, the Company’s
Western SPF lumber unit sales realizations trended in the same direction, principally reflecting the declines in North
American benchmark pricing year-over-year, combined with lower offshore unit sales realizations, and offset in part by
the 4% weaker Canadian dollar (versus the US-dollar).
(Average Western SPF US$ price, per thousand board feet)20
2x4 #2&Btr
2x4 #3
2x6 #2&Btr
2x10 #2&Btr
20 Random Lengths Publications, Inc.
$
$
$
$
14
2023
391
318
400
404
$
$
$
$
2022
Change
783
615
710
814
$
$
$
$
(392)
(297)
(310)
(410)
In 2023, the North American Random Lengths SYP East 2x4 #2 price moved similar to Western SPF, opening the year
at a low of US$395 per Mfbm, rebounding in April to a price of US$545 per Mfbm, before declining through most of
the year, ending December at US$470 per Mfbm. Consequently, for 2023 overall, the SYP East 2x4 #2 price dropped
US$361 per Mfbm, or 44%, from 2022.
Wider-width SYP lumber products, including the SYP East 2x6 #2, experienced similar deteriorating trends throughout
the current year as the Western SPF and SYP East 2x4 #2, with the SYP East 2x6 #2 averaging US$386 per Mfbm for
2023, a decrease of US$256 per Mfbm, or 40%, from 2022, as highlighted in the table below. These SYP benchmark
pricing declines were directly reflected in the Company’s average SYP lumber unit sales realizations in the current year
compared to 2022.
(Average SYP East US$ price, per thousand board feet)21
2023
2022
Change
2x4 #2
2x6 #2
2x8 #2
2x10 #2
2x12 #2
$
$
$
$
$
468
386
361
399
574
$
$
$
$
$
829
642
591
652
925
$
$
$
$
$
(361)
(256)
(230)
(253)
(351)
21 Random Lengths Publications, Inc.
Chart 4
European lumber unit sales realizations also experienced a significant decrease year-over-year principally reflecting a
notable decline in European market pricing in the latter part of 2023, tied in part to the deterioration in global lumber
market conditions, and, to a lesser extent, a 1% stronger Canadian dollar (versus the Swedish Krona “SEK”).
Other revenues for the lumber segment (which are primarily comprised of residual fibre, pulp log and pellet sales as
well as the Company’s European operations’ other related revenues) were slightly higher than the prior year, principally
driven by an increase in residual fibre revenues from the Company’s European operations, offset in part, by lower pellet
sales in Western Canada and reduced engineered wood sales in the US South.
Operations
Total lumber production for 2023 was 5.12 billion board feet, down 3% from the prior year, primarily reflecting capacity
reductions and mill closures in Western Canada, tied to the permanent closure of the Company’s Chetwynd facilities
and temporary closure of its Houston sawmill in April, as well as fibre and market-driven curtailments throughout the
year (approximately 760 million board feet in 2023 versus 775 million board feet in 2022). In Europe, decreased
production year-over-year was principally a result of intermittent log availability in the region, correlated in part to
decreased log supply from Russia. These reductions were mitigated, in part, by a 7% increase in SYP production,
largely attributable to the ramp-up of the Company’s greenfield sawmill in DeRidder, Louisiana, early in 2023.
Lumber unit manufacturing and product costs were broadly in line with the prior year as higher per unit conversion
costs were offset by lower log costs. The uplift in per unit conversion costs in 2023 was principally a result of rising
15
energy costs and general inflationary pressures, most notably in Europe, and to a lesser extent, the US South, slightly
offset by reduced cash spend in Western Canada associated with the permanent and temporary closures of Chetwynd
and Houston, respectively. Lower log costs year-over-year were primarily driven by reduced market-based stumpage
costs in BC (tied to the substantial drop in Western SPF benchmark lumber pricing in the current year), offset in part
by higher log costs in Europe associated with log supply pressures in that region.
Asset Write-Downs and Impairments
An impairment expense of $89.0 million was recorded in 2022 on the property, plant and equipment and timber licenses
for the Company’s Western Canadian lumber operations, with no additional asset write-down or impairment charge
recognized in the current year. See “Critical Accounting Estimates – Asset Write-Downs and Impairments” for further
details.
Pulp and Paper
Selected Financial Information and Statistics – Pulp and Paper22
Summarized results for the Pulp and Paper segment for 2023 and 2022 are as follows:
(millions of Canadian dollars, unless otherwise noted)
Sales
Operating income (loss) before amortization, asset write-down and impairment23
Operating loss
Asset write-down and impairment
Inventory write-down (recovery)
Adjusted operating loss24
Capital expenditures
Average NBSK pulp price delivered to China - US$25
Average NBSK pulp price delivered to China - Cdn$25
Production – pulp (000 mt)
Production – paper (000 mt)
Shipments – pulp (000 mt)
$
$
$
$
$
$
$
$
$
2023
875.5
$
(42.5) $
(127.5) $
-
$
(2.4) $
(129.9) $
60.5
747
1,008
$
$
$
603
130
609
2022
1,085.4
41.4
(106.0)
49.6
(2.2)
(58.6)
112.6
949
1,236
718
132
750
Shipments – paper (000 mt)
129
22 Includes 100% of CPPI, which is consolidated in Canfor’s operating results. Pulp production and shipment volumes presented are for both NBSK pulp
and BCTMP (2022 only).
23 Amortization includes amortization of certain capitalized major maintenance costs.
24 Adjusted operating loss is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
25 Per tonne, NBSK pulp list price delivered to China (Resource Information Systems, Inc.); Average NBSK pulp price delivered to China – Cdn$ calculated
as average NBSK pulp price delivered to China – US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of Canada monthly
average rate for the period.
129
Markets
The strong global pulp market fundamentals experienced in the latter part of 2022 continued into the early part of
2023, as a positive pricing environment was primarily driven by global transportation challenges and unplanned global
production outages. Pricing came under pressure during the middle of the year, however, as a moderation in purchasing
activity from China, the world’s largest consumer of pulp, was combined with a notable uplift in global pulp producer
inventory levels. Towards the end of the year, as global producer inventories returned to more normalized levels and
demand from China improved, global pulp pricing experienced some positive momentum.
As a result of the aforementioned factors, US-dollar NBSK pulp list prices to China began the 2023 year at US$895 per
tonne, peaked in February at US$913 per tonne and declined sharply to a low of US$648 per tonne in June. As global
pulp market fundamentals, and therefore pricing, improved in the latter part of the year, China pulp prices ended the
year at US$730 per tonne. For 2023 overall, US-dollar NBSK pulp list prices to China averaged US$747 per tonne, down
US$202 per tonne, or 21%, from the average price in 2022. North American pulp prices experienced similar trends to
Asia, with list prices to that region starting the year at US$1,700 per tonne in January, declining to US$1,270 per tonne
in August, before recovering to US$1,350 per tonne in December (before taking account of customer discounts, which
were broadly unchanged year-over-year).
16
Global softwood pulp producer inventories began 2023 at 48 days of supply26 and continued to climb through the first
part of the year, reaching 54 days of supply26 in May. As the year progressed, these elevated producer inventory levels
continued until a modest uptick in purchasing activity from China was experienced late in the third quarter and through
the fourth quarter of 2023. Consequently, global softwood pulp inventories trended down to within the balanced range
through the latter part of 2023, ending the year at 40 days of supply26. Market conditions are generally considered
balanced when inventories are in the 32-43 days of supply range26.
The following charts show the China NBSK pulp list price movements in 2023, before taking account of customer
discounts and rebates (Chart 5) and global pulp shipments by destination (Chart 6).
Chart 5
Chart 6
Global bleached kraft paper markets remained solid through the first half of 2023, as steady demand and balanced
inventories in the North American market was offset by slight declines in offshore markets. Inflationary pressures and
rising global paper inventories, however, led to a softening of global paper markets through most of the second half
of 2023, before a slight uptick in North American demand was experienced in December.
26 World 20 data is based on twenty producing countries representing 80% of the world chemical market pulp capacity and is based on information
compiled and prepared by the Pulp and Paper Products Council (“PPPC”). The upper and lower limits of the of the balanced range are the average level
plus or minus one standard deviation, based on the last 60 data points (i.e. last five years).
17
Sales
Pulp shipments in 2023 were 609,000 tonnes, down 141,000 tonnes, or 19%, from 2022, principally driven by a 16%
reduction in pulp production year-over-year.
As mentioned, for the 2023 year as a whole, NBSK pulp list prices to China averaged US$747 per tonne, down $202
per tonne, or 21%, compared to the average in 2022. North American NBSK pulp list prices averaged US$1,448 per
tonne for the current year, down US$256 per tonne, or 15%, year-over-year (before discounts, which were largely
unchanged). As a direct result, CPPI’s average NBSK pulp unit sales realizations were significantly lower in 2023, offset
to a degree, by the 4% weaker Canadian dollar.
Energy revenues in 2023 were up compared to the prior year primarily driven by an improvement in Northwood’s pulp
productivity year-over-year and the associated increase in its turbine operating days.
Paper shipments were consistent year-over-year, at 129,000 tonnes. Despite some softening in demand in the North
American market during the current year, paper unit sales realizations for 2023 were slightly higher than the prior year,
largely reflecting the weaker Canadian dollar.
Operations
Pulp production was 603,000 tonnes in 2023, down 115,000 tonnes, or 16%, from the prior year, largely reflecting
operational footprint changes as a result of ongoing fibre shortages, offset in part by improved NBSK productivity and
reduced downtime in the current year.
For 2023 overall, despite the uplift in productivity at both Northwood and Intercon year-over-year, pulp production in
the current year continued to be impacted by efficiency and reliability challenges. Sustained fibre shortages weighed
heavily on pulp production, as CPPI’s Intercon pulp mill started the year curtailed, and in April, CPPI wound down and
permanently closed the pulp line at its PG Pulp and Paper mill. Mid-year, NBSK pulp production was impacted by a
labour dispute at the Ports of Vancouver and Prince Rupert. Finally, while Northwood’s scheduled maintenance was
successfully completed in September, its restart was delayed into the fourth quarter by numerous operational
challenges unrelated to the scheduled maintenance downtime. Combined, these factors reduced NBSK pulp production
by approximately 420,000 tonnes in 2023, of which the operating structure change associated with the PG pulp line
represented approximately 210,000 tonnes in the current year.
In 2022, pulp production was most notably impacted by transportation shortages early in the year, an indefinite
curtailment at CPPI’s Taylor BCTMP mill, as well as temporary fibre-driven production curtailments at the Intercon pulp
mill. When combined with Northwood’s recovery boiler number one (“RB1”) capital upgrade and scheduled
maintenance outages at both Northwood and Intercon, NBSK pulp production was reduced by approximately 300,000
tonnes and BCTMP production by approximately 210,000 tonnes in the prior year.
Pulp unit manufacturing costs were moderately lower compared to the prior year, principally tied to a decrease in pulp
unit conversion costs associated with reduced energy and maintenance costs, offset, to a degree, by the decline in
production year-over-year and slightly higher fibre costs.
Paper production in 2023 was broadly in line with prior year, at 130,000 tonnes. Paper unit manufacturing costs in
2023 were slightly higher, as a significant decrease in slush pulp costs (linked to lower Canadian dollar NBSK pulp
market prices), were more than offset by higher energy costs in the current year following the closure of CPPI’s PG
pulp mill in April 2023, as well as an increase in maintenance spend (timing-related).
Asset Write-Down and Impairment
An impairment expense of $49.6 million was recorded in 2022 on the property, plant, and equipment for the pulp and
paper segment, driven by the announced permanent closure of CPPI’s pulp line at PG combined with ongoing pressure
on fibre costs and continued uncertainty surrounding fibre availability for CPPI’s pulp mills. CPPI did not recognize any
additional asset write-down or impairment charge in the current year. See “Critical Accounting Estimates – Asset Write-
Downs and Impairments” for further details.
18
Unallocated and Other Items
(millions of Canadian dollars)
Corporate costs
Finance income, net
Foreign exchange gain on term debt and duty deposits recoverable, net
Gain on derivative financial instruments
Other income, net
Corporate Costs
$
$
$
$
$
2023
(55.4) $
10.4
4.5
6.8
19.9
$
$
$
$
2022
(57.1)
1.0
2.4
3.9
27.1
Corporate costs were $55.4 million in 2023, down $1.7 million from 2022, as a donation to the Company’s Good Things
Come From Trees Foundation (the “Foundation”) in the comparative year, was offset in part by increased legal costs
associated with the softwood lumber dispute, and to a lesser extent, higher head office and general administrative
expenses in the current year.
Finance Income, Net
Net finance income for 2023 of $10.4 million, compared to net finance income of $1.0 million in 2022, largely reflecting
higher interest income associated with the Company’s US-dollar and SEK cash and short-term investments, and, to a
lesser extent, an increase in accrued interest income on recoverable duty deposits following the finalization of
countervailing (“CVD”) and anti-dumping duties (“ADD”) rates for the fourth period of review (“POR4”). These factors
were offset in part by an uplift in interest expense associated with letters of credit as well as the Company’s operating
loan and term debt facilities (see the “Liquidity and Financial Requirements” and “Softwood Lumber Agreement”
sections for further discussion).
Foreign Exchange Gain on Translation of Term Debt and Duty Deposits Recoverable,
Net
In 2023, the Company recognized a foreign exchange gain of $6.9 million on its US-dollar term debt held by Canadian
entities, offset by a $2.4 million loss on US-denominated duty deposits receivable, both due to the strengthening of
the Canadian dollar at the close of 2023 relative to the exchange rate at the close of 2022 (see further discussion on
term debt in the “Liquidity and Financial Requirements” section).
Gain on Derivative Financial Instruments
At times, the Company uses a variety of derivative financial instruments as partial economic hedges against
unfavourable changes in lumber prices, energy costs, interest, and foreign exchange rates. In 2023, the Company
recorded a net gain of $6.8 million (2022 – net gain of $3.9 million) in relation to its derivative financial instruments,
mostly due to realized and unrealized mark-to-market gains on foreign exchange forward contracts, offset in part by
realized and unrealized mark-to-market losses on lumber futures contracts (see further discussion in the “Liquidity and
Financial Requirements” section).
The following table summarizes the gains (losses) recognized in the consolidated statement of income (loss) for each
of the various components during the comparable periods:
(millions of Canadian dollars)
Lumber futures
Foreign exchange forward contracts
Gain on derivative financial instruments
$
$
$
2023
(0.4)
7.2
6.8
$
$
$
2022
2.0
1.9
3.9
During 2023, a loss of $12.1 million (2022 – $26.8 million) was recognized in ‘Other equity’ on the Company’s
consolidated balance sheet following remeasurement of the put liability.
Additional information on financial instruments in place at year end can be found in the “Liquidity and Financial
Requirements” section, later in this document.
19
Other Income, Net
Other income, net of $19.9 million in 2023, largely reflected the receipt of insurance proceeds related to operational
downtime experienced at CPPI’s Northwood pulp mill in recent years, combined with mark-to-market gains on
investments in certain highly liquid funds, and favourable foreign exchange movements on US-dollar denominated
working capital balances held by the Canadian operations. Other income, net of $27.1 million for 2022 primarily related
to favourable foreign exchange movements on US-dollar denominated working capital and receivables held by the
Canadian operations.
Subsequent to year-end, on March 1, 2024, CPPI received insurance proceeds totalling $15.0 million related to
operational downtime experienced at Northwood in recent years that will be recognized in ‘Other income, net’, during
the first quarter of 2024.
Income Tax Recovery (Expense)
The Company recorded an income tax recovery of $141.5 million in 2023, compared to an expense of $247.4 million
in 2022, with an overall effective tax rate of approximately 29% (2022 - 22%).
The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:
(millions of Canadian dollars)
Net income (loss) before income taxes
Income tax recovery (expense) at statutory rate of 27% (2022 – 27%)
Add (deduct):
Non-taxable income (loss) related to non-controlling interests
Entities with different income tax rates and other tax adjustments
Permanent difference from capital gains and losses and other non-deductible items
Income tax recovery (expense)
$
$
$
$
$
$
2023
(490.0) $
132.3
$
(1.1) $
9.7
0.6
141.5
$
$
$
2022
1,108.5
(299.3)
0.3
53.5
(1.9)
(247.4)
The income tax recovery arising from entities with different income tax rates and other tax adjustments is largely
comprised of the Company’s US and European lumber operations which have lower statutory income tax rates.
In addition to the amounts recorded in net income (loss), a tax expense of $6.0 million was recorded to other
comprehensive income (loss) in relation to actuarial gains, net, on the defined benefit plans in 2023 (2022 – $9.9
million).
Other Comprehensive Income (Loss)
(millions of Canadian dollars)
Defined benefit plan actuarial gains, net of tax
Foreign exchange translation of foreign operations, net of tax
Other comprehensive income (loss), net of tax
$
$
$
2023
16.4
(37.1)
(20.7)
$
$
$
2022
26.9
36.7
63.6
Canfor measures its accrued retirement benefit obligations and the fair value of plan assets for accounting purposes
as at December 31 of each year. Any actuarial gains or losses which arise are recognized immediately by means of a
credit or charge through other comprehensive income (loss).
For 2023, a gain of $22.4 million (before-tax) was recorded to other comprehensive income (loss) related to changes
in the valuation of the Company’s defined benefit plans (comprised of defined benefit pension plans as well as other
benefit plans), as a 0.2% decrease in the discount rate used to value the defined benefit plans was more than offset
by a higher than anticipated return on plan assets and, to a lesser extent, favourable movements in reserves.
For 2022, a gain of $36.8 million (before-tax) was recorded to other comprehensive income (loss) related to changes
in the valuation of the Company’s defined benefit plans (comprised of defined benefit pension plans as well as other
benefit plans), largely reflecting a 1.8% increase in the discount rate used to value the defined benefit plans, offset in
part by a lower than anticipated return on plan assets, and to a lesser extent, an actuarial loss of $15.0 million
recognized in connection with the wind-up of one of the Company’s registered defined benefit plans and the
derecognition of the related plan surplus.
For more information, see “Critical Accounting Estimates – Employee Future Benefits” later in this document.
The Company recorded an after-tax loss of $37.1 million in other comprehensive income (loss) in 2023 related to
20
foreign exchange differences for foreign operations, largely reflecting a stronger Canadian dollar through the majority
of 2023 relative to the US-dollar, offset in part by a weaker Canadian dollar relative to the SEK, compared to one year
earlier. This compared to an after-tax gain of $36.7 million in 2022 resulting from a weaker Canadian dollar through
the majority of 2022 relative to the US-dollar, offset in part by a stronger Canadian dollar relative to the SEK.
SUMMARY OF FINANCIAL POSITION
The following table summarizes Canfor’s financial position as at December 31, 2023 and 2022:
(millions of Canadian dollars, except for ratios)
Cash and cash equivalents
Operating working capital (includes drawings on operating loans)
Net working capital
Property, plant and equipment
Right-of-use assets
Timber licenses
Goodwill and other intangible assets
Long-term investments and other (excluding deferred tax asset)
Net working capital and long-term assets
Term debt (long-term portion)
Retirement benefit obligations
Lease obligations
Deferred reforestation obligations (long-term portion)
Other long-term liabilities
Put liability
Deferred income taxes, net
Non-controlling interests
Equity attributable to shareholders of Company
Ratio of current assets to current liabilities
Net cash to total capitalization27
Cumulative duty deposits paid
2023
627.4
725.1
1,352.5
2,429.8
123.1
346.8
519.3
445.3
5,216.8
115.1
132.9
98.2
47.4
37.5
187.7
320.6
459.2
3,818.2
5,216.8
2.5 : 1
(9.1)%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
931.0
$
2022
1,268.7
912.6
2,181.3
2,219.1
99.1
357.8
532.1
465.2
5,854.6
213.6
158.3
79.5
43.8
32.0
172.7
391.9
541.3
4,221.5
5,854.6
3.5 : 1
(26.0)%
887.9
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
27 Net cash to total capitalization is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
The ratio of current assets to current liabilities at the end of 2023 was 2.5:1 compared to 3.5:1 at the end of 2022,
largely reflecting significantly lower operating results giving rise to a decline in the Company’s cash balances and an
increase in operating loans, partially offset by a reduction in income taxes payable at the end of the current year.
The Company’s net cash to capitalization was 9.1% at December 31, 2023 (December 31, 2022 – 26.0%), principally
tied to a notable decline in operating results in the current year, offset to a degree by lower capital spending.
In 2023, the Company continued to pay cash deposits on Canadian lumber exports destined to the US as a result of
the imposition of duties by the US Department of Commerce (“DOC”) in the latter half 2017. As of December 31, 2023,
the Company had paid cumulative duty deposits of $931.0 million (December 31, 2022 – $887.9 million) and had
accrued interest on duty deposits recoverable of $60.8 million (December 31, 2022 – $40.8 million). Further discussion
is provided in the “Softwood Lumber Agreement” section of this document.
21
CHANGES IN FINANCIAL POSITION
At the end of 2023, Canfor had $627.4 million of cash and cash equivalents.
(millions of Canadian dollars)
Decrease in cash and cash equivalents28
Operating activities
Financing activities
Investing activities
2023
(634.6)
154.7
(185.6)
(603.7)
$
$
$
$
2022
(113.0)
1,113.0
(179.4)
(1,046.6)
$
$
$
$
28 Decrease in cash and cash equivalents shown before foreign exchange translation on cash and cash equivalents.
The changes in the components of cash flows during 2023 are discussed in the following sections.
Operating Activities
For the 2023 year, Canfor generated cash from operations of $154.7 million, down $958.3 million from the cash
generated of $1,113.0 million in the previous year. The decrease in operating cash flows was largely tied to reduced
cash earnings in 2023, offset in part by lower income tax payments in the current year and favourable movements in
non-cash working capital. The latter primarily reflected a decrease lumber and log inventories at the end of the current
year, for the most part tied to capacity reductions and fibre-related curtailments in Western Canada. Cash duty deposits
paid in 2023 were $43.1 million compared to $205.4 million in the prior year.
Financing Activities
Financing activities in 2023 used cash of $185.6 million compared to $179.4 million in 2022. Financing activities in 2023
principally related to distributions to non-controlling interests, share purchases, and to a lesser extent, lease and
interest payments. Finance activities in the current year also included the conversion of CPPI’s $50.0 million term debt
into its existing operating loan facility, as well as a further $46.1 million in term debt repayments, offset in part by a
net $33.2 million draw down on the Company’s operating loan facilities. Financing activities in 2022 were largely
comprised of share purchases and distributions to non-controlling interests.
Investing Activities
In 2023, the Company used net cash for investing activities of $603.7 million, compared to $1,046.6 million in 2022.
The significant decrease year-over-year was principally associated with the Company’s acquisition of Millar Western
Forest Product Ltd. (“Millar Western”) in March 2022. Additions to property, plant and equipment (before acquisitions)
totaled $587.0 million in 2023, down $38.3 million from 2022. In the lumber segment, capital expenditures of $510.4
million, included spend on construction costs associated with the Company’s greenfield sawmills in DeRidder, Louisiana,
and Axis, Alabama, as well as ongoing spend related to the upgrade and expansion of the Company’s Urbana sawmill
in Arkansas, acquisition of Ingarp Träskydd in Sweden, smaller-scale discretionary capital projects in Western Canada
and the US South, as well as maintenance-of-business capital expenditures. In the pulp and paper segment, capital
spending of $60.5 million in 2023 was largely associated with maintenance-of-business capital spend, including
Northwood’s scheduled maintenance outage and inspection of RB1.
LIQUIDITY AND FINANCIAL REQUIREMENTS
Operating Loans
Operating Loans - Consolidated
At December 31, 2023, on a consolidated basis, including CPPI and Vida, the Company had $110.6 million drawn on
its operating loans and facilities, and an additional $63.5 million reserved for several standby letters of credit. At the
end of the year, the Company had available, undrawn operating loan facilities of $1,140.5 million, including an undrawn
committed revolving credit facility.
Operating Loans – Canfor, excluding Vida and CPPI
At December 31, 2023, Canfor, excluding Vida and CPPI, had available operating loan facilities totaling $1,043.4 million,
with $56.6 million reserved for several standby letters of credit, the majority of which related to unregistered pension
plans, leaving $986.8 million available and undrawn on its operating and revolving loan facilities at the end of the year.
22
Interest is payable on Canfor’s committed operating and revolving loan facilities, excluding Vida and CPPI, at floating
rates based on the lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base rate or US-dollar floating rate,
plus a margin that varies with the Company’s debt to total capitalization ratios. Canfor’s committed operating loan
facility is repayable on October 31, 2027. On June 28, 2024, any amounts drawn on the committed revolving credit
facility will be converted to US-dollar denominated floating rate term debt, with a maturity date of June 28, 2029.
Operating Loans – Vida
At December 31, 2023, Vida had $3.6 million drawn on its $111.2 million operating loan facilities, leaving $107.6 million
available and undrawn at the end of the year.
Vida’s operating loan facilities are denominated in various currencies, with interest payable at fixed rates ranging from
2.8% to 6.8%. Vida also has separate overdraft facilities with fixed interest rates ranging from 5.5% to 6.8%.
Operating Loans – CPPI
At December 31, 2023, CPPI had $107.0 million drawn on its $160.0 million operating loan facility, with $6.9 million
reserved for several standby letters of credit under the operating loan facility, leaving $46.1 million available and
undrawn at the end of the year.
The terms of CPPI’s operating loan facility include interest payable at floating rates based on lenders’ Canadian prime
rate, bankers’ acceptances, US-dollar base rate or US-dollar floating rate, plus a margin that varies with CPPI’s debt to
capitalization ratio. CPPI’s operating loan facility is repayable on May 2, 2027.
Term Debt
Canfor’s and CPPI’s term debt, excluding Vida, is unsecured. Vida’s term debt is secured by its property, plant and
equipment.
CPPI’s $80.0 million non-revolving term debt, which is restricted for use on the continued re-investment in CPPI’s
facilities, specifically Northwood’s RB1, has a maturity date of May 2, 2027, with interest payable at floating interest
rates consistent with its operating loan facility. As at December 31, 2023, this non-revolving term debt remains
undrawn.
Net Cash and Liquidity
As at December 31, 2023, on a consolidated basis, including CPPI and Vida, the Company had total net cash of $356.9
million, a $625.1 million decline from net cash of $982.0 million at the end of the previous year. Available liquidity of
$1,847.9 million (of which $80.0 million relates to CPPI’s non-revolving term debt which is restricted for use on the
continued re-investment in its facilities, specifically Northwood’s RB1), decreased by $579.5 million from the previous
year.
Debt Covenants
As mentioned, Canfor, excluding Vida, has certain financial covenants on its debt obligations that stipulate maximum
debt to total capitalization ratios. The debt to total capitalization is calculated by dividing total debt by shareholders’
equity plus total debt. Debt obligations are held by various entities within the Canfor group and the individual debt
agreements specify the entities within the group that are to be included in the covenant calculations.
In circumstances when debt to total capitalization exceeds a certain threshold, Canfor is subject to an interest coverage
ratio that requires a minimum amount of earnings before interest, taxes, depreciation and amortization relative to net
interest expense. Canfor is not currently subject to this test.
Provisions contained in Canfor’s long-term borrowing agreements also limit the amount of indebtedness that the
Company may incur and the amount of dividends it may pay on its common shares. The amount of dividends the
Company is permitted to pay under its long-term borrowing agreements is determined by reference to consolidated
net earnings less certain restricted payments.
Vida is also subject to certain financial covenants, including minimum equity and interest coverage ratios.
Management reviews results and forecasts in monitoring the Company’s compliance with these covenant requirements.
Canfor, Vida and CPPI were fully in compliance with all debt covenants for the year ended December 31, 2023 and
expects to remain so for the foreseeable future.
Substantially all borrowings of Vida and CPPI are non-recourse to other entities within the Company.
23
Normal Course Issuer Bid
On March 17, 2023, the Company renewed its normal course issuer bid whereby it can purchase for cancellation up to
6,052,978 common shares, or approximately 5% of its issued and outstanding common shares as of March 14, 2023.
The renewed normal course issuer bid is set to expire on March 20, 2024.
In 2023, 2,127,800 common shares were purchased under this normal course issuer bid for $41.8 million (an average
price of $19.64 per common share), with an additional $2.5 million paid in relation to shares purchased the prior year.
Shares Outstanding
As at December 31, 2023 and March 5, 2024 there were 118,931,779 common shares of the Company outstanding,
and Canfor’s ownership interest in CPPI and Vida was 54.8% and 70.0%, respectively (December 31, 2022 – 54.8%
and 70.0%).
2024 Projected Capital Spending and Debt Repayments
Based on its current outlook, assuming no significant change in market conditions during the year, the Company
anticipates it will invest approximately $440 million in 2024, which will include approximately $400 million in the lumber
segment and approximately $40 million in the pulp and paper segment (including costs related to scheduled
maintenance outages).
For the lumber business, projected spending is anticipated to be focused the construction of a new state-of-the-art
sawmill in southern Alabama (“Axis”), which will replace the Company’s existing Mobile sawmill, as well as the upgrade
and expansion of the Urbana sawmill in Union County, Arkansas. In addition to these projects, spending in 2024 is also
anticipated to reflect capital investments aimed at increasing drying and sorting capacity at the Company’s European
Bruza sawmill, as well as various high-returning discretionary projects, primarily concentrated in the US South and
Europe.
For CPPI, it is anticipated that capital projects in 2024 will be primarily focused on optimizing the sustainable operating
footprint and improving the reliability of its operations.
Details of the Company’s additional commitments and term debt obligations in 2024 are outlined in the “Other
Commitments” section of this document. Canfor (including CPPI and Vida) has sufficient liquidity in its cash reserves
and operating loans to finance its planned investments and support its lumber and pulp operations during 2024.
Derivative Financial Instruments
As at December 31, 2023, the Company had the following significant derivative financial instruments outstanding:
Maturity Date
Lumber Futures Contracts
Future sales contracts
0-6 months
As at December 31, 2023
Notional
Amount
(MMfbm)
Average
Rate
(US-dollars per
Mfbm)
19.3
$565.2
At a consolidated level, Canfor is exposed to foreign exchange risk related to the US-dollar, as Canfor’s products are
sold principally in US-dollars. In addition, Canfor holds US-dollar denominated financial assets and liabilities. Although
the Company’s Vida subsidiary primarily transacts in its functional currency of SEK, some of its products are sold in US-
dollars, British Pounds (“GBP”), Australian dollars (“AUD”), Euros (“EUR”) and Norwegian krone (“NOK”). The Company,
including Vida, holds US-dollar, SEK and AUD operating loan and term debt facilities and limits its exposure to foreign
exchange risk using forward foreign exchange contracts and foreign exchange options.
Maturity Date
Forward Foreign Exchange Contracts
0-6 months
0-18 months
0-6 months
Notional Amount
Currency
As at December 31, 2023
Notional
Amount
(millions)
Exchange
Rates
(rate of SEK to
notional currency)
GBP
USD
EUR
£40.0
$99.0
€15.0
13.35
10.31
11.62
24
Other Commitments
The following table summarizes Canfor’s term debt obligations excluding interest at December 31, 2023 for each of the
next five years and thereafter:
(millions of Canadian dollars)
2024
2025
2026
2027
2028
Thereafter
Total
Term debt obligations
$
44.8
$
44.2
$
0.1 $
0.1
$
0.1
$
70.6
$
159.9
Interest payments include interest of 4.4% on the Company’s US$66.7 million fixed-rate term loan. Interest is also
payable on floating rate debt. Interest payments have been excluded from the above commitments.
Other contractual obligations not included in the table above or highlighted previously are:
•
•
•
•
•
Contractual commitments totaling $363.0 million reflecting commitments for the construction of capital assets
(including commitments related to the construction of the new Axis sawmill in southern Alabama), and other
working capital items. The majority of these commitments are expected to be settled within two years.
Commitments related to leases of property, plant and equipment are detailed in Note 6 of Canfor’s 2023
consolidated financial statements.
The Company's total commitments of $363.0 million include contractual commitments with landowners to purchase
a fixed volume of logs at a future date for a negotiated, agreed upon price. For certain contracts, the Company
pre-pays a portion of the fee to the vendor, recognized in 'Prepaid expenses and other' on the Company's
consolidated balance sheet. At December 31, 2023, the Company determined that certain prepaid log purchase
contracts had become onerous as defined under IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
as the cost of the logs, combined with the incremental cost to convert the logs to finished lumber, were anticipated
to exceed the future sales price. Therefore, an onerous contract provision of $6.5 million was recognized in
'Accounts payable and accrued liabilities' as at December 31, 2023.
Deferred reforestation, for which a liability of $100.0 million has been recorded at December 31, 2023. The
reforestation liability is a fluctuating obligation, based on the area harvested. The future cash outflows are a
function of the actual costs of silviculture programs and of harvesting and are based on, among other things, the
location of the harvesting and the activities necessary to adequately stock harvested areas and achieve a “free-
to-grow” state.
Obligations to pay pension and other post-employment benefits, for which the net liability for accounting purposes
at December 31, 2023 was $122.1 million. As at December 31, 2023, Canfor estimates that total contribution
payments of $8.3 million will be made to its defined benefit pension plans in 2024.
CPPI has energy purchase agreements with a BC energy company (the “Energy Agreements”) for all three kraft
pulp mills. Two of these agreements are for the sale of incremental electrical energy and the third agreement is
for load displacement. All agreements include performance guarantees to ensure minimum contractual amounts
of electricity are generated, with penalty clauses if they are not met. As part of these commitments, CPPI has
entered into standby letters of credit for these guarantees. The standby letters of credit have variable expiry dates,
depending on the capital invested and the length of the Energy Agreement involved. As at December 31, 2023,
CPPI had posted $2.2 million of standby letters of credit under these agreements and had no repayment obligations
under the terms of any of these agreements.
Purchase and contractual obligations in the normal course of business. Purchase obligations of a more substantial
dollar amount generally relate to the supply of fibre for the pulp business and are subject to “force majeure”
clauses. In these instances, actual volumes purchased may vary significantly from contracted amounts depending
on Canfor’s requirements in any given year.
25
TRANSACTIONS WITH RELATED PARTIES
The Company undertakes transactions with various related entities. These transactions are in the normal course of
business, except where otherwise noted.
The Jim Pattison Group is Canfor’s largest shareholder with an ownership interest of 53.6% at December 31, 2023.
During 2023, subsidiaries owned by The Jim Pattison Group provided lease, insurance, and other services to Canfor
totaling $6.6 million.
During 2023, CPPI sold paper to subsidiaries owned by the Jim Pattison Group totaling $4.5 million. CPPI also made
purchases from subsidiaries owned by the Jim Pattison group totaling $0.7 million. Additional details on related party
transactions are contained in Note 22 to Canfor’s 2023 consolidated financial statements.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) STRATEGY,
REPORTING AND RELATED RISKS
One of Canfor’s primary objectives is to be the leading global supplier of sustainable wood products. As a Company
that uses a renewable resource to produce sustainable products, it is part of the climate change solution and the
circular economy. Canfor’s vision of creating a future as sustainable as the forests is grounded in a deep respect for
the people the business touches, the products it creates and the planet it relies on to thrive.
In 2021, as part of this leading role, the Company launched its updated sustainability strategy and Sustainability Report.
The Company’s Sustainability Report includes sustainability goals and targets and demonstrates progress made to date.
In 2022, the Company announced its climate ambition to be a net-zero company by 2050 through advancing climate-
positive forest management, producing sustainable forest products and developing impactful partnerships. In the 2023
Sustainability Report, the Company will share its continued advancement of its sustainability strategy. Canfor will further
evolve its ESG reporting by providing increasing transparency and disclosure, including defining additional goals and
targets for its ESG material topics.
The Company is actively monitoring the changing landscape of ESG reporting regulations and has aligned disclosures
with the Global Reporting Initiative (“GRI”), the recommendations from the Task Force on Climate-Related Financial
Disclosures (“TCFD”) and with the standards of the Sustainability Accounting Standards Board (“SASB”). In addition to
regulatory Greenhouse Gas (“GHG”) reporting for applicable facilities, on a voluntary basis, the Company calculates its
manufacturing and corporate Scope 1 and Scope 2 GHG emissions annually for all of its facilities under operational
control in Canada, the US and Sweden in accordance with Greenhouse Gas Protocol developed by the World Business
Council for Sustainable Development and World Resource Institute. The Company has also calculated Scope 3 GHG
emissions for its 2022 baseline year. Canfor is committed to the Science Based Targets initiative (“SBTi”) and plans to
undergo the SBTi validation process by April 2024. The SBTi publishes a corporate standard for net-zero target setting,
providing companies with a clearly defined path for reducing emissions in line with the Paris Agreement and limiting
global warming to 1.5° Celsius above preindustrial levels. Canfor has committed to set near- and long-term company-
wide emissions reductions in line with science-based net-zero with the SBTi.
More detailed information on the Company’s sustainability strategy and performance is provided in the annual
Sustainability Report (to be issued in the second quarter of 2024) and at https://sustainability.canfor.com.
Furthermore, the Company is subject to risks related to ESG topics, including climate change and environmental issues.
Climate change risks include physical risks resulting from adverse events brought on by both natural and human-made
disasters, including, but not limited to, severe weather conditions, forest fires, hurricanes, and timber diseases and
infestations. The Company is also subject to transition risks associated with climate change including changes in laws,
regulations, and industry standards. There also may be reputation risks due to rising prominence of ESG concerns
among the Company’s stakeholders and Indigenous partners. These concerns could influence public opinions about
the Company and the broader industry and could adversely affect its reputation, business, strategy, and operations.
The Company is also subject to a wide range of general and industry-specific regulations related to protection of the
environment.
The Company has published several sustainability-related goals and targets as part of its sustainability strategy. There
is a risk that these goals and targets may not be met or not be achieved within expected time periods, that some or
all of the expected opportunities may fail to materialize, result in increased capital expenditures or other costs to our
operations. This may be due to events and circumstances, such as, but not limited to: general global economic, market
26
and business conditions; pricing, supply, demand for our products; governmental and regulatory requirements and
actions; ability to access capital; commercial viability and scalability of emission reduction strategies and technology;
impacts from natural disturbances and extreme weather conditions.
The risks and uncertainties the Company faces associated with climate change and the environment are discussed
further under “Climate Change,” “Environmental Issues” and “Species at Risk” in the “Risks and Uncertainties” section
of this document.
SELECTED QUARTERLY FINANCIAL INFORMATION
Sales and income (loss)
(millions of Canadian dollars)
Sales
$ 1,282.9 $ 1,312.3 $ 1,446.0 $ 1,385.4 $ 1,373.3 $ 1,666.4 $ 2,173.1 $ 2,213.9
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Operating income (loss) before amortization,
asset write-downs and impairments29
Operating income (loss)
Net income (loss)
Shareholder net income (loss)
Per common share (Canadian dollars)
Shareholder net income (loss) – basic and
diluted
Book value30
Statistics
$
$
$
$
$
$
(89.1) $
42.6 $
41.0 $
(105.7) $
(62.6) $
211.5 $
630.3 $
830.7
(191.3) $
(65.1) $
(66.7) $
(208.5) $ (308.0) $
108.6 $
531.6 $
741.9
(121.6) $
(34.7) $
(48.6) $
(143.6) $ (231.4) $
106.5 $
415.5 $
570.5
(117.1) $
(23.1) $
(43.9) $
(142.0) $ (207.9) $
87.4 $
373.8 $
534.0
(0.98) $
(0.19) $
(0.36) $
(1.17) $
(1.70) $
0.71 $
3.02 $
4.29
32.10 $
32.89 $
32.63 $
33.81 $
34.87 $
36.14 $
34.77 $
31.96
Lumber shipments (MMfbm)31
1,333
1,288
1,406
1,340
1,239
1,311
1,528
1,407
Pulp shipments (000 mt)
136
142
179
152
170
199
205
176
Average exchange rate – US$/Cdn$
$
0.734 $
0.746 $
0.745 $
0.740 $
0.736 $
0.766 $
0.783 $
0.790
Average exchange rate – SEK/Cdn$
7.819
8.056
7.833
7.726
7.891
8.082
7.708
7.367
Average Western SPF 2x4 #2&Btr lumber
price (US$)
Average SYP (East) 2x4 #2 lumber price
(US$)
Average SYP (East) 2x6 #2 lumber price
(US$)
$
$
$
400 $
419 $
358 $
386 $
410 $
580 $
866 $ 1,274
448 $
452 $
486 $
485 $
451 $
722 $
769 $ 1,372
333 $
404 $
385 $
420 $
449 $
459 $
556 $ 1,102
Average NBSK pulp list price delivered to
China (US$)
29 Amortization includes amortization of certain capitalized major maintenance costs; includes asset write-down and impairment charges of $138.6 million
in 2022.
30 Book value per common share is equal to shareholders’ equity at the end of the period, divided by the number of common shares outstanding at the
end of the period.
31 Includes Canfor produced lumber, as well as lumber purchased for resale, remanufacture and engineered wood, excluding trim blocks, wholesale
shipments and lumber sold on behalf of third parties.
1,008 $
668 $
680 $
891 $
920 $
748 $
969 $
899
$
In addition to exposure to changes in product prices and foreign exchange, the Company’s financial results are impacted
by seasonal factors such as weather and building activity. Adverse weather conditions, including hurricanes, flooding,
and forest fires, can cause logging curtailments, which can affect the supply of raw materials to sawmills and pulp
mills. Market demand also varies seasonally to some degree. For example, building activity and repair and renovation
work, which affects demand for lumber products, is generally stronger in the spring and fall months. Shipment volumes
are affected by these factors as well as by global supply and demand conditions. Net income (loss) is also impacted by
fluctuations in Canadian dollar exchange rates, and the revaluation to the period end rate of US-dollar and SEK
denominated working capital balances, US-dollar and SEK denominated debt and revaluation of outstanding derivative
financial instruments.
27
(millions of Canadian dollars)
Operating income (loss) by segment:
Lumber
Pulp and Paper
Unallocated and Other
Total operating income (loss)
Add: Amortization32
Add: Asset write-downs and impairments
Total operating income (loss) before
amortization, asset write-downs and
impairments
Add (deduct):
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
$ (162.2) $
(15.1) $ (49.3) $ (37.9) $
(25.2) $
(14.0) $ (14.5) $ (13.3) $ (13.6) $
(1.3) $ (15.5) $ (169.7) $ (199.5) $
(91.1) $
(17.4) $
$
$
$ (191.3) $ (65.1) $ (66.7) $ (208.5) $ (308.0) $
106.8 $
$ 102.2 $ 107.7 $ 107.7 $ 102.8 $
138.6 $
$
$
$
$
$
-
-
-
-
101.6 $
552.1 $
783.0
19.2 $
(8.1) $
(26.0)
(12.2) $
(12.4) $
(15.1)
108.6 $
531.6 $
741.9
102.9 $
98.7 $
88.8
-
$
-
$
-
$
(89.1) $
42.6 $
41.0 $ (105.7) $
(62.6) $
211.5 $
630.3 $
830.7
Working capital movements
Defined benefit plan contributions, net
Income taxes (paid) received, net
Adjustment to accrued duties33
Other operating cash flows, net34
$
$
$
$
$
(18.0) $ 151.8 $ 151.7 $ (122.7) $
(2.9) $ (15.4) $
(3.4) $
41.8 $ (17.9) $ (57.2) $
(2.5) $
(0.5) $
81.5 $ (22.8) $ 22.6 $
1.8 $
(4.9) $
20.2 $
19.4 $
43.3 $
(18.6) $
(2.4) $
(42.7) $
45.3 $
28.2 $
184.2 $
208.8 $ (287.7)
(3.0) $
(3.0) $
(3.8)
(98.9) $
(113.0) $ (208.0)
(105.6) $
(45.3) $
(50.7)
(3.8) $
(0.4) $
23.5
Cash from (used in) operating activities $
(8.4) $ 205.6 $ 183.8 $ (226.3) $
(52.8) $
184.4 $
677.4 $
304.0
Add (deduct):
Capital additions, net
Finance expenses paid
Proceeds from (repayments of) term debt $
Share purchases
Purchase of long-term investments
Distributions to non-controlling interests
Acquisition of Millar Western
Foreign exchange gain (loss) on cash and
cash equivalents
Other, net34
$
$
$
$
$
(10.5) $
(46.0) $
$ (172.1) $ (192.9) $ (142.4) $ (79.6) $ (277.8) $
(6.9) $
(0.1) $
(30.3) $
-
(6.7) $ (10.8) $
(0.1) $ (50.1) $
(9.5) $ (12.2) $ (11.5) $
(11.4) $ (48.0) $
(11.1) $
(5.6) $
0.1 $
$
$
$
$
-
-
(138.8) $
(113.1) $
(95.6)
(4.4) $
(6.4) $
(0.1) $
(0.1) $
(3.4)
(0.1)
(2.4) $
(40.5) $
(5.7)
-
$
-
$
-
$
(0.4) $ (61.9) $
-
$
-
$
-
-
$
$
-
-
$
$
-
-
$
$
(1.7) $
(60.9) $
(0.2)
-
$
(15.9) $ (418.1)
19.4 $
1.5 $
12.4 $ (40.3) $
1.5 $
(0.1) $
1.8 $
7.8 $
25.7 $
13.7 $
34.0 $
(18.5) $
(8.2) $
(1.2) $
(24.6)
(6.6)
Change in cash / operating loans
$ (237.0) $ (42.4) $ (131.7) $ (312.9) $ (328.5) $
52.5 $
431.1 $ (250.3)
32 Amortization includes amortization of certain capitalized major maintenance costs.
33 Adjusted to true-up anti-dumping duties expensed for accounting purposes to current accrual rates.
34 Further information on cash flows may be found in the Company’s annual consolidated financial statements.
THREE-YEAR COMPARATIVE REVIEW
(millions of Canadian dollars, except per share amounts)
Sales
Net income (loss)
Shareholder net income (loss)
Total assets
Term debt
Shareholder net income (loss) per share, basic and diluted
2023
2022
2021
$
$
$
$
$
$
5,426.6
$
7,426.7 $
7,684.9
(348.5) $
861.1 $
1,458.8
(326.1) $
787.3 $
6,131.4
159.9
$
$
(2.71) $
6,739.2 $
258.9 $
6.39 $
1,341.6
6,173.9
246.0
10.74
28
FOURTH QUARTER RESULTS
Overview
For the fourth quarter of 2023, the Company reported an operating loss of $191.3 million. After taking account of
adjusting items, largely comprised of inventory valuation adjustments, the Company’s operating loss for the fourth
quarter of 2023 was $232.4 million compared to an adjusted operating loss of $85.9 million for the previous quarter,
as an improvement in pulp and paper segment earnings quarter-over-quarter was more than offset by a decline in
lumber segment results.
An overview of the results by business segment for the fourth quarter of 2023 compared to the third quarter of 2023
and the fourth quarter of 2022 follows.
Lumber
Selected Financial Information and Statistics – Lumber
(millions of Canadian dollars, unless otherwise noted)
Q4
2023
Q3
2023
Q4
2022
Sales35
$
Operating income (loss) before amortization, asset write-down and impairment35 $
Operating loss35
$
1,089.0
$
1,123.5 $
1,105.2
(76.9) $
84.1 $
(30.6)
(162.2) $
(1.3) $
(199.5)
Asset write-down and impairment
Inventory write-down (recovery)
Adjusted operating loss36
Average Western SPF 2x4 #2&Btr lumber price in US$37
Average Western SPF 2x4 #2&Btr lumber price in Cdn$37,39
Average SYP 2x4 #2 lumber price in US$38
Average SYP 2x4 #2 lumber price in Cdn$38,39
Average SYP 2x6 #2 lumber price in US$38
Average SYP 2x6 #2 lumber price in Cdn$38,39
US housing starts (thousand units SAAR)40
Production – Western SPF lumber (MMfbm)41
Production – SYP lumber (MMfbm)41
Production – European lumber (MMfbm)41
Shipments – Western SPF lumber (MMfbm)42
Shipments – SYP lumber (MMfbm)42
Shipments – European lumber (MMfbm)42
$
$
$
$
$
$
$
$
$
-
$
-
$
(30.2) $
(18.8) $
89.0
6.1
(192.4) $
(20.1) $
(104.4)
400
545
448
610
333
454
$
$
$
$
$
$
419 $
562 $
452 $
606 $
404 $
542 $
1,454
1,371
503
438
324
510
434
389
495
451
278
534
443
311
410
557
451
613
449
610
1,405
507
388
349
464
371
404
35 Q4 2023 includes sales of $324.7 million, operating loss of $2.3 million and operating income before amortization of $15.5 million from European
operations (Q3 2023 – sales of $286.3 million, operating income of $14.1 million and operating income before amortization of $30.9 million; Q4 2022 –
sales of $307.5 million, operating income of $26.9 million and operating income before amortization of $43.3 million). Operating income from European
operations in Q4 2023 includes $9.3 million in incremental amortization and other expenses driven by the purchase price allocation at acquisition (Q3
2023 - $8.9 million; Q4 2022 - $9.2 million).
36 Adjusted operating loss is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
37 Western Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths Publications, Inc.).
38 Southern Yellow Pine, Eastside, per thousand board feet (Source – Random Lengths Publications, Inc.).
39 Average lumber prices in Cdn$ calculated as average price in US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of
Canada monthly average for the period.
40 Source – US Census Bureau, SAAR.
41 Excluding production of trim blocks.
42 Includes Canfor produced lumber, as well as lumber purchased for resale, remanufacture and engineered wood, excluding trim blocks, wholesale
shipments and lumber sold on behalf of third parties.
Markets
North American lumber market conditions remained fairly subdued throughout most of the fourth quarter as the market
softness experienced at the end of the prior quarter continued well into the current period. This, combined with a
traditionally slower consumption period, placed further downward pressure on North American benchmark pricing early
in the current quarter. However, an unanticipated uptick in housing starts, coupled with the impact of production
curtailments, particularly in BC, and steady activity in the repair and remodel sector, gave rise to a slight improvement
in North American benchmark pricing towards the end of the current period.
29
Notwithstanding affordability headwinds, a lack of existing home inventory resulted in an uptick in new home
construction activity in November, particularly for single-family homes, which consume approximately three times the
volume of lumber compared to multi-family units. As a result, for the current quarter overall, US housing starts averaged
1,454,000 units on a seasonally adjusted basis, up 6% from the previous quarter, with single-family averaging
1,042,000 units, up 8% from the previous quarter. In Canada, housing starts averaged 244,000 units on a seasonally
adjusted basis in the fourth quarter of 2023, down 4% from the previous quarter, primarily reflecting a decrease in
multi-family homes, specifically in Quebec and Ontario, partially offset by an increase in BC.
Offshore lumber markets in Asia remained relatively flat during the current quarter, as ongoing economic uncertainty
and a depressed real estate market, especially in China, was met with ample lumber supply in that region, and resulted
in slight downward pressure on pricing.
In Europe, lumber demand and pricing experienced moderate decreases during the current quarter driven largely by
low residential housing starts and a seasonally slower do-it-yourself sector.
Sales
Sales revenues for the lumber segment for the fourth quarter of 2023 were $1,089.0 million, down $34.5 million
compared to the previous quarter and down $16.2 million from the fourth quarter of 2022. The 3% decrease in sales
revenue over the prior quarter was predominantly driven by relatively weak global lumber market prices through most
of the fourth quarter, and, to a lesser extent, a 3% decrease in North American shipment volumes. These factors more
than outweighed the benefit of a 25% increase in European shipments, a 1 cent, or 2%, weaker Canadian dollar
(versus the US-dollar), and a 3% weaker Canadian dollar (versus the SEK) in the current period.
Compared to the fourth quarter of 2022, sales revenues were down 1%, mainly due to a decline in global lumber
market prices in the current quarter, offset in part by an 8% uplift in shipment volumes.
Total lumber shipments, at 1.3 billion board feet, were 3% higher than the previous quarter, as a 25% uplift in European
lumber shipments, following the seasonal production downtime taken in the prior period, was moderated, to a degree,
by a slight decline in North American lumber production and therefore, shipments, in the current period.
Compared to the fourth quarter of 2022, total lumber shipments were up 8%, largely reflecting a significant increase
in SYP shipments, principally tied to the benefit of incremental shipment volumes associated with the ramp-up of the
DeRidder sawmill through 2023. This factor was combined with an uplift in Western SPF shipments in the current period
following an inventory build in the comparative period, offset in part by slightly lower European shipments attributable
to reduced production quarter-over-quarter.
The average North American Random Lengths Western SPF 2x4 #2&Btr price began the period at US$390 per Mfbm
and remained relatively flat through most of the fourth quarter. Towards the end of December, however, operational
downtime in Western Canada reduced lumber supply in the region and led to a slight uptick in Western SPF 2x4 #2&Btr
pricing, ending the year at US$440 per Mfbm. For the quarter overall, the North American Random Lengths Western
SPF 2x4 #2&Btr price averaged US$400 per Mfbm, down US$19 per Mfbm, or 5%, from the previous quarter. The
Company’s Western SPF lumber unit sales realizations primarily reflected this decrease in US-dollar benchmark pricing
as well as more pronounced pricing declines for certain wider-width and low-grade products. These factors were
moderated, to a degree, by the 2% weaker Canadian dollar (versus the US-dollar).
The average North American SYP East 2x4 #2 price started the quarter at US$505 per Mfbm and gradually weakened
throughout the period to a low of US$405 per Mfbm in November, before rebounding slightly in December, ending the
year at US$470 per Mfbm. For the quarter overall, the SYP East 2x4 #2 price averaged US$448 per Mfbm, down US$4
per Mfbm, or 1%, from the previous quarter. Most wider-width SYP dimensions experienced notable price decreases
compared to the prior period, including the North American SYP East 2x6 #2 price, which averaged US$333 per Mfbm
in the current period, down US$71 per Mfbm, or 18%, from the previous quarter. Consequently, the Company
experienced significant declines in its average SYP lumber unit sales realizations quarter-over-quarter.
The Company’s European lumber unit sales realizations for the fourth quarter of 2023 were moderately lower than the
previous quarter, principally reflecting the aforementioned pricing pressure in European lumber markets, offset to a
degree by the 3% weaker Canadian dollar (versus the SEK).
Compared to the fourth quarter of 2022, the Company’s lumber unit sales realizations were down significantly in
Western Canada and the US South, and slightly in Europe. In Western Canada, the decline in lumber unit sales
realizations largely reflected a US$10 per Mfbm, or 2%, drop in the average North American Random Lengths Western
SPF 2x4 #2&Btr price, coupled with a significant decrease in benchmark pricing for wider-width dimensions, and, to a
30
lesser extent, unfavourable movements in offshore unit sales realizations quarter-over-quarter. The decline in the
Company’s SYP lumber unit sales realizations primarily reflected the US$116 per Mfbm, or 26%, decrease in the average
SYP East 2x6 #2 price over the same comparative period, and, to a lesser extent, the US$3 per Mfbm, or 1%, drop in
the average SYP East 2x4 #2 price. The slight decrease in the Company’s European lumber unit sales realizations in
the current period was primarily attributable to downward pressure on European market demand and pricing.
Other revenues for the Company’s lumber segment (which are primarily comprised of residual fibre, pulp log, and
pellets sales, as well as the Company’s European operations’ other related revenues) increased significantly compared
to the previous quarter, primarily due to the impact of the seasonal production downtime taken at the Company’s
European operations in the prior quarter, offset in part by a decrease in engineered wood sales in the US South quarter-
over-quarter. Compared to the fourth quarter of 2022, other revenues were moderately higher, largely reflecting an
uplift in pellet sales from the Company’s European operations in the current quarter, moderated to a degree, by a
decline in log sales at the Company’s Western Canadian operations and a reduction in engineered wood sales from the
Company’s US South operations in the current period.
Operations
Total lumber production, at 1.27 million board feet, was 3% higher than the prior quarter, as the benefit of increased
operating days at the Company’s European operations following the aforementioned seasonal downtime, was offset in
part, by a 3% decline in SYP lumber production, stemming from an increase in statutory holidays in the fourth quarter.
In Western Canada, production was up 2% quarter-over-quarter, as the benefit of a slight reduction in fibre and
market-related curtailments in the current period (approximately 140 million board feet in the current quarter versus
200 million board feet in the prior quarter) was largely offset by a rebuild of rough green lumber inventories in the
current quarter following curtailments in the comparative period.
Compared to the fourth quarter of 2022, total lumber production was up 2%, primarily driven by increased SYP
production, tied to the start-up of the Company’s newly constructed DeRidder sawmill in early 2023. In Europe,
decreased production in the current period was principally a result of intermittent log availability in the region, while in
Western Canada, production was broadly comparable quarter-over-quarter.
Lumber unit manufacturing and product costs were relatively in line with the previous quarter, as reduced log costs in
the current period were offset by a moderate uptick in per-unit cash conversion costs, principally tied to a seasonal
increase in energy costs in Europe. In BC, lower log costs were primarily correlated with reduced market-based
stumpage rates in the current quarter following the continued declines in Western SPF benchmark lumber pricing.
These log cost reductions were offset in part by market-based log price increases in Europe stemming from ongoing
log supply constraints. Log costs in the US South were broadly comparable quarter-over-quarter.
Compared to the fourth quarter of 2022, lumber unit manufacturing and product costs experienced a moderate decline,
reflecting a reduction in both log costs and, to a lesser extent, per-unit cash conversion costs. Log cost decreases were
most notable in Western Canada, largely due to significantly lower BC stumpage costs in the current quarter (associated
with the drop in Western SPF benchmark lumber prices throughout 2023), offset in part by higher European log costs
principally tied to log supply pressures in that region. Lower per-unit cash conversion costs were primarily driven by
Western Canada, reflecting reduced cash spend on labour and energy in that region in the current quarter. These
reductions in Western Canada were offset, to a degree, by higher per-unit cash conversion costs in Europe in the
current period attributable to inflationary related pressures on spend.
Asset Write-Downs and Impairments
No asset write-down or impairment charge was recorded in the fourth quarter of 2023 on the property, plant and
equipment and timber licenses for the Company’s Western Canadian lumber operations, whereas results in the fourth
quarter of 2022 included an impairment expense of $89.0 million. See “Critical Accounting Estimates – Asset Write-
Downs and Impairments” for further details.
31
Pulp and Paper
Selected Financial Information and Statistics – Pulp and Paper43
Summarized results for the Pulp and Paper segment for the fourth quarter of 2023, third quarter of 2023 and fourth
quarter of 2022 were as follows:
(millions of Canadian dollars, unless otherwise noted)
Sales
Operating income (loss) before amortization, asset write-down and impairment44
Operating loss
Asset write-down and impairment
Inventory write-down (recovery)
Adjusted operating loss45
Average NBSK pulp price delivered to China – US$46
Average NBSK pulp price delivered to China – Cdn$46
Production – pulp (000 mt)
Production – paper (000 mt)
Shipments – pulp (000 mt)
Shipments – paper (000 mt)
$
$
$
$
$
$
$
$
Q4
2023
193.9
1.1
Q3
2023
Q4
2022
$
$
188.8
$
268.1
(27.7) $
(15.1)
(15.1) $
(49.3) $
(91.1)
-
$
-
$
49.6
(10.9) $
(2.0) $
(0.5)
(26.0) $
(51.3) $
(42.0)
748
1,019
$
$
148
34
136
32
680
912
123
32
142
30
$
$
920
1,250
160
32
170
32
43 Includes 100% of CPPI, which is consolidated in Canfor’s operating results. Pulp production and shipment volumes presented are for both NBSK pulp
and BCTMP (2022 only).
44 Amortization includes amortization of certain capitalized major maintenance costs.
45 Adjusted operating loss is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
46 Per tonne, NBSK pulp list net price delivered to China (as published by RISI); Average NBSK pulp list net price delivered to China in Cdn$ calculated
as average NBSK pulp list net price delivered to China – US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of Canada
monthly average rate for the period.
Markets
Following a relatively weak second and third quarter of 2023, global softwood pulp markets moderately improved in
the current quarter, largely reflecting a slight uptick in demand and purchasing activity in most major regions as global
pulp producer inventories returned to a more balanced range. As a result, the positive pricing momentum in US-dollar
NBSK list prices to China experienced towards the end of the prior quarter, continued well into in the current period,
with prices peaking in November 2023. For the current quarter overall, average US-dollar NBSK pulp list prices to China
were US$748 per tonne, up US$68 per tonne, or 10%, from the previous quarter, but down US$172 per tonne, or
19%, compared to the fourth quarter of 2022. Prices to other global regions experienced more modest increases in
the current period, with the average US-dollar NBSK pulp list price to North America at US$1,312 per tonne (before
discounts), up US$19 per tonne, or 1%, from the prior quarter. Compared to the fourth quarter of 2022, however, pulp
list prices to North America were down US$433 per tonne, or 25%.
Global softwood pulp producer inventories were relatively steady throughout the current quarter and within the
balanced range, ending December 2023 at 40 days of supply, a two day increase from September 2023. Market
conditions are generally considered balanced when inventories are in the 32-43 days of supply range.
The softness in global kraft paper market conditions experienced at the end of the previous quarter continued through
most of the fourth quarter of 2023, with an uptick in demand seen in the latter part of the period.
Sales
CPPI’s pulp shipments for the fourth quarter of 2023 totaled 136,000 tonnes, down 6,000 tonnes, or 4%, from the
previous quarter, principally due to the delayed restart of Northwood at the end of September and into October,
impacting shipments early in the current period. This was combined with, to a lesser degree, the replenishment of
inventory levels reduced in the prior quarter as a result of the aforementioned late start-up.
Compared to the fourth quarter of 2022, pulp shipments were down 34,000 tonnes, or 20%, primarily reflecting an
8% decline in pulp production quarter-over-quarter, combined with a drawdown of inventory levels in the comparative
period as a result of an Intercon fibre-related curtailment late in 2022 as well as the timing of vessels quarter-over-
quarter.
CPPI’s average NBSK pulp unit sales realizations experienced a moderate improvement compared to the previous
quarter, principally tied to the 10% increase in US-dollar NBSK pulp list prices to China and the 2% weaker Canadian
32
dollar, offset, in part, by an unfavourable timing lag in shipments (versus orders). Compared to the fourth quarter of
2022, CPPI’s average NBSK pulp unit sales realizations saw a substantial decline, driven by the aforementioned
downward pressure on global US-dollar pulp list pricing.
Energy revenues increased compared to both comparative periods, principally driven by the quarter-over-quarter uplift
in pulp productivity at Northwood and Intercon, and the correlated benefit on energy generation.
CPPI’s paper shipments in the fourth quarter of 2023 were 32,000 tonnes, up 2,000 tonnes from the previous quarter,
and consistent with the fourth quarter of 2022, principally tied to the timing of shipments around quarter-end.
Paper unit sales realizations in the fourth quarter of 2023 were slightly lower than the previous quarter, as the decline
in global US-dollar paper pricing through most of the current period was largely offset by the weaker Canadian dollar.
Compared to the fourth quarter of 2022, paper unit sales realizations experienced a moderate decrease, primarily
reflecting weaker US-dollar pricing quarter-over quarter.
Operations
Pulp production was 148,000 tonnes for the fourth quarter of 2023, up 25,000 tonnes, or 20%, from the third quarter
of 2023, largely reflecting improved NBSK productivity in the current period. Following the successful completion of a
scheduled maintenance outage in September, the restart of Northwood was delayed into the fourth quarter of 2023,
resulting in approximately 30,000 tonnes of reduced NBSK pulp production early in the current period. For the quarter
overall however, the operating performance at Northwood and Intercon continued to improve as the quarter
progressed, despite some minor challenges with operational reliability, which impacted NBSK production by
approximately 10,000 tonnes in the current period.
In the third quarter of 2023, CPPI curtailed Northwood for approximately one week as a result of labour disputes at
the Ports of Vancouver and Prince Rupert, which reduced NBSK pulp production by approximately 10,000 tonnes. In
addition, the scheduled maintenance outage at Northwood was completed as planned, and reduced NBSK pulp
production by approximately 25,000 tonnes. While persistent reliability challenges at Northwood and a delayed restart
resulted in a further reduction of approximately 30,000 tonnes in the third quarter.
Compared to the fourth quarter of 2022, pulp production was down 12,000 tonnes, or 8%, primarily reflecting
operational footprint changes, which took effect in April, offset by reduced downtime and improved NBSK productivity
in the current period. In the comparative 2022 period, the operating performance at both Intercon and Northwood
were significantly impacted by a shortage of economic fibre and winter conditions in BC. These factors, in combination
with the completion of a scheduled maintenance outage at Intercon, reduced NBSK pulp production by approximately
90,000 tonnes in the fourth quarter of 2022.
Pulp unit manufacturing costs experienced a moderate decrease compared to the prior quarter, as seasonally higher
energy usage and an increase in chemical costs in the current period were more than offset by the benefit of increased
production and lower fibre costs. While the proportion of higher cost whole log chips stayed relatively unchanged
quarter-over-quarter, fibre costs were slightly lower than the previous quarter largely due to a reduction in market-
based prices for sawmill residual chips (linked to lower Canadian dollar NBSK pulp sales realizations in the prior quarter
due to a lag in chip consumption tied to aforementioned downtime at Northwood).
Compared to the fourth quarter of 2022, pulp unit manufacturing costs were substantially lower, mostly attributable
due to a decline in fibre costs in the current period, principally tied to lower market-based prices for sawmill residual
chips, as well as reduced energy pricing and lower maintenance costs (timing-related).
Paper production for the fourth quarter of 2023 was 34,000 tonnes, an increase of 2,000 tonnes compared to both
comparative periods, principally driven by improved productivity.
Paper unit manufacturing costs were modestly higher than the third quarter of 2023, primarily reflecting notably higher
slush pulp costs (associated with increased Canadian dollar average NBSK pulp unit sales realizations) and increased
maintenance spend in the current period (timing-related). Compared to the fourth quarter of 2022, paper unit
manufacturing costs saw a substantial decrease, driven by lower slush pulp costs (tied to decreased Canadian dollar
NBSK pulp unit sales realizations), offset by higher chemicals, maintenance, and energy costs quarter-over-quarter.
Asset Write-Down and Impairment
CPPI did not record any additional asset write-down and impairment charge in the fourth quarter of 2023 on the
property, plant, and equipment for the pulp and paper segment, whereas results in the fourth quarter of 2022 included
33
an impairment expense of $49.6 million. See “Critical Accounting Estimates – Asset Write-Downs and Impairments” for
further details.
Unallocated and Other Items
(millions of Canadian dollars)
Corporate costs
Finance income, net
Foreign exchange gain (loss) on term debt and duty deposits recoverable, net
Gain on derivative financial instruments
Other income (expense), net
Q4
2023
(14.0)
2.7
(0.3)
9.0
4.6
$
$
$
$
$
$
$
$
$
$
Q3
2023
(14.5) $
5.6 $
3.8 $
4.9 $
3.9 $
Q4
2022
(17.4)
3.8
(9.4)
4.7
(10.2)
Corporate costs were $14.0 million for the fourth quarter of 2023, down $0.5 million from the previous quarter primarily
reflecting a decrease in legal costs associated with the softwood lumber dispute, and down $3.4 million compared to
the fourth quarter of 2022, largely correlated with a donation to the Company’s Foundation in the comparative period.
Net finance income of $2.7 million in the fourth quarter of 2023 was down $2.9 million from the previous quarter, as
an increase in interest income related to US-dollar short term investments quarter-over-quarter was more than offset
by lower accrued interest income associated with recoverable duty deposits in the current period. In the third quarter
of 2023, net finance income were principally comprised of accrued interest income on recoverable duty deposits
following the finalization of CVD and ADD rates for POR4. Net finance income of $3.8 million in the fourth quarter of
2022 primarily consisted of interest income related to US-dollar short term investments and, to a lesser extent, accrued
interest income associated with recoverable duty deposits.
In the fourth quarter of 2023, the Company recognized a foreign exchange loss of $6.4 million on its US-dollar
denominated net duty deposits recoverable at the close of the current quarter, mostly offset by a gain of $6.1 million
on its US-dollar term debt held by Canadian entities, due to the strengthening of the Canadian dollar at the end of the
current quarter compared to the end of September 2023.
At times, the Company uses a variety of derivative financial instruments as partial economic hedges against
unfavourable changes in lumber prices, energy costs, interest, and foreign exchange rates. In the fourth quarter of
2023, the Company recognized a net gain of $9.0 million, primarily related to realized and unrealized gains on SEK
foreign exchange forward contracts, offset in part by unrealized mark-to-market losses on lumber futures contracts.
Other income, net, of $4.6 million in the fourth quarter of 2023, was primarily comprised of mark-to-market gains on
investments in certain highly liquid funds, partly offset by unfavourable foreign exchange movements on US-dollar
denominated working capital at the end of the current period compared to the end of the prior quarter. Other income,
net, of $3.9 million in the third quarter of 2023 principally reflected favourable foreign exchange movements on US-
dollar denominated working capital balances, combined with CPPI’s receipt of incremental insurance proceeds related
to operational downtime experienced at Northwood in recent years. In the fourth quarter of 2022, other expense, net,
of $10.2 million was largely related to unfavourable foreign exchange movements on US-dollar denominated working
capital balances.
Subsequent to quarter end, on March 1, 2024, CPPI received insurance proceeds totalling $15.0 million related to
operational downtime experienced at Northwood in recent years that will be recognized in ‘Other income, net’, during
the first quarter of 2024.
Other Comprehensive Income
(millions of Canadian dollars)
Defined benefit plan actuarial gain (loss), net of tax
Foreign exchange translation differences for foreign operations, net of tax
Other comprehensive income, net of tax
Q4
2023
5.5
10.8
16.3
$
$
$
$
$
$
Q3
2023
(2.5) $
50.5 $
48.0
$
Q4
2022
(4.2)
40.6
36.4
In the fourth quarter of 2023, the Company recorded a gain of $7.5 million (before tax) in relation to the changes in
the valuation of the Company’s defined benefit plans (comprised of defined benefit pension plans as well as other
benefit plans), as a 0.6% decrease in the discount rate used to value the net defined benefit obligations was more
than offset by higher than anticipated returns on plan assets.
34
This compared to a loss of $3.3 million (before tax) recognized in the third quarter of 2023, largely reflecting lower
than anticipated returns on plan assets that more than offset a 0.3% increase in the discount rate used to value the
net defined benefit obligations.
In the fourth quarter of 2022, the Company recorded a loss of $5.8 million (before tax), primarily reflecting updated
membership data, partially offset by a greater than anticipated return on plan assets.
For more information, see the “Employee Future Benefits” part of the “Critical Accounting Estimates” section later in
this report.
In addition, the Company recorded an accounting gain of $10.8 million in the fourth quarter of 2023 related to foreign
exchange differences for foreign operations mostly reflecting the weakening of the Canadian dollar relative to SEK at
the end of the current quarter, offset in part by the strengthening of the Canadian dollar relative to the US-dollar over
the same comparative period. This compared to a gain of $50.5 million in the previous quarter and a gain of $40.6
million in the fourth quarter of 2022.
CHANGES IN FINANCIAL POSITION
At the end of 2023, Canfor had $627.4 million of cash and cash equivalents.
(millions of Canadian dollars)
Decrease in cash and cash equivalents47
Operating activities
Financing activities
Investing activities
Ratio of current assets to current liabilities
Net cash to total capitalization48
Cumulative duty deposits paid
Q4
2023
Q3
2023
Q4
2022
$
$
$
$
(229.7) $
(35.4) $
(358.5)
(8.4) $
205.6 $
(52.8)
(48.1) $
(8.5) $
(50.7)
(173.2) $
(232.5) $
(255.0)
2.5:1
2.6:1
3.5:1
(9.1)%
(14.2)%
(26.0)%
$
931.0 $
920.2 $
887.9
47 Decrease in cash and cash equivalents shown before foreign exchange translation on cash and cash equivalents.
48 Net cash to total capitalization is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details
The changes in the components of these cash flows are discussed in the following sections:
Operating Activities
Cash used from operating activities was $8.4 million in the fourth quarter of 2023, compared to cash generated of
$205.6 million in the previous quarter and cash used of $52.8 million in the fourth quarter of 2022. The $214.0 million
decrease in operating cash flows from the previous quarter primarily reflected unfavourable movements in non-cash
working capital combined with impact of the receipt of income tax refunds in the previous quarter. The former primarily
reflected seasonally higher log and an increase in finished lumber inventories at the end of the current period, combined
with a timing-related decrease in accounts payable and accrued liabilities. Compared to the fourth quarter of 2022,
operating cash flows were up $44.4 million, principally due to higher income taxes paid in the comparative period.
Financing Activities
Cash used in financing activities was $48.1 million in the current quarter, compared to cash used of $8.5 million in the
previous quarter and $50.7 million in the fourth quarter of 2022. Financing activities in the current quarter primarily
reflected a $46.0 million repayment of long-term debt, offset in part by a net $26.5 million draw-down of the Company’s
operating loan facilities (refer to the “Liquidity and Financial Requirements” section for further details). These activities
were combined with $9.5 million of share repurchases as well as lease and interest payments. In the previous quarter,
cash used from financing activities were principally comprised of $12.2 million of share repurchases, offset in part by
a net $19.3 million draw-down of the Company’s operating loan facilities. Cash used in financing activities in the fourth
quarter of 2022 largely consisted of $30.3 million of share purchases, as well as lease and interest payments.
Investing Activities
Cash used for investing activities was $173.2 million in the current quarter, compared to $232.5 million in the previous
quarter and $255.0 million in the same quarter of 2022. Investing activities in the current quarter were primarily
comprised of capital additions.
Capital additions in the fourth quarter of 2023 were $172.1 million, down $20.8 million from the previous quarter and
down $105.7 million from the fourth quarter of 2022. In the lumber segment, current quarter capital expenditures
35
principally reflected construction costs associated with the Company’s Axis sawmill, and to a lesser extent, ongoing
spend related to the upgrade and expansion of the Company’s Urbana sawmill in Arkansas, as well as maintenance-of-
business capital across all lumber operating regions. In the pulp and paper segment, capital expenditures were largely
associated with maintenance-of-business capital spend.
SPECIFIC ITEMS AFFECTING COMPARABILITY
Specific Items Affecting Comparability of Shareholder Net Income (Loss)
Factors that impact the comparability of the quarters are noted below:
After-tax impact, net of non-controlling interests
(millions of Canadian dollars, except for per
share amounts)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Shareholder net income (loss), as
reported
$
(117.1) $
(23.1) $
(43.9) $
(142.0) $
(207.9) $
87.4 $
373.8 $
534.0
Foreign exchange (gain) loss on term debt $
(5.3) $
6.4 $
(6.7) $
(0.4) $
(1.7) $
10.6 $
4.9 $
(3.0)
(Gain) loss on derivative financial
instruments
Asset write-downs and impairments
Net impact of above items
Adjusted shareholder net income
(loss)49
$
$
$
(4.8) $
(2.7) $
6.3 $
(2.5) $
(2.0) $
0.5 $
1.0 $
(2.0)
-
$
-
$
-
$
-
$
84.8 $
-
$
-
$
-
(10.1) $
3.7 $
(0.4) $
(2.9) $
81.1 $
11.1 $
5.9 $
(5.0)
$
(127.2) $
(19.4) $
(44.3) $ (144.9) $ (126.8) $
98.5 $
379.7 $
529.0
Shareholder net income (loss) per
share (EPS), as reported
Net impact of above items per share
$
$
(0.98) $
(0.19) $
(0.36) $
(1.17) $
(1.70) $
0.71 $
3.02 $
4.29
(0.08) $
0.03 $
-
$
(0.03) $
0.66 $
0.09 $
0.05 $
(0.04)
Adjusted net income (loss) per share49 $
49 Adjusted shareholder net income (loss) is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
(1.20) $
(1.06) $
(0.16) $
(0.36) $
(1.04) $
3.07 $
0.80 $
4.25
OUTLOOK
Lumber Markets
Looking ahead, global lumber market conditions are anticipated to remain under pressure through the first quarter of
2024, as near-term challenges of affordability are projected to persist, despite recent declines in mortgage rates in the
US. On the supply side, it is forecast that operational disruptions, driven by geopolitical tensions as well as fibre and
market-related curtailments, especially in Western Canada, will help reduce inventories to more normalized levels. In
the repair and remodel sector, demand is projected to remain relatively steady through the first quarter of 2024, albeit
declining slightly from the levels experienced in 2023. Despite the near-term challenges, underlying global lumber
market fundamentals in the longer term remain solid, with demographic trends supporting the need for additional new
home construction activity against the backdrop of an aging housing stock and low inventories of new homes available.
Offshore lumber demand in China and Japan is forecast to show signs of modest improvement through the first quarter
of 2024, as the benefits of various government stimulus measures implemented in that region in 2023 are realized and
inventories return to more normalized levels.
In Europe, lumber markets and pricing are anticipated to experience some upward momentum later in the first quarter
of 2024, as lumber supply constraints in that region, tied in part to reduced log availability and increasing log costs,
are projected to overshadow the ongoing impact of low levels of European residential construction activity.
From an operational perspective, there remains significant uncertainty with regards to the availability of economically
viable fibre in BC. While the Company has taken a number of actions in recent years in response to these fibre
constraints, including the aforementioned closures and capacity reductions, the near-term fibre outlook in BC remains
challenging. 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 supply environment for CPPI’s pulp mills.
With these continued fibre-related pressures and the projected weaker North American lumber market demand and
pricing in the near-term, the Company will continue to adjust operating rates in BC to align with demand and
economically available timber supply.
36
Pulp and Paper Markets
Looking forward, global softwood kraft pulp markets are projected to be fairly subdued through the first quarter of
2024. While global pulp producer inventories are estimated to remain within the balanced range, demand uncertainty
is anticipated, driven principally by the deceleration in China NBSK pulp list prices in December and leading up to the
seasonally slower spring period in China.
CPPI has no major maintenance outages planned for the first quarter of 2024. In the second quarter of 2024, a
maintenance outage is scheduled at Intercon, with a projected 5,000 tonnes of reduced NBSK market pulp production.
Given the ongoing uncertainty with regards to the availability of economically viable fibre in BC, and a projected weak
North American lumber market, CPPI anticipates a challenging fibre supply environment for its pulp mills (both for
sawmill residual chips and whole-log chips), especially in the near-term. CPPI will continue to monitor operating
conditions and will adjust operating rates at its pulp mills to align with economically viable fibre supply.
Bleached kraft paper markets are projected to remain solid through the first quarter of 2024 as the uptick in global
paper demand towards the end of 2023 is anticipated to continue. A maintenance outage is currently planned at CPPI’s
paper machine in the second quarter of 2024 with a projected 5,000 tonnes of reduced paper production.
NON-IFRS FINANCIAL MEASURES
Throughout this MD&A, 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. The following table provides a reconciliation of
these non-IFRS financial measures to figures reported in the Company’s consolidated financial statements:
(millions of Canadian dollars)
Reported operating income (loss)
Asset write-downs and impairments
Inventory write-down (recovery), net
Q4
2023
$ (191.3) $
$
$
(41.1) $
$
-
Q3
2023
(65.1) $
-
$
(20.8) $
YTD
2023
Q4
2022
(531.6) $
-
$
(57.2) $
(308.0) $
138.6 $
5.6 $
YTD
2022
1,074.1
138.6
93.5
Adjusted operating income (loss)
$ (232.4) $
(85.9) $
(588.8) $
(163.8) $
1,306.2
Amortization
$ 102.2
$
107.7 $
420.4
$
106.8 $
397.2
Adjusted operating income (loss) before
amortization, asset write-downs and impairments
$ (130.2) $
21.8 $
(168.4) $
(57.0) $
1,703.4
(millions of Canadian dollars, except ratios)
Reported operating income (loss)
Realized (gain) loss on derivative financial instruments
Other income, net
Non-controlling interests and other
Return
Average invested capital50
Return on invested capital (ROIC)
$
$
$
$
$
$
2023
(531.6) $
(4.2) $
19.9 $
39.0 $
2022
1,074.1
0.2
27.1
(112.6)
(476.9) $
988.8
4,166.9 $
(11.4)%
3,801.3
26.0%
50 Average invested capital represents the average during the period of total assets excluding cash and cash equivalents and total liabilities excluding
term debt, retirement benefit obligations, long-term deferred reforestation obligations, and deferred taxes, net of non-controlling interests.
(millions of Canadian dollars, except ratios)
Term debt
Operating loans
Less: Cash and cash equivalents
Net cash
Total equity
Total capitalization
Net cash to total capitalization
37
As at
December 31,
2023
As at
December 31,
2022
$
$
$
$
$
$
159.9 $
110.6 $
627.4 $
258.9
27.8
1,268.7
(356.9) $
(982.0)
4,277.4 $
4,762.8
3,920.5 $
(9.1)%
3,780.8
(26.0)%
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with IFRS requires Management to make estimates and
assumptions that affect the amounts recorded in the consolidated financial statements. Management regularly reviews
these estimates and assumptions based on currently available information. While it is reasonably possible that
circumstances may arise, which cause actual results to differ from these estimates, Management does not believe it is
likely that any such differences will materially affect Canfor’s financial position, other than the possibility of material
effects to the income statement from the Company’s estimated ADD net duty deposits recoverable as discussed in
Notes 9 and 28 of the consolidated financial statements. Unless otherwise indicated, the critical accounting estimates
discussed affect all of the Company’s reportable segments.
Employee Future Benefits
Canfor has various defined benefit and defined contribution plans providing both pension and other non-pension post-
retirement benefits to most of its salaried employees and certain hourly employees not covered by forest industry union
plans. Canfor also provides certain health care benefits and pension bridging benefits to eligible retired employees. The
costs and related obligations of the pension and other retirement benefit plans are accrued in accordance with the
requirements of IFRS.
Canfor uses independent actuarial firms to perform actuarial valuations of the fair value of pension and other retirement
benefit plan obligations. The application of IFRS requires judgments regarding certain assumptions that affect the
accrued benefit provisions and related expenses, including the discount rate used to calculate the present value of the
obligations, the rate of compensation increases, mortality assumptions, and the assumed health care cost trend rates.
Management evaluates these assumptions quarterly based on experience and the recommendations of its actuarial
firms. Changes in these assumptions result in actuarial gains or losses, which are recognized in full in each period with
an adjustment through other comprehensive income (loss).
The actuarial assumptions used in measuring Canfor’s benefit plan provisions and benefit costs are as follows:
Discount rate
Rate of compensation increases
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate rate is reached
December 31, 2023
December 31, 2022
Defined
Benefit
Pension
Plans
4.6%
2.0%
n/a
n/a
n/a
Other
Benefit
Plans
4.6%
n/a
5.0%
4.5%
2031
Defined
Benefit
Pension
Plans
4.8%
3.0%
n/a
n/a
n/a
Other
Benefit
Plans
4.8%
n/a
5.0%
4.5%
2025
Assumed discount rates, medical cost trend rates and mortality assumptions have a significant effect on the accrued
benefit obligation and related plan assets. In addition, the average life expectancy of a 65-year-old at December 31,
2023 is between 21.4 years and 24.4 years. As at December 31, 2023, the weighted average duration of the defined
benefit obligation, which reflects the average age of the plan members, is 12.4 years. The weighted average duration
of the other benefit plans is 11.2 years.
(millions of Canadian dollars)
Defined benefit pension plan liabilities
Discount rate
Other benefit plan liabilities
Discount rate
Initial medical cost trend rate
1% Increase
1% Decrease
$
$
$
(35.8)
$
43.5
(6.2)
2.8
$
$
7.4
(2.7)
For Canfor’s pension benefit plans, a one percentage point increase in the discount rate used in calculating the actuarial
estimate of future liabilities would reduce the accrued benefit obligation by an estimated $35.8 million and a one
percentage point decrease in the discount rate would increase the accrued benefit obligation by an estimated $43.5
million. With respect to this discount rate sensitivity effect on the defined benefit pension plan liabilities, however, it is
noted that 41% is partially offset through the plan’s investment in debt securities. These changes would only impact
38
the Company’s funding requirements in years where a new actuarial funding valuation was performed and regulatory
approval for a change in funding contributions was obtained.
Annuity Contracts
On December 31, 2022, the Company entered into contracts to convert all of its existing buy-in annuities to buy-out
annuities. As a result of these contracts, the Company’s buy-in annuity assets and corresponding accrued benefit
obligation of $308.2 million were derecognized from the Company’s consolidated balance sheet as at December 31,
2022. No annuity contracts were held by the Company as at December 31, 2023.
Subsequent to year-end, on February 20, 2024, the Company purchased a buy-out annuity for a portion of its defined
benefit pension plans. As a result, during the first quarter of 2024, $101.8 million of the accrued benefit obligation and
a similar amount of defined benefit plan assets were derecognized from the Company’s consolidated balance sheet.
Deferred Reforestation
Canfor accrues an estimate of its future liability to perform forestry activities, defined to mean those silviculture
treatments or activities that are carried out to ensure the establishment of a free-growing stand of young trees,
including logging road rehabilitation on its forestry tenures in BC and Alberta. An estimate is recorded in the
consolidated financial statements based on the number of hectares of timber harvested in the period and the estimated
costs of fulfilling Canfor’s obligation. Payments in relation to reforestation are expected to occur over periods of up to
15 years and have been discounted accordingly at risk-free rates ranging from 3.1% to 4.7%. The actual costs that
will be incurred in the future may vary based on, among other things, the actual costs at the time of silviculture
activities.
Deferred Taxes
In accordance with IFRS, Canfor recognizes deferred income tax assets when it is probable that the deferred income
tax assets will be realized. This assumption is based on Management’s best estimate of future circumstances and
events. If these estimates and assumptions are changed in the future, the value of the deferred income tax assets
could be reduced or increased, resulting in an income tax expense or recovery. Canfor re-evaluates its deferred income
tax assets on a regular basis.
Asset Retirement Obligations
Canfor records the estimated fair value of a liability for asset retirement obligations, such as landfill closures, in the
period when it is incurred. For landfill closure costs, the fair value is determined using estimated closure costs
discounted over the estimated useful life. Canfor’s asset retirement obligations represent estimated undiscounted future
payments of $15.7 million to remediate landfills at the operations at the end of their useful lives. Payments relating to
landfill closure costs are expected to occur at periods ranging from 3 to 43 years and have been discounted at risk-
free rates ranging from 3.0% to 3.7%. The actual closure costs and periods of payment may differ from the estimates
used in determining the year-end liability. On initial recognition, the fair value of the liability is added to the carrying
amount of the associated asset and amortized over its useful life. The liability is accreted over time through charges to
earnings and reduced by actual costs of settlement.
CPPI’s asset retirement obligations represent estimated undiscounted future payments of $9.3 million to remediate
landfills at the operations at the end of their useful lives. The payments are expected to occur at periods ranging from
2 to 28 years and have been discounted at risk-free rates ranging from 3.0% to 3.9%.
CPPI has certain assets that have indeterminable retirement dates and, therefore, there is an indeterminate settlement
date for the related asset retirement obligations. As a result, no asset retirement obligations are recorded for these
assets. These assets include wastewater and effluent ponds that will have to be drained once the related operating
facility is closed and storage sites for which removal of chemicals, fuels and other related materials will be required
once the related operating facility is closed. When the retirement dates of these assets become determinable and an
estimate can be made, an asset retirement obligation will be recorded. It is possible that changes in future conditions
could require a material change in the recognized amount of the asset retirement obligations.
Environmental Remediation Costs
Costs associated with environmental remediation obligations are accrued and expensed when there exists a present
legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits
39
will be required to settle the obligation. Such accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations are discounted to their present value
when the amount and timing of expected cash payments are reliably determinable.
Asset Write-Downs and Impairments
The Company reviews the carrying values of its long-lived assets, including timber licenses, property, plant and
equipment and right-of-use assets, on a regular basis as events or changes in circumstances may warrant. An
impairment loss is recognized in net income (loss) at the amount that the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
Although the availability of economically available fibre in BC remains a challenge, based on a detailed assessment
during the Company’s annual impairment review, no indicators of impairment were identified for the lumber segment
and no impairment was recognized for the year ended December 31, 2023 (2022 - asset write-down and impairment
charge of $89.0 million for the lumber segment).
For the pulp and paper segment, the continued uncertainty surrounding fibre availability for CPPI’s pulp mills and
depressed market conditions were identified as impairment indicators, and as a result, the Company performed an
impairment test as of December 31, 2023, on the property, plant and equipment of its pulp operations.
The recoverable amount of property, plant and equipment within the pulp operations was determined based on an
assessment of value in use, estimated using a discounted cash flow model. The discounted cash flow model was
projected based on past experience and actual operating results as well as Management’s assessment of future trends
in the pulp industry, based on both external and internal sources of data. Significant assumptions included future
production volume, commodity prices, fibre and production costs, as well as the discount rate. Other assumptions
included applicable foreign exchange rates, operating rates of the assets, and future capital required to maintain the
current operating condition of assets. Estimated future cash flows were discounted at a rate of 9% (12% before tax),
based on CPPI’s weighted average cost of capital for 2023.
As the recoverable amount of CPPI’s property, plant and equipment of the pulp operations exceeded net book value at
December 31, 2023, no impairment charge was recognized for the pulp and paper segment for the year ended
December 31, 2023 (2022 - asset write-down and impairment charge of $49.6 million for the pulp and paper segment).
CPPI continues to closely monitor the direct and indirect impacts associated with the constraints on economic fibre,
especially in the near-term. If the availability of economically viable fibre within BC is further reduced, however, CPPI’s
production, shipments and cost structure will be further affected. These factors could impact CPPI’s operating plan,
liquidity, cash flows and the valuation of long-lived assets.
Impairment of Goodwill
Goodwill, which is the excess of the cost of an acquisition over the fair value of the net identifiable assets acquired, is
not amortized, but is assessed annually for impairment, or more frequently if events or circumstances indicate that it
may be impaired. Canfor’s goodwill relates to its US, European and Canadian subsidiaries and is denominated in US-
dollars, SEK and Canadian dollars, respectively.
Goodwill is allocated separately to each of the Company’s cash generating units and tested at that level for impairment
purposes. The recoverable amount of goodwill is determined based on an assessment of value in use, estimated using
discounted cash flow models. Key assumptions used in the cash flow models include forecast prices and foreign
exchange rates, which Management determined with reference to both internal and external publications. For the 2023
goodwill impairment assessments, a discount rate of 10% for the US and Europe and 11% for Canada (13% before
tax for the US, 12% before tax for Europe, and 15% before tax for Canada) was utilized, based on the Company’s
current weighted average cost of capital.
In this analysis prepared by Management, the net present value of future expected cash flows was compared to the
carrying value of the Company’s investment in these assets, including goodwill, at year end, with no impairment of
goodwill required at December 31, 2023. If actual results are materially lower than the forecast assumptions, there is
a possibility that an impairment of goodwill may be required in future periods.
Valuation of Log and Finished Product Inventories
Log and finished product inventories are recorded at the lower of cost and net realizable value. The cost of inventories
of solid wood products, is based on the weighted average cost principle, and includes raw materials, direct labour,
40
other direct costs, and related production overheads (based on normal operating capacity). Net realizable value is the
estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses.
Canfor estimates the net realizable value of solid wood products by taking into account actual and forecasted sales
orders, as well as outlook prices and forecast exchange rates for the period over which the inventories are expected
to be sold. Outlook prices are determined using Management’s estimates at the end of the period and may differ from
the actual prices at which the inventories are sold.
RISKS AND UNCERTAINTIES
Risks and uncertainties fall into the general business areas of markets, international commodity prices, competition,
currency exchange rates, environmental issues, forest land base, government legislation and regulations, public policy,
and labour disputes, and, for Canadian companies, a history of trade disputes and issues and Indigenous land claims.
The future impact of the various uncertainties and potential risks described in the following paragraphs (together with
the risks and uncertainties identified under each of the Company’s business segments) cannot be quantified or predicted
with certainty. However, Canfor does not foresee unmanageable adverse effects on its business operations from and
believes that it is well positioned to deal with, such matters as may arise. The risks and uncertainties are set out in
alphabetical order.
Climate Change
The Company’s operations are subject to risks and opportunities related to climate change. These risks include, but
are not limited to, chronic and acute physical risks such as the increasing frequency and severity of weather conditions,
forest fires, hurricanes, and timber diseases and insect infestations. These events could damage or destroy the
Company’s operating facilities, adversely affect Canfor’s timber supply, or result in reduced transportation availability.
These events could have a similar effect on the facilities of the Company’s suppliers and customers. Any of the damage
caused by these events could increase costs and decrease production capacity at the Company’s operations having an
adverse effect on the Company’s financial results. The Company believes there are reasonable internal processes and
insurance arrangements in place to mitigate or cover certain outcomes of such incidents; however, there is no
guarantee that these arrangements will fully protect the Company against such losses. As is common practice in the
industry, the Company does not insure loss of standing timber for any cause.
There are also transition risks associated with climate change. These include changes in laws, regulations and industry
standards associated with greenhouse gas emissions management, as well as non-regulatory pressure to reduce
greenhouse gas emissions, and changing consumer preferences for low-carbon products. The Company monitors all
regulatory changes including any climate-related regulations, to assess their impacts on operations. The Company has
undertaken a qualitative Climate Scenario Analysis to better understand the effects of specific climate-related physical
and transition risks on specific asset types. The Company considers adaptation and mitigation strategies to manage
and reduce greenhouse gas emissions and is in the process of establishing a decarbonization roadmap. However, there
is no guarantee that these efforts will be effective, and these risks may lead to increased capital expenditures or
payment of carbon taxes or other events that could adversely affect operations or financial condition.
The Company is committed to sustainable forest management practices, which considers climate change, in
consultation with Indigenous partners and stakeholders. However, there may be reputational risks due to the rising
prominence of environment, social and governance concerns among the Company’s stakeholders and Indigenous
partners which could impact public opinions about the Company and its industry and could adversely affect its
reputation, business, strategy, and operations. The Company continues to work closely with our Indigenous partners
and stakeholders to understand their interests, identify risks and opportunities and gauge effectiveness of our
management actions.
Competitive Markets
The Company’s products are sold primarily in the US, Canada, Europe, and Asia. The markets for the Company’s
products are highly competitive on a global basis, with various major companies competing in each market with no
company holding a dominant position. Competitive factors include quality of product, product mix, reliability of supply
and customer service. The Company’s competitive position is influenced by: the availability, quality, and cost of raw
materials; energy and labour costs; free access to markets; currency exchange rates; productivity; transportation costs
and customer service in relation to its competitors. Access to markets could be influenced by global trade agreements,
41
global Government relations and their impact on free trade including the direct and indirect impacts to global demand,
supply chains, the costs of production inputs and transportation due to geopolitical tensions and events such as US-
China relations. These factors could potentially limit market growth opportunities or limit Canfor’s ability to service its
customers. An unfavourable settlement of the Softwood Lumber Agreement could also result in a material increase in
duty expenditures. Additional details on the Softwood Lumber Agreement are provided in the “Softwood Lumber
Agreement” section below.
Cyclicality of Product Prices
The Company’s financial performance is dependent upon the selling prices of its products, which have fluctuated
significantly in the past. The markets for these products are cyclical and may be characterized by (i) periods of excess
product supply due to industry capacity additions, variable production rates or capacity utilization and other factors,
some of which affect the Company at the present time; and (ii) periods of insufficient demand due to weak general
economic conditions. The economic climate of each region where the Company’s products are sold has a significant
impact upon the demand, and therefore the prices for lumber as well as pulp and paper.
Environmental Issues
Canfor’s operations are subject to environmental regulation by federal, provincial, state, and local authorities, including
specific environmental regulations relating to air emissions and pollutants, wastewater (effluent) discharges, solid
waste, landfill operations, forestry practices, site remediation and the protection of endangered species and critical
habitat. The Company’s European operations are subject to laws and regulations of the Swedish Government and more
broadly, the European Union, with its forest operations governed by the Swedish Forestry Act, Land Acquisition Act,
and the Swedish Environmental Code.
Canfor has incurred, and will continue to incur, capital, operating, and other expenditures to comply with these
applicable environmental laws and regulations. In addition, Canfor’s operations in Canada will be subject to increasing
costs associated with carbon related taxes and will be actively working to mitigate through investment in technology.
No assurance can be given that changes in these laws and regulations or their application will not have a material
adverse effect on Canfor’s business, operations, financial condition, and operational results. Similarly, no assurance
can be given that capital expenditures necessary for future compliance with existing and new environmental laws and
regulations could be financed from Canfor’s available cash flow. In addition, Canfor may discover currently unknown
environmental issues, contamination, or conditions relating to historical or present operations. This may require site or
other remediation costs to maintain compliance or remedy issues or result in governmental or private claims for damage
to person, property, or the environment, which could have a material adverse effect on Canfor’s business, financial
condition, and operational results.
Canfor has systems in place to identify, account for and appropriately address potential environmental liabilities. The
Company also has governance in place including an Environmental, Health and Safety Committee of the Board, a
Corporate Environmental Management Committee including Officers of the Company, and environmental professionals
on staff to manage potential risks, issues, and liabilities.
Canfor has in place internal policies and procedures under which all its forestry and manufacturing operations are
regularly audited for compliance with laws and accepted standards and with its environmental management system
requirements. CPPI’s pulp mills and Canfor’s woodlands operations and wood product facilities employ environmental
management systems, and the kraft pulp mills are certified under the ISO 14001 Environmental Management System
Standard. Further, all (100%) of Canfor’s forest tenures in Canada are third party certified to the Sustainable Forestry
Initiative (“SFI”), or the Forest Stewardship Council (“FSC”) sustainable forest management standards. All sourced
wood in the United States operations is certified to the SFI Fiber Sourcing Standard. The Company’s European
operations comply with their internal environmental policies and employ environmental management systems, with
raw materials certified through the FSC in Sweden and Program for the Endorsement of Forest Certification (“PEFC”).
Canfor’s operations and its ability to sell its products could be adversely affected if those operations did not, or were
perceived by the public as failing to, comply with applicable laws and standards and following responsible environmental
and sustainable forest management practices. Further discussion of environmental issues is included in the Company’s
Annual Information Form, incorporated by reference herein.
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Fibre Cost and Availability
The Company’s fibre costs are affected by several factors which could significantly impact operating results. Lumber
market fluctuations and log market bidding each play a significant role in both fibre supply and costs.
In Western Canada, harvesting operations have transitioned away from Mountain Pine Beetle (“MPB”) impacted timber
stands (see “Forest Health” below for more commentary regarding MPB). The AAC in BC, in particular, has been reduced
in many areas, but in several cases, the AAC has not yet been apportioned by the BC Government, which has
exacerbated the log supply and demand imbalance. As a result of these and other factors, the existing manufacturing
capacity in many areas of the BC Interior continues to exceed the available timber supply. Until this imbalance is
corrected, Canfor expects to see a continuation of higher log costs in BC for the foreseeable future.
Canfor’s ability to access timber could also be impacted by unsettled land and title claims by various Indigenous Nations
in BC. The BC Declaration on the Rights of Indigenous People Act was enacted in November 2019 based on the United
Nations Declaration on the Rights of Indigenous Peoples. Among other things, it outlines the BC Government’s
commitment to achieve free, prior, and informed consent of Indigenous Nations in connection with government
approval of resource-based projects (for additional discussion of this legislation, see the “Indigenous Relations” section
below). In 2021, the BC Supreme Court released its decision in Yahey v British Columbia, in which it ruled that the
Crown had unjustifiably infringed the Treaty 8 rights of the Blueberry River First Nation (“BRFN”) in permitting the
cumulative impacts of industrial development to meaningfully diminish BRFN’s ability to exercise its treaty rights in its
traditional territory (the “Blueberry River decision”). In early 2023, the Crown reached agreements with both the BRFN,
as well as the other Treaty 8 Nations in response to the Yahey v British Columbia legal decision. The specific impacts
of these agreements on timber supply from Crown lands and on the Company’s tenure and operations in the Treaty 8
area are still to be determined. As well, the Company does not know if, how or the extent to which the decision will
lead to changes in BC or federal laws or policies which may affect its forestry operations. However, adverse impacts
on available timber supply and operational consequences associated with these agreements are expected (see
“Indigenous Relations” below for additional details).
Furthermore, in 2021, the BC Government announced its intention to defer the harvest of 2.6 million hectares of BC’s
old-growth forests. Initial industry-wide analysis indicated that these deferrals, if made permanent, would result in the
removal of close to 1.4 million hectares from the Timber Harvesting Land Base in BC and a reduction in AAC by
approximately 4.0 million cubic metres, of which 70% of this reduction is in the BC Interior. Also, in 2021, the BC
Government introduced legislation affecting not only forestry operations planning activities, which could affect the cost
of Canfor’s operations but also its intent to redistribute tenure harvesting rights from forest tenure holders such as
Canfor. The implications associated with these government policy and legislative amendments on the Company’s
operations are not yet fully understood but are anticipated to be significant.
In addition, the Company’s ability to harvest fibre for use in its operations could be adversely impacted by natural
events such as forest fires, severe weather conditions, or insect infestations. In the event that sufficient volumes of
economically viable fibre are not available for an operation, it may be necessary to close that operation for a period of
time, perhaps permanently. Such disruptions or closures could result in significant costs to the Company. The Company
is not insured for loss of standing timber.
In the Company’s US South and European operations, fibre requirements are satisfied primarily through log purchases
on open markets, principally from private timber owners. The prices for these fibre purchases are subject to adverse
weather and other market forces, including regional demand, which may reduce the available log supply and
subsequently put upward pressure on log prices, negatively impacting the Company’s results. In addition, decreased
demand, primarily from pulp, paper, and pellet mills for residual products produced by the Company’s operations may
adversely impact the prices received for those residual products, which could negatively impact results.
Financial Risk Management and Earnings Sensitivities
Canfor is exposed to a number of risks as a result of holding financial instruments. These risks include credit risk,
liquidity risk and market risk.
Canfor’s internal Risk Management Committee manages risk in accordance with a Board approved Price Risk
Management Controls Policy. This policy provides the framework for risk management related to commodity price,
foreign exchange, interest rate and counterparty credit risk of Canfor.
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(a) Credit Risk:
Credit risk is the risk of financial loss to Canfor if a counterparty to a financial instrument fails to meet its contractual
obligations.
Financial instruments that are subject to credit risk include cash and cash equivalents, trade and other accounts
receivable, and certain investments and advances. Contract assets are also subject to credit risk. Cash and cash
equivalents include cash held through major Canadian and international financial institutions as well as temporary
investments that are readily convertible into known amounts of cash within three months or less from the date of
acquisition. The cash and cash equivalents balance at December 31, 2023 is $627.4 million.
Canfor utilizes credit insurance to mitigate the risk associated with some of its trade accounts receivables. As at
December 31, 2023, approximately 64% of the outstanding trade accounts receivables are covered by credit insurance.
Canfor’s trade accounts receivable balance at December 31, 2023 is $302.2 million, before a loss allowance of $4.3
million. At December 31, 2023, approximately 94% of the trade accounts receivable balance are within Canfor’s
established credit terms.
(b) Liquidity risk:
Liquidity risk is the risk that Canfor will be unable to meet its financial obligations as they come due. Canfor manages
liquidity risk through regular cash flow forecasting in conjunction with adequate operating loan and term debt facilities.
At December 31, 2023, Canfor had $110.6 million drawn on its operating loans and facilities and $63.5 million reserved
for several standby letters of credit, leaving $1,140.5 million available and undrawn. As a result, including cash and
cash equivalents of $627.4 million and CPPI’s $80.0 million non-revolving term debt, which is restricted for use on the
continued re-investment in its facilities, specifically Northwood’s RB1, at December 31, 2023, Canfor had available
liquidity of $1,847.9 million. The Company also had accounts payable and accrued liabilities of $664.5 million and term
debt of $159.9 million. For details of the Company’s term debt obligations and maturities refer to the “Other
Commitments” section of this document.
(c) Market risk:
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in interest rates, foreign currency, and commodity and energy prices.
(i) Interest rate risk:
Canfor is exposed to interest rate risk through its current financial assets, operating loan facilities and term
debt that bear variable interest rates.
Canfor may use interest rate swaps to reduce its exposure to interest rate risk associated with financial
obligations bearing variable interest rates. At December 31, 2023, the Company had no interest rate swaps
outstanding.
Canfor is also exposed to interest rate risk in relation to the measurement of the Company’s pension liabilities.
(ii) Currency risk:
At a consolidated level, Canfor is exposed to foreign exchange risk related to the US-dollar, as Canfor’s
products are sold principally in US-dollars. In addition, Canfor holds US-dollar denominated financial assets
and liabilities.
An increase (decrease) in the value of the Canadian dollar by US$0.01 would result in a pre-tax: (i) loss (gain)
of approximately $4.3 million in relation to working capital balances denominated in US-dollars at year end
(including cash, accounts receivable and accounts payable); and a (ii) gain (loss) of approximately $1.7 million
in relation to term debt denominated in US-dollars. These amounts do not include foreign exchange gains and
losses arising from the translation of foreign operations which are recognized in 'Accumulated other
comprehensive income' on the Company’s consolidated balance sheet.
A portion of the currency risk associated with US-dollar denominated sales is naturally offset by US-dollar
denominated expenses. A portion of the remaining exposure is sometimes reduced by foreign exchange collar
contracts that effectively limit the minimum and maximum Canadian dollar recovery related to the sale of
those US-dollars. At December 31, 2023, the Company had no foreign exchange collar contracts outstanding.
44
Although Vida primarily transacts in SEK, the Company also sells certain products in US-dollar, GBP, AUD,
EUR, and NOK and holds US, SEK and AUD denominated operating loan and term debt facilities and limits its
exposure to foreign exchange risk using forward foreign exchange contracts and foreign exchange options.
For details of the Company’s forward foreign exchange contracts at December 31, 2023, refer to the
“Derivative Financial Instruments” section of this document.
(iii) Commodity price risk:
Canfor is exposed to commodity price risk principally related to the sale of lumber and related products, pulp
and paper. From time to time, Canfor enters into futures contracts on the Chicago Mercantile Exchange for
lumber and forward contracts direct with customers or on commodity exchanges for pulp. Under the
Company’s Price Risk Management Controls Policy, up to 15% of lumber sales and 1% of pulp sales may be
sold in this way. Canfor is also exposed to commodity price risk on the sale of electricity in Canada. Prices are
set by third party regulatory bodies. For details of the Company’s lumber future contracts at December 31,
2023, refer to the “Derivative Financial Instruments” section of this document.
(iv) Energy price risk:
Canfor is exposed to energy price risk relating to purchases of natural gas and diesel oil for use in its
operations.
The annual exposure is from time to time hedged up to 100% through the use of floating to fixed swap
contracts or option contracts with maturity dates up to a maximum of eighteen months. At December 31,
2023, the Company had no energy fixed swaps or option contracts outstanding.
Earnings Sensitivities
Estimates of the sensitivity of Canfor’s pre-tax results to currency fluctuations and prices for its principal products,
based on 2024 forecast production, shipments, and year end foreign exchange rates, are set out in the following table:
(millions of Canadian dollars)
Western SPF lumber – US$10 change per Mfbm51,52
SYP lumber – US$10 change per Mfbm51,52
European lumber – SEK100 change per Mfbm51,52
Softwood lumber duties – 5% change53
NBSK Pulp – US$10 change per tonne54
Canadian dollar – 1% change per US-dollar55
Canadian dollar – 1% change per SEK55
Impact on annual
pre-tax earnings
$ 30
$ 26
$ 15
$ 32
$ 8
$ 10
$ 1
51 Based on sales of Canfor-produced products, before softwood lumber duties.
52 Excluding impacts of exchange rate, freight, discounting, potential change in fibre costs and other deductions.
53 Based on a 5% increase in the combined CVD and ADD deposit rate for 2024.
54 Includes 100% of CPPI.
55 A 1% increase in the Canadian dollar per US-dollar or SEK results in a decrease to pre-tax annual earnings. A 1% decrease in the Canadian dollar per
US-dollar or SEK results in an increase to pre-tax annual earnings.
Forest Health
Timber affected by the MPB directed Canfor’s harvesting activities in central and northern BC for two decades but given
the economic and biological shelf-life expiry of the dead pine stands, the focus has now shifted to other coniferous
species stands. To ensure that sufficient dead pine was being harvested to sustain the current allowable harvest rates
and minimize impacts on the mid-term timber supply, the Chief Forester of BC established “AAC partitions” in a number
of Timber Supply Areas (“TSA”). These partitions capped or restricted the harvest of non-pine species and are being
revisited during upcoming timber supply reviews and AAC determinations as the viability of the merchantable dead
pine stands further declines. Upon reaching the end of the shelf-life for the most severely impacted stands, the Chief
Forester has commenced the reduction of the AAC for each MPB-impacted TSA. The Company anticipates this process
will continue over the next several years.
Given the enormous extent and severity of the infestation, the mid-term and long-term operational and financial
impacts on Canfor may be significant. In response, the Company has taken various steps to mitigate its exposure to
these impacts by modifying manufacturing and harvesting operations as follows: repurposing manufacturing facilities
(e.g., Houston, Prince George, Fort St. John, and Plateau sawmills) to optimize the harvest of green, non-pine leading
45
stands that align with the available timber supply; and by permanently closing manufacturing facilities at Mackenzie,
Isle Pierre, Vavenby and Chetwynd. In addition, the Company has taken steps to fully utilize as much of the residual,
non-sawlog fibre it harvests by redirecting this to its whole log chipping and wood pellet plants located throughout
Northern BC.
In Alberta, detection surveys continue to indicate a slow but steady rate of MPB spread in certain areas with declining
populations in others. The largest active beetle populations can be found in the West Central portion of the province,
particularly within the Jasper National Park boundary and along the adjacent eastern slopes of the Rocky Mountains.
An accelerated harvest of susceptible pine in the Canfor Forest Management Agreement (“FMA”) area since 2009, in
conjunction with government control efforts, has primarily contained the spread in this area, and recent surveys indicate
a meager rate of spread. MPB populations are now mainly at endemic levels in the Northwest portion of the province.
Subsequently, pine mortality in areas north of the Peace River has been extensive, and harvesting objectives continue
to be focused on the salvage of the remaining dead pine prior to the expiration of its economic shelf life.
Some Northern Alberta harvest rates have been temporarily increased to deal with the rising MPB infestation, and
additional temporary increases could be made for the same reason in other areas of the province. The significant AAC
increase approved for the quota area has maximized the opportunity to harvest infected pine stands before a significant
reduction in log quality occurs. In addition, the Alberta Government has committed funds to rehabilitate dead pine
stands that have not been harvested due to merchantability limitations.
Along with most other provinces in Canada, both BC and Alberta experienced record-setting wildfire seasons in 2023.
With significant warming trends in the summer, resultant severe drought, and unpredictable weather patterns, wildfire
activity was significant across Canfor’s BC & Alberta operations between April and October 2023, with the most
significant wildfire activities experienced in the Peace and west-central Alberta regions. Canfor is collaborating with
government agencies and Indigenous Nations to pursue salvage harvesting operations in areas affected by the 2023
wildfire season. Long-term fibre supply impacts associated with the 2023 wildfire season will depend on the economic
shelf-life of damaged timber and the extent to which salvage harvesting activities can be completed in affected areas.
Canfor along with other forest companies and forest sector associations continue to collaborate with the BC and Alberta
government on strategies to mitigate wildfire impacts.
Government and Other Regulations
Canfor is subject to a wide range of general and industry-specific forestry and forest practices, environmental, health
and safety, building and product standards and other laws and regulations imposed by federal, provincial, and local
authorities, including those governing the use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain hazardous materials and wastes, the remediation of contaminated soil and ground water, the
use and design values of Canfor’s products, the health and safety of employees and the export or import of goods to
jurisdictions where the Company sells its products. Further, certain agreements and contracts relating to the ownership
or transfer of forestry tenures and licenses are subject to review by applicable regulatory bodies. If Canfor is unable to
extend or renew a material license or permit required by such laws, any transfer is challenged by a regulatory body,
or if there is a delay in renewing any material approval, license or permit, Canfor’s business, financial condition, results
of operations and cash flows could be materially adversely affected. Future events such as any changes in these laws
and regulations or any change in their interpretation or enforcement, or the discovery of currently unknown conditions,
may give rise to additional expenditures or liabilities.
Health & Safety
Canfor prioritizes health and safety throughout the organization and strives to ensure that its employees return home
safely at the end of each shift. It does this with a comprehensive framework of inspections, training, tests of equipment
and regular preventative maintenance. Despite these efforts, the nature of the Company’s operations and failure to
follow policies and procedures subject employees to a variety of risks, including those related to wood dust, heavy
machinery, and chemicals. Apart from the impact on its people, threats to health and safety could cause interruptions
to Canfor’s business and have an adverse effect on the Company’s reputation, operations, and financial results.
Indigenous Relations
Canfor sources the majority of its fibre from areas subject to claims of Indigenous rights or title. In November 2019,
the Government of BC passed legislation (Declaration on the Rights of Indigenous People Act) regarding the
implementation of the United Nations’ Declaration on the Rights of Indigenous Peoples Act in BC. The legislation
46
provides for processes for the BC Government to create a path forward that respects the human rights of Indigenous
peoples while introducing better transparency and predictability to the work the BC Government and Indigenous
peoples do together. This work aims to foster increased and lasting certainty on the land base while ensuring that the
benefits of sustainable forest harvesting are realized equitably by those engaged in and impacted by the forestry
industry.
In December 2020, the Government of Canada tabled Bill C-15, the federal government’s response to implementing
the United Nations’ Declaration on the Rights of Indigenous People Act. The Bill proceeded through the legislative
process and was enacted into law in June 2021.
In June 2021, the BC Government released its Draft Action Plan relating to the implementation of the Declaration on
the Rights of Indigenous People Act, which proposes several new measures. However, these initiatives are described
only at a high level. Some of the measures include: a new framework for resource revenue sharing and other fiscal
mechanisms to support Indigenous peoples; and the negotiation of joint-decision-making agreements and agreements
in which consent from Indigenous governing bodies will be required before the BC Government exercises a statutory
decision-making power. Nonetheless, no detail is provided on the scope or content of such agreements. Thus, the
impacts on the Company’s timber harvesting operations of any such future agreements remain uncertain at this time.
Canadian judicial decisions have recognized the continued existence of Indigenous rights and title to lands continuously
and exclusively used or occupied by Indigenous groups. In June 2014, the Supreme Court of Canada, for the first time,
recognized Indigenous title for the Tsilhqot’in Nation over approximately 1,750 square kilometres of land in central BC
(“William decision”). It found that BC’s Forest Act provisions dealing with the disposition or harvest of Crown timber no
longer applied to timber located on these lands. Still, it also confirmed provincial law can apply to Indigenous title
lands.
While Indigenous title had previously been assumed to exist over specific, intensively occupied areas such as villages,
the William decision marks the first time Canada’s highest court has recognized Indigenous title over a particular piece
of land and, in so doing, affirmed a broader territorial use-based approach to Indigenous title. The decision also further
defines what Indigenous title means and the type of land uses consistent with this form of collective ownership.
Presently, Indigenous title has not been established by law in any areas overlapping Canfor’s tenure areas; however,
Indigenous rights continue to exist over traditional territories, and there is no assurance that Canfor’s timber harvesting
rights will not be affected in the future. The Government of BC delegates procedural aspects of consultation to tenure
holders, including Canfor, and Canfor works to establish productive and mutually beneficial relationships with
Indigenous Nations whose traditional territories overlap Canfor’s operating areas. The Government of BC has also taken
steps to improve certainty and access to timber resources through interim agreements with Indigenous Nations that
include timber rights. Canfor holds numerous agreements with individual Indigenous Nations whereby it manages
and/or purchases their timber.
On June 29, 2021, the BC Supreme Court released its decision in Yahey v British Columbia, in which it ruled that the
Crown had unjustifiably infringed the Treaty 8 rights of the BRFN “in permitting the cumulative impacts of industrial
development to meaningfully diminish BRFN’s ability to exercise its treaty rights in its traditional territory.” The
Blueberry River decision has potentially significant implications on regulatory and operational requirements for industrial
development activities in northeast BC, where Canfor has operations, and could extend to other areas in Canada where
similar claims may be made.
On January 18, 2023, BRFN and the Province of BC reached an agreement that will guide them forward in a partnership
approach to land, water, and resource stewardship, including forestry. The agreement includes land restoration, new
areas protected from industrial development, and constraints on development activities while a long-term cumulative
effects management regime is implemented. Timber harvesting in the Fort St. John Timber Supply Area will be reduced
by approximately 350,000 cubic metres per year. The full impacts of the agreement on Canfor are still to be determined.
The impacts of BC’s Declaration on the Rights of Indigenous Peoples Act, the federal government’s Bill C-15, the William
decision, the Blueberry River decision, and other proceedings presently before the courts in BC on the timber supply
from Crown lands and Canfor’s operations is unknown at this time, especially as they pertain to Canfor’s current timber
supply and operational activities on the traditional territory of BRFN and other Indigenous Nations. Also, Canfor does
not know if, how, and to the extent these rulings or decisions will lead to changes in BC or federal laws or policies that
may affect its forestry operations. However, there is the potential for adverse timber supply and operational implications
associated with the outcome of these ongoing negotiations and issues. In alignment with Canfor’s values and in an
47
effort to minimize risk, as these negotiations and matters relating to Indigenous rights and title develop, Canfor will
actively participate in the new regional forest landscape planning process and continue to engage with Indigenous
Nations and the BC Government to seek opportunities for partnership, collaboration, and consensus-building to
minimize risks to Canfor’s tenures and operational activities.
Inflation
Canfor relies on logs, wood chips, chemicals, gas, electricity, transportation, and labour in its operations. Continued
inflationary pressures will increase Canfor’s operating costs and reduce operating margins. There is no guarantee that
the effects of these cost pressures would be fully offset through price increases, productivity improvements, or cost-
reduction initiatives.
Information Technology
Canfor’s information technology systems serve an essential role in the operation of its business. Canfor relies on various
technologies to access fibre, operate its production facilities, interact with customers, vendors, and employees, and
report on its business. Interruption, failure or unsuccessful implementation and integration of Canfor’s information
technology systems could result in material and adverse impacts on the Company’s financial condition, operations,
production, sales, and reputation. It could also result in environmental and physical damage to Company operations or
surrounding areas.
Canfor’s information technology systems and networks could be interrupted or fail due to a variety of causes, such as
natural disasters, fire, power outages, vandalism, or cyber-based attacks. Any such interruption or failure could result
in operational disruptions or the misappropriation of sensitive or proprietary data that could subject Canfor to civil and
criminal penalties and litigation or have a negative impact on the Company’s reputation. There can be no assurance
that such disruptions or misappropriations and the resulting repercussions will not negatively impact the Company’s
cash flows and have a material adverse effect on its business, operations, financial condition, and operational results.
Although, to date, Canfor has not experienced any material losses relating to cyber risks, there can be no assurance
that the Company will not incur such losses in the future. Canfor’s risk and exposure cannot be fully mitigated due to
the nature of these threats. The Company continues to develop and enhance internal controls, policies, and procedures
designed to protect systems, servers, computers, software, data, and networks from attack, damage, or unauthorized
access remain a priority. Canfor has established a Management Cyber Risk Committee to assess and monitor risk
mitigation efforts and to respond to emerging threats. As cyber threats continue to evolve, the Company may be
required to expend additional resources to modify or enhance protective measures or investigate and remediate any
security vulnerabilities.
Canfor is currently gathering knowledge and exploring opportunities to incorporate generative artificial intelligence and
machine learning tools (“AI”) into its business processes. As the use of generative AI technologies is still in its early
stages, ineffective or inadequate development or deployment practices could pose challenges or unintended
consequences to our business and operations. Any initiatives would be limited to Canfor’s information technology
environment.
Labour Agreements and Competition for Professional Skilled Labour
Any labour disruptions and costs associated with labour disruptions at the Company’s mills could have a material
adverse effect on the Company’s production levels and results of operations. Any inability to negotiate acceptable
contracts with the unions as they expire could result in a strike or work stoppage by the affected workers and increased
operating costs as a result of higher wages or benefits paid to unionized workers.
A collective agreement with the United Steelworkers (“USW”), which represents the majority of the workers of the BC
operations, expired on June 30, 2023. Canfor is currently in negotiations with the USW and anticipating that a new
agreement will be ratified in the first half of 2024.
In 2022, Canfor negotiated its labour agreement with Unifor at its Grande Prairie lumber operation; the new agreement
was ratified on January 8, 2023, and expires on October 1, 2028.
For the Company’s European lumber operations, 57% of workers are represented by GS, with the current agreements
effective until March 31, 2024. The Company’s operations in the US South are not unionized.
CPPI negotiated its collective agreements with Unifor and Public and Private Workers of Canada (“PPWC”) at its pulp
and paper operations in February 2022. The new agreement will expire on April 30, 2025.
48
Maintenance Obligations and Facility Disruptions
Canfor’s manufacturing processes are vulnerable to operational problems that could impair its ability to manufacture
its products. Canfor could experience a breakdown in any of its machines or other necessary equipment, and from time
to time, planned or unplanned maintenance outages that cannot be performed safely or efficiently during operations
must be conducted. Such disruptions could cause a significant loss of production, which could adversely affect Canfor’s
business, financial condition, and operating results. The Company believes there are reasonable insurance
arrangements in place to cover certain outcomes of such incidents; however, there can be no guarantees that these
arrangements will fully protect the Company against such losses.
Residual Fibre Revenues
Wood chips are a residual product of Canfor’s lumber manufacturing process and in northern BC, are primarily sold to
CPPI. Residuals and wood waste in southern BC, Alberta, the US South, and Europe are sold primarily to third-party
pulp and paper mills and pellet plants. Pricing for residuals is subject to supply and demand in the regions where our
sawmill facilities are located. Increased sawmill capacities in these regions could adversely impact market conditions,
including residual pricing. Conversely, increased demand from new and existing pellet facilities may help offset
downward pressure on pricing.
In northern BC, these chips are the principal raw material utilized by CPPI in its pulp manufacturing operations. If
market conditions cause CPPI to cease pulp operations for an extended period, Canfor would have a limited market
and/or reduced value for its chip supply, which could affect its ability to run its sawmills economically. Similarly, if
lumber market conditions or fibre availability were such that Canfor or other suppliers were unable to provide the
current volume of chips to CPPI as a result of AAC reductions, lower sawmill production, or sawmill closures, whether
temporary or permanent, CPPI’s chip supply, chip cost, and production results could be materially affected.
Bark hog is another residual product of Canfor’s lumber manufacturing process. Bark hog has exhibited increasing
value to Canfor over the past several years. It is utilized in Canfor’s bark-fueled thermal oil energy systems to dry
lumber or, in the case of Canfor’s cogeneration facilities, to produce heat and electricity. Surplus bark hog is sold
predominantly to pulp and bio-energy customers, including CPPI, to be used in the generation of steam to manufacture
power and heat.
Softwood Lumber Agreement
The Softwood Lumber Agreement expired on October 12, 2015, without being renewed or replaced. On November 25,
2016, a petition was filed by the US Lumber Coalition to the US DOC and ITC alleging certain subsidies and administered
fees below the fair market value of timber that favour Canadian lumber producers, an assertion the Canadian industry
and Provincial and Federal Governments strongly deny and have successfully disproven in international courts in the
past. Canfor was selected by the DOC as a “mandatory respondent” to the countervailing and anti-dumping
investigations and is subject to company-specific countervailing and anti-dumping duties.
On April 24, 2017, the DOC announced its preliminary countervailing duty of 20.26% specific to Canfor, to be posted
by cash deposits or bonds on the exports of softwood lumber to the US, effective April 28, 2017, to August 25, 2017.
Following this period, CVD duties were not applicable on lumber shipments destined to the US from August 26, 2017
to December 27, 2017. On June 23, 2017, the DOC announced its preliminary anti-dumping duty determination of
7.72% specific to Canfor, to be posted by cash deposits or bonds on the exports of softwood lumber to the US, effective
June 30, 2017.
The DOC announced final countervailing and anti-dumping duty determinations on November 2, 2017, while the ITC
issued an affirmative determination of injury on December 7, 2017. As a result, Canfor was issued a final ADD rate of
7.28% (after taking account of ministerial errors) effective November 8, 2017, and was subject to countervailing duties
on Canadian lumber exports destined to the US at a reduced rate of 13.24%, effective December 28, 2017.
Notwithstanding the final rate established in the DOC’s investigation, the final liability for assessing CVD and ADD will
not be determined until an official administrative review of the respective period is complete.
In early 2020, the DOC announced the preliminary results for the first period of review (POR1) and finalized the rates
on November 24, 2020. The Company’s final CVD rate was determined to be 2.94% for 2017 and 2.63% for 2018,
while the final ADD rate was 1.99% for the entire first period of review. The DOC’s final combined duty and cash
deposit rate of 4.62% applied to the Company’s Canadian lumber shipments destined to the United States from
49
December 1, 2020, until completion of the administrative review for the second period of review on November 30,
2021.
In May 2021, the DOC announced the preliminary results for the second period of review (POR2), which was based on
sales and cost data for 2019, and on November 24, 2021, finalized the rates. The Company’s final CVD rate was
determined to be 2.42%, while the final ADD rate was 17.12%. The DOC’s final combined cash deposit rate of 19.54%
applied to the Company’s Canadian lumber shipments destined to the United States from December 2021 until August
2022 upon completion of the administrative review for the third period of review in August 2022.
In January 2022, the DOC announced the preliminary results for the third period of review (POR3), which was based
on sales and cost data for 2020, and in August 2022, finalized the rates. The Company’s final CVD rate was determined
to be 0.95%, while the final ADD rate was 4.92%. The DOC’s final combined cash deposit rate of 5.87% applied to the
Company’s Canadian lumber shipments destined for the United States from August 2022 until the completion of the
administrative review for the fourth period of review in July 2023.
In January 2023, the DOC announced the preliminary results for the POR4, which is based on sales and cost data in
2021, and in July 2023, finalized the rates. The Company’s final CVD and ADD rates were determined to be 1.36% and
5.25%, respectively. In July 2023, upon finalization of these POR4 rates, a recovery of $43.3 million (US$34.7 million),
was recognized in the Company’s consolidated financial statements to reflect the difference between the combined
accrual rate between January and November 2021 of 9.63% and for December 2021 of 9.42%, and the combined DOC
rate for POR4 of 6.61%.
Subsequent to year-end, in February 2024, the DOC announced the preliminary results for period of review five (POR5),
which indicated that the Company’s preliminary CVD and ADD rate for 2022 were 6.14% and 9.65%, respectively.
Canfor and other Canadian forest product companies, the Federal Government and Canadian Provincial Governments
continue to categorically deny the US allegations and strongly disagree with the current countervailing and anti-
dumping determinations made by the DOC. Canada has proceeded with legal challenges under the Canada-United
States-Mexico (“CUSMA”) Agreement and through the World Trade Organization, where Canadian litigation has proven
successful in the past. In October 2023, a CUSMA dispute panel ruled that certain elements of the DOC’s calculation of
softwood lumber duties were inconsistent with US law. The panel directed the DOC to revisit key elements of its duty
calculations. Most recently, in January 2024, Canada filed a notice of intent to challenge the US ITC’s decision to
maintain duties on Canadian softwood lumber products under Chapter 10 of the CUSMA Agreement. The results of this
dispute could potentially result in adjustments to Canfor’s prescribed duties and therefore its consolidated statement
of income (loss).
Species at Risk
The Government of Canada, pursuant to its authority under the Species at Risk Act (“SARA”), has determined several
wildlife species to be critically imperiled and has listed them as Endangered or Threatened. The Environment and
Climate Change Canada (“ECCC”) ministry is required under SARA to create and publish a Recovery Strategy for such
listed species. In 2012 and 2014, Canada published a Recovery Strategy for the Boreal Caribou (Rangifer Tarandus
Caribou – Boreal population) and the Southern Mountain Caribou (Rangifer Tarandus Caribou) – Southern Mountain
population), each of which is a specie native to large tracts of boreal forests in northern BC and Alberta, and of the
mountains of BC and the eastern slopes of the Rocky Mountains in Alberta, respectively. The Recovery Strategy
identifies critical habitat and prescribes that each Province must develop and implement an action plan to recover the
species and protect its critical habitat. If Canada determines that a Province is not providing adequate protection for a
species, then Canada reserves the right to levy protection orders prohibiting activities deemed harmful to the species
or destructive to its critical habitat.
Canada has entered into separate five-year conservation agreements with BC and Alberta per Section 11 of SARA. In
BC, the two parties, along with two Treaty 8 First Nations, subsequently executed the Caribou Recovery Partnership
Agreement (the “Partnership Agreement”) on February 21, 2020. This 30-year Partnership Agreement encompasses
several Caribou herds in the south Peace River region of BC. The Partnership Agreement has created the obligation for
BC to preserve certain sections of land from all resource, commercial, and recreational use. It will ultimately result in
a reduction of AAC in the three affected timber management units.
The Partnership Agreement requires that BC bring forward regulatory measures for approval. These measures will take
the form of legal land use objectives that will govern how recreational, commercial, and industrial activities will be
allowed to occur. The Partnership Agreement will also create a Class A Park where commercial, recreational, and
50
industrial activities will be restricted or prohibited. The Company continues to work with governments at all levels
(federal, provincial, municipal) and with its provincial and national forest associations in an effort to minimize the
economic impacts that will result from these land use decisions.
Stumpage Rates
Stumpage is the fee businesses or individuals pay the Government for harvested timber from Crown land in BC.
Stumpage rates in BC are determined using a transaction evidence-based timber pricing system known as the Market
Pricing System (“MPS”). MPS uses market forces, such as lumber market pricing and the results and characteristics of
competitively sold BC Timber Sales (“BCTS”) auctions of timber, to establish the market value of timber (and ultimately
stumpage rates in BC). For cutting authorities harvested under long-term tenure agreements, an adjustment is made
for tenure obligation costs imposed on and incurred by licensees (such as forest management administration and
silviculture) before determining final stumpage rates.
The BC Government is scheduled to make its next annual update to the MPS on July 1, 2024. Further changes to the
BC Interior market-driven stumpage system and resulting stumpage rates could have a material impact on Canfor’s
business. The Alberta Government will be reviewing their provincial stumpage rates (timber dues); however, the
Company is not aware of any planned material changes at this point.
Transportation Services
Canfor relies primarily on third parties for the transportation of its products, as well as the delivery of raw materials, a
significant portion of which are transported by railroads, trucks, and ships. If any of Canfor’s third-party transportation
providers were to fail to deliver the raw materials or products or distribute them in a timely manner, Canfor may be
unable to sell those products at full value, or at all, or unable to manufacture its products in response to customer
demand, which could have a material adverse effect on Canfor’s financial condition and operating results. In addition,
if any of these third parties were to cease operations, suffer labour-related disruptions, or cease doing business with
Canfor, the Company’s operations or cost structure may be adversely impacted. Transportation services may also be
affected by seasonal factors, which could impact the timely delivery of raw materials and product distribution to
customers and adversely impact Canfor’s financial condition and operating results. As a result of increased government
regulation on truck drivers’ work hours and rail capacity constraints, access to adequate transportation capacity has,
at times, been strained. It could affect Canfor’s ability to move its log, lumber, and wood chips at competitive market
prices.
OUTSTANDING SHARE DATA
At March 5, 2024, there were 118,931,779 common shares issued and outstanding.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING
The Company has established disclosure controls and procedures to ensure that information disclosed in this MD&A
and the related consolidated financial statements was properly recorded, processed, summarized, and reported to the
Board of Directors and the Audit Committee. The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) have evaluated the effectiveness of these disclosure controls and procedures for the year ended December
31, 2023, and have concluded that they are effective.
The CEO and CFO acknowledge responsibility for the design of internal controls over financial reporting (“ICFR”) and
confirm that there were no changes in the Company’s ICFR during the year ended December 31, 2023, that materially
affected, or would be reasonably likely to materially affect, such controls.
Based upon their evaluation of these controls for the year ended December 31, 2023, the CEO and CFO have concluded
that these controls are operating effectively.
Additional information about the Company, including its 2023 Annual Information Form, is available at
www.sedarplus.com or at www.canfor.com.
51
C ONSO LIDATE D FI NANCIAL STATEM ENTS
52
MANAGEMENT’S RESPONSIBILITY
The information and representations in these consolidated financial statements are the responsibility of Management
and have been approved by the Board of Directors. The consolidated financial statements were prepared by
Management in accordance with IFRS Accounting Standards and, where necessary, reflect Management’s best
estimates and judgments at this time. It is reasonably possible that circumstances may arise which cause actual results
to differ.
Canfor Corporation maintains systems of internal controls over financial reporting, policies and procedures to provide
reasonable assurance as to the reliability of the financial records and the safeguarding of its assets.
The Board of Directors is responsible for ensuring that Management fulfills its responsibilities for financial reporting and
is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out these
activities primarily through its Audit Committee.
The Audit Committee is comprised of four Directors who are not employees of the Company. The Audit Committee
meets periodically throughout the year with Management, external auditors and internal auditors to review their
respective responsibilities, results of the reviews of internal controls over financial reporting, policies and procedures
and financial reporting matters. The external and internal auditors meet separately with the Audit Committee.
The consolidated financial statements have been reviewed by the Audit Committee and approved by the Board of
Directors. The consolidated financial statements have been audited by KPMG LLP, the external auditors, whose report
follows.
March 5, 2024
Donald B. Kayne
President and Chief Executive Officer
Patrick A. J. Elliott
Chief Financial Officer and Senior Vice President, Sustainability
53
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Canfor Corporation
Opinion
We have audited the consolidated financial statements of Canfor Corporation (the Entity), which comprise:
•
•
•
•
•
•
the consolidated balance sheets as at December 31, 2023 and December 31, 2022
the consolidated statements of income (loss) for the years then ended
the consolidated statements of other comprehensive income (loss) for the years then ended
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a summary of material accounting policy
information
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at December 31, 2023 and December 31, 2022, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance
with IFRS Accounting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditor’s Responsibilities for the
Audit of the Financial Statements" section of our auditor’s report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit
of the financial statements in Canada and we have fulfilled our other responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
54
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements for the year ended December 31, 2023. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our
auditor’s report.
Assessment of the indications of impairment for property, plant and equipment and timber
licenses related to the lumber segment
Description of the matter
We draw attention to Notes 3, 5, 7 and 19 to the financial statements. Property, plant and equipment and
timber licenses are assessed at each reporting date to determine whether there are any indications of
impairment, and an impairment test is performed whenever events or circumstances indicate that the
carrying amounts may not be recoverable. The Entity has not identified any indications of impairment for
the property, plant and equipment and timber licenses related to the lumber segment.
Why the matter is a key audit matter
We identified the assessment of the indications of impairment for property, plant and equipment and timber
licenses related to the lumber segment as a key audit matter. This matter represented an area of higher
risk of material misstatement given the magnitude of property, plant and equipment and timber licenses
and high degree of estimation uncertainty in determining whether indications of impairment exist as of the
balance sheet date. Significant auditor judgment was required in assessing the performance of certain Cash
Generating Units (“CGUs”) against expectations, changes in estimated lumber prices and the difference
between the Entity’s market capitalization and the carrying value of its net assets.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
• We assessed whether the information in the Entity’s analysis was consistent with information included
in Entity’s press releases, management’s discussion and analysis, and other public filings.
• We analyzed the components of the Entity’s market capitalization reconciliation to the carrying value of
its net assets.
• We inspected publicly available information related to changes in estimated lumber prices.
• We compared the 2023 fibre and production costs to historical fibre and production costs.
55
Assessment of the recoverable amount of the pulp and paper segment
Description of the matter
We draw attention to Notes 3, 5 and 13 to the financial statements. The Entity identified indicators of
impairment for its pulp and paper segment’s property, plant and equipment and performed an impairment
test to estimate their recoverable amounts. The Entity has not recorded an impairment loss for the year
ended December 31, 2023 ($49.6 million for the year ended December 31, 2022). The recoverable amount
of the pulp and paper segment is determined based on an assessment of value in use. Significant
assumptions used in determining value in use include future production volumes, commodity prices, fibre
and production costs and the discount rate.
Why the matter is a key audit matter
We identified the assessment of the recoverable amounts of the pulp and paper segment as a key audit
matter. The value in use was sensitive to changes in certain significant assumptions. Significant auditor
judgment was required to evaluate the results of our audit procedures. Further, specialized skills and
knowledge were required in evaluating the discount rate.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
• We evaluated the appropriateness of forecasted production volumes and forecasted fibre and
production costs of the Entity by comparing to actual historical production volumes and fibre and
production costs. We considered changes in conditions and events affecting the Entity to assess the
adjustments or lack of adjustments made by the Entity in arriving at the assumptions.
• We compared forecasted commodity prices to third party industry pricing publications and to the Entity’s
historical realized pulp and paper prices over the past five years.
• We involved a valuation professional with specialized skills and knowledge, who assisted in evaluating
the discount rate used in the estimated value in use by comparing to a discount range that was
independently developed using publicly available market data for comparable entities.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management's Discussion and Analysis filed with the relevant Canadian
Securities Commissions.
the information, other than the financial statements and the auditor’s report thereon, included in a
document likely to be entitled "2023 Canfor Corporation Annual Report".
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit and remain alert for indications that the other
information appears to be materially misstated.
We obtained the information included in Management's Discussion and Analysis filed with the relevant
Canadian Securities Commissions as at the date of this auditor’s report. If, based on the work we have
56
performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s report thereon, included in a
document likely to be entitled “2023 Canfor Corporation Annual Report” is expected to be made available
to us after the date of this auditor’s report. If, based on the work we will perform on this other information,
we conclude that there is a material misstatement of this other information, we are required to report that
fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS Accounting Standards, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity's ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity's financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
57
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Entity's internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Entity to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
•
Provide those charged with governance for the financial statements with a statement that we have
complied with relevant ethical requirements regarding independence and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
• Determine, from the matters communicated with those charged with governance, those matters that
were of most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our auditor’s report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor’s report is Andrew James.
Vancouver, Canada
March 5, 2024
58
Canfor Corporation
Consolidated Balance Sheets
(millions of Canadian dollars)
ASSETS
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Income taxes recoverable
Inventories (Note 4)
Prepaid expenses and other
Total current assets
Property, plant and equipment (Note 5)
Right-of-use assets (Note 6(a))
Timber licenses (Note 7)
Goodwill and other intangible assets (Note 8)
Long-term investments and other (Note 9)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (Note 10)
Operating loans (Note 11)
Current portion of deferred reforestation obligations (Note 14)
Current portion of term debt (Note 12)
Current portion of lease obligations (Note 6(b))
Income taxes payable
Total current liabilities
Term debt (Note 12)
Retirement benefit obligations (Note 13)
Lease obligations (Note 6(b))
Deferred reforestation obligations (Note 14)
Other long-term liabilities (Note 15)
Put liability (Note 26)
Deferred income taxes, net (Note 20)
Total liabilities
EQUITY
Share capital (Note 16)
Contributed surplus and other equity
Retained earnings
Accumulated other comprehensive income
Total equity attributable to equity shareholders of the Company
Non-controlling interests (Note 17)
Total equity
Total liabilities and equity
As at
December 31,
2023
As at
December 31,
2022
$
$
$
$
$
$
$
627.4
297.9
105.6
109.3
994.8
122.7
2,257.7
2,429.8
123.1
346.8
519.3
454.7
6,131.4
664.5
110.6
52.6
44.8
30.6
2.1
905.2
115.1
132.9
98.2
47.4
37.5
187.7
330.0
1,854.0
938.3
(169.8)
3,004.2
45.5
3,818.2
459.2
4,277.4
6,131.4
$
$
$
$
$
$
$
1,268.7
336.0
87.3
54.2
1,180.7
138.0
3,064.9
2,219.1
99.1
357.8
532.1
466.2
6,739.2
678.7
27.8
60.4
45.3
26.2
45.2
883.6
213.6
158.3
79.5
43.8
32.0
172.7
392.9
1,976.4
955.1
(157.7)
3,341.5
82.6
4,221.5
541.3
4,762.8
6,739.2
Commitments and Contingencies (Note 24) and Subsequent Events (Notes 13, 28 and 29)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD
“R.S. Smith”
Director, R.S. Smith
“The Hon. J.R. Baird”
Director, The Hon. J.R. Baird
59
Canfor Corporation
Consolidated Statements of Income (Loss)
(millions of Canadian dollars, except per share data)
Sales
Costs and expenses
Manufacturing and product costs
Freight and other distribution costs
Countervailing and anti-dumping duty expense, net (Note 28)
Amortization
Selling and administration costs
Restructuring costs (Note 19)
Asset write-downs and impairments (Note 19)
Operating income (loss)
Finance income, net (Note 18)
Foreign exchange gain (loss) on term debt
Foreign exchange gain (loss) on duties recoverable, net
Gain on derivative financial instruments (Note 26)
Other income, net
Net income (loss) before income taxes
Income tax recovery (expense) (Note 20)
Net income (loss)
Net income (loss) attributable to:
Equity shareholders of the Company
Non-controlling interests (Note 17)
Net income (loss)
Net income (loss) per common share: (in Canadian dollars)
Attributable to equity shareholders of the Company
-
Basic and diluted (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2022
2023
$
5,426.6
$
7,426.7
4,519.4
688.8
143.8
420.4
170.4
15.4
-
5,958.2
4,795.0
790.6
49.1
397.2
174.2
7.9
138.6
6,352.6
(531.6)
1,074.1
10.4
6.9
(2.4)
6.8
19.9
1.0
(12.4)
14.8
3.9
27.1
(490.0)
141.5
(348.5) $
1,108.5
(247.4)
861.1
(326.1) $
(22.4)
(348.5) $
787.3
73.8
861.1
$
$
$
$
(2.71) $
6.39
60
Canfor Corporation
Consolidated Statements of Other Comprehensive Income (Loss)
(millions of Canadian dollars)
Net income (loss)
Other comprehensive income (loss)
Items that will not be reclassified subsequently to net income (loss):
Defined benefit plan actuarial gains, net (Note 13)
Income tax expense on defined benefit plan actuarial gains, net (Note 20)
Items that may be reclassified subsequently to net income (loss):
Foreign exchange translation of foreign operations, net of tax
Other comprehensive income (loss), net of tax
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to:
Equity shareholders of the Company
Non-controlling interests (Note 17)
Total comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2023
2022
$
(348.5) $
861.1
22.4
(6.0)
16.4
(37.1)
(20.7)
36.8
(9.9)
26.9
36.7
63.6
$
(369.2) $
924.7
$
(349.4) $
(19.8)
$
(369.2) $
845.7
79.0
924.7
61
Canfor Corporation
Consolidated Statements of Changes in Equity
(millions of Canadian dollars)
Share capital
Balance at beginning of year
Share purchases (Note 16)
Balance at end of year
Contributed surplus and other equity
Balance at beginning of year
Put liability (Note 26)
Balance at end of year
Retained earnings
Balance at beginning of year
Net income (loss) attributable to equity shareholders of the Company
Defined benefit plan actuarial gains, net of tax
Share purchases (Note 16)
Balance at end of year
Accumulated other comprehensive income
Balance at beginning of year
Foreign exchange translation of foreign operations, net of tax
Balance at end of year
Total equity attributable to equity shareholders of the Company
Non-controlling interests
Balance at beginning of year
Net income (loss) attributable to non-controlling interests
Defined benefit plan actuarial gains attributable to non-controlling interests, net of tax
Distributions to non-controlling interests (Note 17)
Balance at end of year (Note 17)
Total equity
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2023
2022
$
$
$
$
955.1
$
(16.8)
938.3
$
982.2
(27.1)
955.1
(157.7) $
(12.1)
(169.8) $
(130.9)
(26.8)
(157.7)
$
3,341.5
$
2,586.8
(326.1)
13.8
(25.0)
787.3
21.7
(54.3)
$
3,004.2
$
3,341.5
$
$
$
$
$
$
82.6
$
(37.1)
45.5
3,818.2
$
$
45.9
36.7
82.6
4,221.5
541.3
$
(22.4)
2.6
(62.3)
459.2
4,277.4
$
$
525.1
73.8
5.2
(62.8)
541.3
4,762.8
62
Canfor Corporation
Consolidated Statements of Cash Flows
(millions of Canadian dollars)
Cash generated from (used in):
Operating activities
Net income (loss)
Items not affecting cash:
Amortization
Income tax recovery (expense) (Note 20)
Change in long-term portion of deferred reforestation obligations, net
Foreign exchange (gain) loss on term debt
Foreign exchange (gain) loss on duties recoverable, net
Duties paid (greater) less than accruals (Note 28)
Changes in mark-to-market value of derivative financial instruments
Employee future benefits expense
Finance income, net (Note 18)
Restructuring costs (Note 19)
Asset write-downs and impairments (Note 19)
Other, net
Defined benefit plan contributions, net
Income taxes paid, net
Net change in non-cash working capital (Note 21)
Financing activities
Operating loan drawings, net (Note 11)
Repayments and conversion of term debt, net (Note 12)
Payments of lease obligations (Note 6(b))
Finance expenses paid
Share purchases (Note 16)
Cash distributions paid to non-controlling interests (Note 17)
Investing activities
Additions to property, plant and equipment and intangible assets, net (Notes 5 and 8)
Acquisition of Millar Western (Note 27)
Interest income received
Purchase of long-term investments (Notes 9 and 26)
Other, net
Foreign exchange gain (loss) on cash and cash equivalents
Decrease in cash and cash equivalents*
Cash and cash equivalents at beginning of year*
Cash and cash equivalents at end of year*
*Cash and cash equivalents include cash on hand less unpresented cheques.
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2023
2022
$
(348.5) $
861.1
420.4
(141.5)
1.9
(6.9)
2.4
100.7
(2.6)
12.5
(10.4)
15.4
-
6.5
(24.2)
(33.8)
(8.1)
162.8
154.7
83.2
(96.1)
(32.5)
(33.6)
(44.3)
(62.3)
(185.6)
(587.0)
-
35.2
(59.4)
7.5
(603.7)
(6.7)
(641.3)
1,268.7
$
627.4
397.2
247.4
(16.6)
12.4
(14.8)
(156.3)
(4.1)
11.1
(1.0)
7.9
138.6
18.2
(12.2)
(462.6)
1,026.3
86.7
1,113.0
10.7
(0.4)
(26.9)
(21.1)
(78.9)
(62.8)
(179.4)
(625.3)
(434.0)
11.6
-
1.1
(1,046.6)
26.9
(86.1)
1,354.8
$ 1,268.7
63
Canfor Corporation
Notes to the Consolidated Financial Statements
Years ended December 31, 2023 and December 31, 2022
1.
Reporting Entity
Canfor Corporation is a company incorporated and domiciled in Canada and listed on the Toronto Stock Exchange. The
address of the Company’s registered office is 161 East 4th Avenue, Vancouver, British Columbia, Canada, V5T 1G4. The
consolidated financial statements of the Company as at and for the year ended December 31, 2023 comprise the
accounts of Canfor Corporation and its subsidiaries, hereinafter referred to as “Canfor” or “the Company.” Significant
subsidiaries include Canfor Southern Pine, Inc. (“CSP”), and entities related to the acquisition of Millar Western Forest
Products Ltd. (“Millar Western”), which are wholly owned, as well as Canfor Pulp Products Inc. (“CPPI”) and the Vida
Group (“Vida”), of which Canfor owned 54.8% and 70.0%, respectively, at December 31, 2023.
Canfor is an integrated forest products company with facilities in Canada, the United States (“US”) and Europe. The
Company produces softwood lumber, pulp and paper products, remanufactured lumber products, engineered wood
and other lumber-related products, wood pellets, and energy.
2.
Basis of Preparation
Statement of compliance
The consolidated financial statements of the Company have been prepared in accordance with IFRS Accounting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue by the Board of Directors on March 5, 2024.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for certain items as
discussed in the applicable accounting policies under Note 3.
Use of estimates and judgments
The preparation of the consolidated financial statements in accordance with IFRS requires Management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates.
The Company regularly reviews its estimates and assumptions; however, it is possible that circumstances may arise
which may cause actual results to differ from Management’s estimates. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected. Information about the
significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the consolidated financial statements is included in the applicable notes:
•
•
•
•
•
Note 4 – Inventories;
Note 5 – Property, Plant and Equipment;
Note 8 – Goodwill and Other Intangible Assets;
Note 9 – Long-Term Investments and Other;
Note 13 – Employee Future Benefits;
•
•
•
•
Note 19 – Asset Write-Downs, Impairments, and
Restructuring Costs;
Note 20 – Income Taxes;
Note 27 – Millar Western Acquisition; and
Note 28 – Countervailing and Anti-Dumping Duties.
3.
Material Accounting Policies
The following accounting policies have been applied to the financial information presented.
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when Canfor is able to govern the financial and
operating activities of those other entities to generate returns for the Company. Inter-company transactions, balances
and unrealized gains and losses on transactions between different entities within the Company are eliminated.
Associates are those entities in which Canfor exercises significant influence, but not control, over financial and operating
policies. Unless circumstances indicate otherwise, significant influence is presumed to exist when Canfor holds between
20 and 50 percent of the voting power of another entity. Associates are accounted for using the equity method and
64
are recognized initially at cost. The consolidated financial statements include Canfor’s share of the post-acquisition
income and expenses and equity movement of these equity accounted investees. Joint ventures are accounted for
using the equity method of accounting.
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date. Canfor measures
goodwill at the acquisition date as the fair value of the consideration transferred, including any non-controlling interest
when applicable, less the fair value of the identifiable assets acquired and liabilities assumed. When the excess is
negative, a bargain purchase gain is recognized immediately in net income. Transaction costs in connection with
business combinations are expensed as incurred.
Financial instruments
Financial instruments comprise cash and cash equivalents, trade and other accounts receivable, certain investments
and advances, net duty deposits recoverable, derivative instruments, accounts payable and accrued liabilities, other
liabilities, operating loans and term debt, as well as the Company’s put liability. Canfor uses derivative financial
instruments in the normal course of its operations as a means to manage its foreign exchange, interest rate, lumber
price and energy price risks. Canfor’s policy is not to utilize derivative financial instruments for trading or speculative
purposes. Canfor’s derivative financial instruments are not designated as hedges for accounting purposes.
Classification and measurement of financial assets
Financial assets are classified as either measured at amortized cost, fair value through other comprehensive income
(“FVOCI”), or fair value through net income (“FVTPL”) based on the business model in which a financial asset is
managed, its contractual cash flow characteristics and when certain conditions are met:
•
•
•
Amortized cost – measured at amortized cost using the effective interest rate method. Where applicable,
amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairments are recognized in net income.
FVOCI – measured at FVOCI if not designated as FVTPL. Interest income, foreign exchange gains and losses
and impairments are recognized in net income. Other net gains and losses are recognized in other
comprehensive income. On derecognition, gains and losses accumulated in Other Comprehensive Income
(“OCI”) are reclassified to net income.
FVTPL – measured at FVTPL if not classified as amortized cost or FVOCI with net gains and losses, including
any interest or dividend income, recognized in net income.
Equity investments are required to be classified as measured at fair value. However, on initial recognition of an equity
investment that is not held-for-trading, the Company may irrevocably elect to present subsequent changes in the
investments’ fair value in other comprehensive income. This election is made on an investment-by-investment basis.
The Company currently records gains and losses on its equity investments in net income.
Classification and measurement of financial liabilities
Financial liabilities (other than the put liability) are classified as either measured at amortized cost or FVTPL. A financial
liability is classified as FVTPL if it is held-for-trading, a derivative, or if it is designated as such on initial recognition.
Financial liabilities at FVTPL are measured at fair value with net gains and losses, including interest expense, recognized
in net income. Other financial liabilities are initially measured at fair value and subsequently measured at amortized
cost using the effective interest rate method. Any gains or losses on derecognition of financial liabilities (other than the
put liability) are also recognized in net income. The Company’s put liability is measured initially at fair value with
subsequent net gains and losses recognized in other equity (“FVTEQ”). Interest expense and foreign exchange gains
and losses of all financial liabilities are recognized in net income.
65
Canfor’s financial instruments are classified and subsequently measured as follows:
Financial Assets:
Cash and cash equivalents
Trade and other accounts receivable
Long-term advances and other assets
Duty deposits recoverable, net
Other investments
Derivative contracts
Foreign exchange forward contracts
Financial Liabilities:
Accounts payable and accrued liabilities
Other liabilities
Operating loans
Term debt
Put liability
Impairment
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTEQ
The Company applies the simplified approach in determining expected credit losses (“ECLs”), which requires a
probability-weighted estimate of expected lifetime credit losses to be recognized upon initial recognition of financial
assets measured at amortized cost and contract assets. Credit losses are measured as the present value of cash
shortfalls from all possible default events, discounted at the effective interest rate of the financial asset. Any loss
allowances for financial assets at amortized cost are deducted from the gross carrying amount of the assets.
Inventories
Inventories include logs, lumber, engineered wood and other lumber-related products, pulp, paper, wood pellets, chips,
and materials and supplies. These are measured at the lower of cost and net realizable value and are presented net of
applicable write-downs. The cost of inventories is based on the weighted average cost principle, and includes raw
materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net
realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and
selling expenses. The Company estimates the net realizable value of inventories based on actual and forecasted sales
orders, as well as outlook prices and forecast exchange rates for the period over which the inventories are expected
to be sold. Outlook prices are determined using Management’s estimates at the end of the period and may differ from
the actual prices at which the inventories are sold.
Leases
Lease definition
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains,
a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
An identified asset may be implicitly or explicitly specified in a contract, but must be physically distinct, and must not
have the ability for substitution by a lessor. The Company has the right to control an identified asset if it obtains
substantially all of its economic benefits and either pre-determines or directs how and for what purpose the asset is
used.
Measurement of right-of-use assets and lease obligations
At lease commencement, the Company recognizes a right-of-use asset (“ROU asset”) and a lease obligation. The ROU
asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease
payments made at, or before, the commencement date, plus any initial direct costs incurred, less any lease incentives
received.
The ROU asset is subsequently amortized on a straight-line basis over the shorter of the term of the lease, or the useful
life of the assets determined on the same basis as the Company’s property, plant and equipment. The ROU asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease obligation.
The lease obligation is initially measured at the present value of lease payments remaining at the lease commencement
date, discounted using the Company’s incremental borrowing rate. Lease payments included in the measurement of
the lease obligation, when applicable, may comprise fixed payments, variable payments that depend on an index or
66
rate, amounts expected to be payable under a residual value guarantee and the exercise price under a purchase,
extension or termination option that the Company is reasonably certain to exercise.
The lease obligation is subsequently measured at amortized cost using the effective interest method. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the
Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes
its assessment of whether it will exercise a purchase, extension or termination option. When the lease obligation is
remeasured, a corresponding adjustment is made to the carrying amount of the ROU asset.
Recognition exemptions
The Company has elected not to recognize ROU assets and lease obligations for short-term leases that have a lease
term of twelve months or less or for leases of low-value assets. Payments associated with these leases are recognized
as an operating expense on a straight-line basis over the lease term within costs and expenses on the consolidated
statement of income.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated amortization, write-downs and
impairment losses.
Cost includes expenditures which are directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour, borrowing costs (as applicable), and any other costs directly
attributable to bringing assets to the location and condition necessary for it to be used in the manner intended by
Management.
The cost of replacing a major component of an item of property, plant and equipment is recognized in the carrying
amount of the item if the future economic benefits embodied within the component part will flow to Canfor and its cost
can be measured reliably. The carrying amount of the replaced component is removed. The costs of the day-to-day
servicing of property, plant and equipment are recognized in net income as incurred.
Amortization is recognized in net income on a straight-line basis over the estimated useful lives of each component of
an item of property, plant and equipment, as set out in the table below. Land is not amortized.
Amortization methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each reporting
date. The following rates have been applied to Canfor’s capital assets:
Buildings
Pulp and paper machinery and equipment
Sawmill machinery and equipment
Logging machinery and equipment
Logging roads and bridges
Mobile and other equipment
Timber licenses
5 to 50 years
8 to 20 years
1 to 15 years
4 to 20 years
5 to 25 years
2 to 10 years
Timber licenses include tree farm licenses, forest licenses and timber licenses with the Provinces of British Columbia
and Alberta. Timber licenses are carried at cost less accumulated amortization and impairment losses. Renewable
licenses are amortized using the straight-line method over 50 years, while non-renewable licenses are amortized over
the period of the license.
Other intangible assets
Goodwill
Goodwill represents the excess of the cost of a business acquisition over the fair value of Canfor’s share of the net
identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and
carried at cost less any accumulated impairment losses.
Computer software
Software development costs relate to major software systems purchased or developed by the Company. These costs
are amortized on a straight-line basis over periods ranging from four to ten years.
67
Asset impairments
Canfor’s property, plant and equipment, ROU assets, timber licenses and other intangible assets are assessed at each
reporting date to determine whether there are any indications of impairment, and an impairment test is performed
whenever events or circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized in net income at the amount the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows that are largely independent of cash inflows from other assets or groups of assets (cash-generating unit).
Non-financial assets, other than goodwill, for which impairment was recorded in a prior period, are reviewed for possible
reversal of the impairment at each reporting date. When an impairment loss is reversed, the increased carrying amount
of the asset cannot exceed the carrying amount that would have been determined (net of amortization) had no
impairment loss been recognized in prior years.
For the purpose of impairment testing, goodwill is allocated to the Company’s operating regions which represent the
lowest level within the Company at which the goodwill is monitored for internal management purposes.
Employee future benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity makes contributions to a separate
entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution plans are recognized as an employee future benefits expense when they are earned.
For hourly employees covered by forest industry union defined contribution or benefit plans, the consolidated statement
of income is charged with the Company’s contributions required under the collective agreements.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Canfor has various
defined benefit plans that provide both pension and other non-pension post-retirement benefits to certain salaried
employees, and certain hourly employees not covered by forest industry union plans. The other non-pension post-
retirement benefits include certain health care benefits and pension bridging benefits to eligible retired employees.
The surplus and/or obligation recognized in the consolidated balance sheet in respect of a defined benefit pension plan
is the net of the accrued benefit obligation and the fair value of the plan assets. The accrued benefit obligation, the
related service cost and, where applicable, the past service cost is determined separately for each defined benefit
pension plan based on actuarial determinations. The accrued benefit obligation is calculated as the present value of
each member’s prospective benefits earned in respect of credited service prior to the valuation date and the related
service cost is calculated as the present value of the benefits the member is assumed to earn for credited service in
the ensuing year. The actuarial assumptions used in these calculations, such as salary escalation and health care
inflation, are based upon best estimates selected by Canfor. The discount rate assumptions are based on the yield at
the reporting date on high quality corporate bonds that have maturity dates approximating the terms of Canfor’s
obligations.
Actuarial gains and losses can arise from differences between actual and expected outcomes or changes in the actuarial
assumptions or legislated amounts payable. Actuarial gains and losses, including the return on plan assets, are
recognized in other comprehensive income in the period in which they occur.
A gain or loss on settlement is recognized in net income, calculated as the difference between the present value of the
defined benefit obligation being settled, as determined on the date of settlement, and the settlement amount.
Provisions
Canfor recognizes a provision if, as a result of a past event, it has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The provision recorded is Management’s best estimate of the expenditure required to settle the present obligation at
the end of the reporting period. Provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability. The
expense arising from the unwinding of the discount due to the passage of time is recorded as a finance expense. The
main classes of provisions recognized by Canfor are as follows:
68
Asset retirement obligations
Canfor recognizes liabilities for asset retirement obligations in the period in which they are incurred. The site restoration
costs are capitalized as part of the cost of the related item of property, plant and equipment and amortized on a basis
consistent with the expected useful life of the related asset. Asset retirement obligations are discounted at the risk-
free rate in effect at the balance sheet date.
Deferred reforestation obligations
Forestry legislation in British Columbia and Alberta requires Canfor to incur the cost of reforestation of its forest, timber
and tree farm licenses and forest management agreements. Accordingly, Canfor records an expense and a liability for
the costs of reforestation in the period in which the timber is harvested. In periods subsequent to the initial
measurement, changes in the liability resulting from the passage of time and revisions to Management’s estimates are
recognized in net income as they occur. Deferred reforestation obligations are discounted at the risk-free rate in effect
at the balance sheet date.
Restructuring
A provision for restructuring is recognized as an expense and a liability, when Canfor has approved a detailed and
formal restructuring plan, which may include the indefinite or permanent closure of one of its operations, and the
restructuring has either commenced, or has been announced publicly. Provisions are not recognized for future operating
costs.
Revenue recognition
Canfor’s revenues are derived from the sale of lumber, engineered wood and other lumber-related products, pulp,
paper, residual fibre, logs, wood pellets and energy. Revenue is measured based on the consideration specified in a
contract with a customer, net of applicable sales taxes, returns, rebates and discounts and after eliminating sales within
the Company. Revenue is recognized when the Company transfers the control of a product to a customer. Energy
revenue is recognized at month-end based on energy produced and transferred to the customer under the terms and
conditions of electricity purchase and load displacement agreements.
The timing of transfer of control to customers varies depending on the individual terms of the contract of sale, but is
typically as follows for Canfor’s principal revenue generating activities:
• Lumber – At the time lumber and lumber-related products are loaded onto a truck or rail carrier, upon vessel
departure, or when lumber and lumber-related products have been picked up by the buyer at a designated
transfer point at the Company’s mill or warehouse. The amount of revenue recognized is adjusted for volume
rebates and discounts at the point in time control is transferred.
• Pulp and Paper – At the time pulp and paper is loaded onto a truck or rail carrier, upon vessel departure, upon
delivery, as the goods are used by the customer, or when pulp and paper has been picked up by the buyer
at a designated transfer point at the Company’s mill or warehouse. The amount of revenue recognized is
adjusted for commissions, volume rebates and discounts at the point in time control is transferred.
Amounts charged to customers for shipping and handling are recognized as revenue, and shipping and handling costs
incurred by Canfor are reported as a component of freight and other distribution costs. Countervailing and anti-dumping
duties are recorded as a component of operating income.
Income taxes
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in net income
except to the extent that they relate to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using the tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
periods.
Canfor recognizes deferred income tax in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is
measured at tax rates expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
69
the related tax benefit will be realized. Investment tax credits are credited to manufacturing and product costs in the
period in which it becomes reasonably assured that the Company is entitled to them. Unused investment tax credits
are recorded as other current or long-term assets in the Company’s consolidated balance sheet, depending upon when
the benefit is expected to be received.
Foreign currency translation
Items included in the financial statements of each of the Company’s entities are measured using the currency of the
primary economic environment in which the entity operates (the “functional currency”). The consolidated financial
statements are presented in Canadian dollars, which is the Company’s functional currency.
The majority of Canfor’s sales are denominated in foreign currencies, primarily the US-dollar, as well as Swedish Krona
(“SEK”). Transactions in foreign currencies are translated to the functional currency at exchange rates on the dates of
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to
the functional currency at the exchange rate on that date. Foreign currency differences arising on translation are
recognized in net income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to the Canadian dollar at exchange rates on the reporting date. The income and expenses of foreign
operations are translated to the Canadian dollar at exchange rates on the transaction dates. Foreign exchange
differences arising from translation of foreign operations are recognized in other comprehensive income and recorded
to the accumulated foreign exchange translation account. Canfor’s foreign operations include CSP, Vida, and all entities
owned or partly owned by CSP and Vida.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. Segment results reported to the chief operating decision-maker include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest-
bearing liabilities, head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total
cost incurred during the year to acquire property, plant and equipment, timber licenses and intangible assets, other
than goodwill.
4.
Inventories
(millions of Canadian dollars)
Logs
Finished products
Residual fibre
Materials and supplies
$
As at
December 31,
2023
199.4
600.6
38.2
156.6
$
As at
December 31,
2022
305.3
693.5
27.0
154.9
$
994.8
$
1,180.7
The above inventory balances are stated at the lower of cost and net realizable value. For the year ended December
31, 2023, a $54.8 million net reversal of a previously recognized inventory write-down was recognized for the lumber
segment (2022 - $95.7 million net inventory write-down expense). At December 31, 2023, an inventory provision of
$40.9 million has been recognized for logs and lumber (December 31, 2022 – $95.7 million inventory).
For the year ended December 31, 2023, a $2.4 million net reversal of a previously recognized inventory write-down
was recorded for the pulp and paper segment (2022 – $2.2 million net recovery of a previous write-down). At December
31, 2023, no inventory provision has been recognized for the pulp and paper segment (December 31, 2022 – provision
of $2.4 million related to logs).
Inventory expensed in 2023 and 2022 is included in ‘Manufacturing and product costs’ and ‘Amortization’ on the
consolidated statement of income (loss).
70
5.
Property, Plant and Equipment
$
$
(millions of Canadian dollars)
Cost
Balance at January 1, 2022
Additions1
Acquisition (Note 27)
Disposals
Transfers
Effect of movements in exchange rates
Balance at December 31, 2022
Additions1
Disposals
Transfers
Effect of movements in exchange rates
Balance at December 31, 2023
Amortization and Impairments
Balance at January 1, 2022
Amortization for the year
Disposals
Asset write-downs and impairments (Note 19)
Transfers
Effect of movements in exchange rates
Balance at December 31, 2022
Amortization for the year
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2023
$
$
$
$
Pulp and
paper
mills
Solid wood
operations2
Logging assets
and other
equipment
Construction in
progress
Land
58.2 $
-
15.2
-
-
1.3
74.7 $
1.0
-
0.6
-
76.3 $
-
-
(33.2)
105.5
-
1,856.2 $ 2,795.1
17.2
219.8
(40.3)
249.7
18.2
1,928.5 $ 3,259.7
2.2
(52.6)
464.7
(21.2)
1,922.8 $ 3,652.8
0.4
(62.0)
55.9
-
$
$
$
(1.7) $
(1,426.5) $ (1,721.3) $
-
-
-
-
-
(90.6)
31.1
(49.6)
-
-
(239.7)
37.5
(61.6)
(0.4)
(17.1)
(1.7) $
(1,535.6) $ (2,002.6) $
-
-
-
(77.8)
72.1
-
(266.9)
48.5
8.3
(1.7) $
(1,541.3) $ (2,212.7) $
259.5
-
1.7
(12.0)
19.3
0.6
269.1
-
(1.5)
40.4
(0.3)
307.7
$
$
$
(205.1) $
(15.4)
11.8
-
0.4
(0.2)
(208.5) $
(19.5)
2.1
-
(225.9) $
$
198.3
598.5
-
-
(374.5)
13.2
435.5
584.3
-
(561.6)
(6.4)
451.8 $
$
$
$
-
-
-
-
-
-
-
-
-
-
-
Total
5,167.3
615.7
236.7
(85.5)
-
33.3
5,967.5
587.9
(116.1)
-
(27.9)
6,411.4
(3,354.6)
(345.7)
80.4
(111.2)
-
(17.3)
(3,748.4)
(364.2)
122.7
8.3
$
(3,981.6)
Carrying Amounts
At January 1, 2022
At December 31, 2022
At December 31, 2023
$
$
$
56.5 $
73.0 $
74.6 $
$
429.7 $ 1,073.8
392.9 $ 1,257.1
$
381.5 $ 1,440.1 $
$
54.4
60.6
$
81.8 $
$
$
1,812.7
198.3
435.5
2,219.1
451.8 $ 2,429.8
1 Net of capital expenditures by CPPI that are financed by government grants.
2 Solid Wood operations include those sawmills, pellet plants, engineered wood and other lumber-related product plants, plywood and oriented strand
board plants that are consolidated on a line-by-line basis.
6.
Leases
(a) Right-of-Use Assets
(millions of Canadian dollars)
Cost
Balance at January 1, 2022
Additions
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2022
Additions
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2023
Amortization
Balance at January 1, 2022
Amortization for the year
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2022
$
$
$
$
$
Pulp and
paper
mills
Solid wood
operations
Logging assets
and other
equipment
Facilities
and other
9.2 $
0.8
(0.7)
(0.1)
97.1 $
22.7
(10.4)
5.2
$
8.7
3.1
(2.7)
0.3
$
24.3
29.8
(1.9)
0.4
9.2 $
114.6 $
9.4
$
52.6
$
0.8
(0.7)
-
49.2
(15.1)
(2.5)
3.3
(2.3)
(0.1)
6.7
(0.5)
(0.1)
Land
1.6 $
2.1
-
0.1
3.8 $
-
-
(0.1)
3.7 $
9.3 $
146.2 $
10.3
$
58.7
$
(1.0) $
(0.2)
-
-
(1.2) $
(7.1) $
(1.1)
0.6
0.2
(7.4) $
(45.2) $
(20.2)
9.9
(2.8)
(58.3) $
(5.1) $
(2.4)
2.1
(0.1)
(5.5) $
(17.0) $
(2.9)
1.8
-
(18.1) $
Total
140.9
58.5
(15.7)
5.9
189.6
60.0
(18.6)
(2.8)
228.2
(75.4)
(26.8)
14.4
(2.7)
(90.5)
71
(millions of Canadian dollars)
Amortization for the year
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2023
Carrying Amounts
At January 1, 2022
At December 31, 2022
At December 31, 2023
(b) Lease Obligations
$
$
$
$
Pulp and
paper
mills
(0.9)
0.7
-
Solid wood
operations
(24.7)
13.5
1.3
Logging assets
and other
equipment
(2.2)
1.8
-
Land
(0.2)
-
-
(1.4) $
(7.6) $
(68.2) $
(5.9) $
Facilities
and other
(4.2)
0.2
0.1
(22.0) $
0.6 $
2.6 $
2.3 $
2.1 $
1.8 $
1.7 $
51.9 $
56.3 $
78.0 $
3.6
3.9
$
$
4.4 $
7.3 $
34.5 $
36.7 $
Total
(32.2)
16.2
1.4
(105.1)
65.5
99.1
123.1
Contractual, undiscounted cash flows associated with the Company’s lease obligations are as follows:
(millions of Canadian dollars)
Within one year
Between one and five years
Beyond five years
Total undiscounted lease obligations
As at
December 31,
2023
35.9
71.7
48.0
$
As at
December 31,
2022
29.5
55.8
39.0
$
$
155.6
$
124.3
Interest expense on lease obligations for 2023 was $5.3 million (2022 – $2.9 million) and is included in ‘Finance income
net’ on the consolidated statement of income (loss).
Operating lease expenses relating to short-term and low-value leases not included in the measurement of lease
obligations for 2023 were $11.6 million (2022 – $7.5 million). The variable lease expense not included in the
measurement of lease obligations for 2023 was nominal (2022 – nominal).
Total cash outflows for leases in 2023 were $44.1 million, including $11.6 million for short-term and low-value leases,
as well as variable lease expenses (2022 – $34.4 million and $7.5 million, respectively).
7.
Timber Licenses
(millions of Canadian dollars)
Cost
Balance at January 1, 2022
Acquisition (Note 27)
Balance at December 31, 2022 and December 31, 2023
Amortization and Impairment
Balance at January 1, 2022
Amortization for the year
Asset write-down and impairment (Note 19)
Balance at December 31, 2022
Amortization for the year
Balance at December 31, 2023
Carrying amounts
At January 1, 2022
At December 31, 2022
At December 31, 2023
72
$
$
$
$
$
$
$
$
682.2
83.7
765.9
(369.0)
(11.7)
(27.4)
(408.1)
(11.0)
(419.1)
313.2
357.8
346.8
8.
Goodwill and Other Intangible Assets
(millions of Canadian dollars)
Cost
Balance at January 1, 2022
Additions
Acquisition (Note 27)
Derecognition of goodwill
Disposals
Effect of movement in exchange rates
Balance at December 31, 2022
Additions
Disposals
Effect of movement in exchange rates
Balance at December 31, 2023
Amortization
Balance at January 1, 2022
Amortization for the year
Disposals
Effect of movement in exchange rates
Balance at December 31, 2022
Amortization for the year
Disposals
Effect of movement in exchange rates
Balance at December 31, 2023
Carrying amounts
At January 1, 2022
At December 31, 2022
At December 31, 2023
$
$
$
$
$
$
$
$
$
Goodwill
Other intangible
assets
$
$
477.0
-
26.4
(10.5)
-
5.6
498.5
-
-
(4.6)
$
$
115.1
8.5
-
-
(2.4)
1.5
122.7
4.9
(0.8)
(0.5)
493.9
$
126.3
$
-
-
-
-
-
-
-
-
-
477.0
498.5
$
$
$
$
$
493.9 $
(77.3) $
(13.0)
2.4
(1.2)
(89.1) $
(13.0)
0.8
0.4
(100.9) $
(100.9)
37.8
33.6
25.4
$
$
$
514.8
532.1
519.3
Total
592.1
8.5
26.4
(10.5)
(2.4)
7.1
621.2
4.9
(0.8)
(5.1)
620.2
(77.3)
(13.0)
2.4
(1.2)
(89.1)
(13.0)
0.8
0.4
Canfor’s goodwill at December 31, 2023 relates to its US ($285.5 million), European ($182.0 million) and Canadian
($26.4 million) subsidiaries and is denominated in United States dollars, SEK and Canadian dollars, respectively.
Goodwill is allocated separately to each of the Company’s cash generating units and tested at that level for impairment
purposes. The recoverable amount of goodwill is determined based on assessments of value in use, estimated using
discounted cash flow models.
Key assumptions used in the cash flow models include forecast prices and foreign exchange rates, which Management
determined with reference to both internal and external publications, as well as future production volume, log and
production costs. For the 2023 goodwill impairment assessments, a discount rate of 10% for the US and Europe and
11% for Canada (13% before tax for the US, 12% before tax for Europe, and 15% before tax for Canada) (2022 –
discount rate of 10%; 13% and 12%, before tax for the US and Europe, respectively) was utilized, based on the
Company’s current weighted average cost of capital. In this analysis prepared by Management, the net present value
of future expected cash flows was compared to the carrying value of the Company’s investment in these assets,
including goodwill, as at December 31, 2023, with no impairment of goodwill required for 2023.
9.
Long-Term Investments and Other
(millions of Canadian dollars)
Duty deposits recoverable, net (Note 28)
Other deposits, loans, advances and long-term assets
Other investments (Note 26)
Retirement benefit surplus (Note 13)
Deferred income taxes, net (Note 20)
$
As at
December 31,
2023
289.5
54.2
90.8
10.8
9.4
$
As at
December 31,
2022
372.9
49.3
33.4
9.6
1.0
$
454.7
$
466.2
73
The duty deposits recoverable, net balance represents US-dollar countervailing duties (“CVD”) and anti-dumping duties
(“ADD”) and duty cash deposits paid in excess of the calculated expense accrued at December 31, 2023, including
interest receivable of $60.8 million (December 31, 2022 – $40.8 million), as well as a $43.3 million (US$34.7 million)
receivable recognized in the third quarter of 2023 upon finalization of the CVD and ADD rates applicable to the fourth
period of review (Note 28).
During the year ended December 31, 2023, the Company purchased investments in certain funds at a cost of $59.4
million (2022 – nil). These highly liquid investments with maturities exceeding one year, were subsequently measured
at fair value through net income (loss) and classified as level 1 (Note 26).
10.
Accounts Payable and Accrued Liabilities
(millions of Canadian dollars)
Trade payables and accrued liabilities
Accrued payroll and related liabilities
11. Operating Loans
(millions of Canadian dollars)
Canfor (excluding Vida and CPPI)
Available operating loans:
Operating loan facility
Revolving credit facility (US$150.0 million)
Facilities for letters of credit
Total operating loan facilities
Letters of credit covered under operating loan facility
Letters of credit covered under facilities for letters of credit
Total available operating loan facilities - Canfor
Vida
Available operating loans:
Operating loan facilities
Overdraft facilities
Total operating loan facilities
Operating loan facilities drawn
Total available operating loan facilities - Vida
CPPI
Available operating loans:
Operating loan facility
Letters of credit
Operating loan facility drawn
Total available operating loan facility - CPPI
Consolidated:
Total operating loan facilities
Total operating loan facilities drawn
Total letters of credit
Total available operating loan facilities
As at
December 31,
2023
540.5
124.0
As at
December 31,
2022
525.7
153.0
$
664.5
$
678.7
$
$
As at
December 31,
2023
As at
December 31,
2022
$
$
$
$
$
$
$
$
$
$
$
775.0
198.4
70.0
1,043.4
(2.7)
(53.9)
986.8
$
$
67.2
44.0
111.2
(3.6)
107.6
$
160.0
(6.9)
(107.0)
46.1
1,314.6
(110.6)
(63.5)
1,140.5
$
$
$
$
$
$
775.0
203.2
70.0
1,048.2
(2.7)
(66.3)
979.2
66.4
43.8
110.2
(12.8)
97.4
110.0
(12.9)
(15.0)
82.1
1,268.4
(27.8)
(81.9)
1,158.7
On May 2, 2023, CPPI converted its $50.0 million non-revolving term debt (Note 12) into its existing $110.0 million
committed operating loan facility, thereby increasing the principal amount of its existing committed operating facility
to $160.0 million. The operating loan facility is repayable on May 2, 2027.
On June 28, 2023, Canfor (excluding Vida and CPPI) extended its US$150.0 million committed revolving credit facility
to June 28, 2024. On June 28, 2024, any amounts drawn on the committed revolving credit facility will be converted
to US-dollar denominated floating rate term debt, with a maturity date of June 28, 2029. Canfor’s committed operating
loan facility is repayable on October 31, 2027.
74
Interest is payable on Canfor’s committed operating and revolving loan facilities (excluding Vida and CPPI) at floating
rates based on the lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base rate or US-dollar floating rate,
plus a margin that varies with Canfor and CPPI’s debt to total capitalization ratios.
Vida’s operating loan facilities are denominated in various currencies, with interest payable at fixed rates ranging from
2.8% to 6.8%. Vida also has separate overdraft facilities with fixed interest rates ranging from 5.5% to 6.8%.
Canfor and CPPI’s operating loan facilities have certain financial covenants, including maximum debt to total
capitalization ratios. Vida is also subject to certain financial covenants, including minimum equity and interest coverage
ratios. As at December 31, 2023, Canfor, Vida and CPPI were fully in compliance with all covenants relating to their
operating loan facilities. Substantially all borrowings of Vida and CPPI are non-recourse to other entities within the
Company.
12.
Term Debt
(millions of Canadian dollars)
Canfor (excluding Vida and CPPI)
US$50.0 million, floating interest, repayable on June 28, 2031
US$66.7 million, fixed interest of 4.4%, repayable on in two equal tranches on
October 2, 2024 and 2025 (US$33.3 million repaid on October 3, 2023)
Other
Vida
SEK 1.2 million, floating interest, repaid on April 30, 2023
SEK 1.1 million, floating interest, repaid on November 30, 2023
AUD$3.7 million, floating interest, repayable between April 23, 2024 and May 31, 2028
CPPI
CAD$50.0 million, floating interest, converted to an operating loan facility on May 2, 2023
Up to CAD$80.0 million, floating interest, repayable on May 2, 2027
Term debt at end of period
Less: Current portion
Long-term portion
As at
December 31,
2023
As at
December 31,
2022
$
66.1
$
67.7
88.2
5.1
-
-
0.5
-
-
$
$
159.9 $
(44.8)
115.1 $
135.4
5.2
0.1
0.1
0.4
50.0
-
258.9
(45.3)
213.6
On May 2, 2023, CPPI secured a commitment to receive up to $80.0 million of non-revolving term debt to support
CPPI’s continued re-investment in its facilities, restricted specifically to the Northwood Northern Bleached Softwood
Kraft pulp mill’s (“Northwood”) recovery boiler number one (“RB1”). This new non-revolving term debt has a maturity
date of May 2, 2027, with interest payable at floating interest rates consistent with CPPI’s operating loan facility.
Canfor’s and CPPI’s term debt (excluding Vida) is unsecured. Vida’s term debt is secured by its property, plant and
equipment. Canfor’s and CPPI’s borrowings (excluding Vida) are subject to certain financial covenants, including a
maximum debt to total capitalization ratio. Vida’s borrowings are subject to certain financial covenants, including
minimum equity and interest coverage ratios. As at December 31, 2023, Canfor, Vida and CPPI were fully in compliance
with all covenants relating to their term debt.
Fair value of total term debt
At December 31, 2023, the fair value of the Company’s term debt is $153.7 million (December 31, 2022 – $241.7
million), determined based on prevailing market rates for term debt with similar characteristics and risk profile.
13.
Employee Future Benefits
The Company has several funded and unfunded defined benefit pension plans and defined contribution plans that
provide benefits to substantially all salaried employees and certain hourly employees. Benefits are also provided to
certain salaried and hourly employees through the Company’s non-pension post-retirement benefit plans, which are
unfunded. Defined benefit pension plans are based on years of service and final average salary (for salaried employees),
and flat rate benefit and years of service (for hourly employees). Canfor’s other non-pension post-retirement benefit
plans are non-contributory and include a range of health care and other benefits. Canfor also provides pension bridge
benefits to certain eligible former employees.
Total cash payments for employee future benefits for 2023 were $59.4 million (December 31, 2022 – $48.0 million),
consisting of cash contributed by Canfor to its funded pension plans, cash payments directly to beneficiaries for its
75
unfunded other non-pension post-retirement benefit plans, and cash contributed to its defined contribution and other
plans.
Defined benefit plans
Canfor measures its accrued retirement benefit obligations and the fair value of plan assets for accounting purposes
as at December 31 of each year.
As at December 31, 2023, Canfor has three registered defined benefit pension plans, as one of the Company’s
registered defined benefit plans was wound up effective March 31, 2023 (with final settlement and distribution of
remaining benefits to occur in 2024). For the registered plans, actuarial funding valuations are performed at least once
every three years. Actuarial valuations for funding purposes as at December 31, 2022 were completed in 2023 for the
three plans. The next actuarial valuation for funding purposes is currently scheduled for December 31, 2025, to be
completed in 2026. The majority of non-registered pension plans underwent actuarial valuations as at December 31,
2023, which were completed in 2024. One of the non-registered plans underwent an actuarial valuation as at December
31, 2022, which was completed in 2023. In addition, Canfor has other non-contributory benefit plans that provide
certain non-pension post-retirement benefits to its members. The actuarial valuations for the non-pension post-
retirement benefit plans were conducted as at December 31, 2023. Information about Canfor’s defined benefit plans,
in aggregate, is as follows:
Fair market value of plan assets
2023
2022
(millions of Canadian dollars)
Beginning of year
Interest income on plan assets
Return on plan assets greater (less) than discount rate
Employer contributions
Employee contributions
Benefit payments
Settlement of buy-in annuity contracts
Administration costs
Other
Defined Benefit
Pension Plans
$
282.2 $
Other Benefit
Plans
-
-
-
3.3
-
(3.3)
-
-
-
Defined Benefit
Pension Plans
724.7
$
21.1
(100.2)
9.1
0.3
(65.3)
(308.2)
(1.0)
1.7
$
Other Benefit
Plans
-
-
-
3.1
-
(3.1)
-
-
-
13.1
10.5
20.9
0.3
(17.2)
-
(1.7)
-
End of year
$
308.1 $
-
$
282.2
$
-
Plan assets consist of the following:
Asset category
Equity securities
Debt securities
Other
As at
December 31,
2023
As at
December 31,
2022
Percentage of Plan Assets
44%
55%
1%
100%
44%
55%
1%
100%
Accrued benefit obligations
2023
2022
(millions of Canadian dollars)
Beginning of year
Current service cost
Interest cost
Benefit payments
Employee contributions
Settlement of buy-in annuity contracts
Actuarial loss (gain)
Change in plan surplus
Settlement loss and other
Defined Benefit
Pension Plans
$
356.7 $
4.2
16.6
(17.2)
0.3
-
2.8
(8.0)
6.4
Other Benefit
Plans
68.4
0.8
3.0
(3.3)
-
-
(7.3)
-
-
Defined Benefit
Pension Plans
$
817.0
7.0
23.7
(65.3)
0.3
(308.2)
(136.6)
15.0
3.8
$
Other Benefit
Plans
83.4
1.1
2.4
(3.1)
-
-
(15.8)
-
0.4
End of year
$
361.8 $
61.6
$
356.7
$
68.4
Of the defined benefit pension plan obligation of $361.8 million (December 31, 2022 – $356.7 million), $297.3 million
(December 31, 2022 – $291.3 million) relates to the registered plans that are partially funded and $64.5 million
76
(December 31, 2022 – $65.4 million) relates to the supplemental plans that are unfunded, with letters of credit securing
$43.0 million (December 31, 2022 – $58.7 million) of the unfunded liability.
The total obligation for the non-pension post-retirement benefit plans of $61.6 million (December 31, 2022 – $68.4
million) is unfunded.
Annuity contracts
On December 31, 2022, the Company entered into contracts to convert all of its existing buy-in annuities to buy-out
annuities. As a result of these contracts, the Company’s buy-in annuity assets and corresponding accrued benefit
obligation of $308.2 million were derecognized from the Company’s consolidated balance sheet as at December 31,
2022. No annuity contracts were held by the Company as at December 31, 2023.
Subsequent to year-end, on February 20, 2024, the Company purchased a buy-out annuity for a portion of its defined
benefit pension plans. As a result, during the first quarter of 2024, $101.8 million of the Company’s accrued benefit
obligation and a similar amount of defined benefit plan assets were derecognized from the Company’s consolidated
balance sheet.
Reconciliation of funded status of defined benefit plans to amounts recorded in the consolidated financial
statements
(millions of Canadian dollars)
Fair market value of plan assets
Accrued benefit obligations
Funded status of plans – deficit
Other pension plans
Total accrued benefit liability, net
December 31, 2023
December 31, 2022
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
$
$
$
308.1 $
(361.8)
(53.7) $
(6.8)
$
-
(61.6)
(61.6) $
-
(60.5) $
(61.6) $
282.2
$
(356.7)
(74.5) $
(5.8)
(80.3) $
-
(68.4)
(68.4)
-
(68.4)
The net accrued benefit liability is included in Canfor’s consolidated balance sheet as follows:
(millions of Canadian dollars)
Retirement benefit surplus
Retirement benefit obligations
Total accrued benefit liability, net
December 31, 2023
December 31, 2022
Defined Benefit
Pension Plans
$
$
10.8 $
(71.3)
(60.5) $
Other Benefit
Plans
-
(61.6)
Defined Benefit
Pension Plans
9.6
(89.9)
$
Other Benefit
Plans
-
(68.4)
$
(61.6) $
(80.3) $
(68.4)
Of the net defined benefit pension plan obligation of $60.5 million, $43.0 million (December 31, 2022 – $58.7 million)
is secured by letters of credit.
At December 31, 2023 and December 31, 2022, certain defined benefit pension plans are in a surplus position reflecting
the return on plan assets, actuarial gains and employer contributions to the pension plans during 2023 and 2022. The
plans with a net retirement surplus have been classified as non-current assets and included in ‘Long-term investments
and other’ on the balance sheet (Note 9).
Components of pension cost
The following table shows the before tax impact on net income (loss) and other comprehensive income (loss) of the
Company’s defined benefit pension and other non-pension post-retirement benefit plans:
(millions of Canadian dollars)
Recognized in net income (loss)
Current service cost
Administration cost
Interest cost
Settlement loss
Other
2023
2022
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
$
4.2 $
1.1
3.5
3.5
2.9
0.8
-
3.0
-
-
3.8
$
$
7.0
0.9
2.6
-
1.7
$
12.2
$
1.1
-
2.4
-
0.4
3.9
Total expense included in net income (loss)
$
15.2 $
77
(millions of Canadian dollars)
2023
2022
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Recognized in other comprehensive income (loss)
Actuarial gain – experience
$
Actuarial loss (gain) – financial assumptions
Return on plan assets less (greater) than discount
rate
Change in plan surplus
Administrative costs greater than expected
(0.1) $
2.9
(1.1) $
(6.2)
(1.2) $
(135.4)
(0.5)
(15.3)
(10.5)
(8.0)
0.6
-
-
-
100.2
15.0
0.4
-
-
-
Total gain in other comprehensive income (loss) $
(15.1) $
(7.3) $
(21.0) $
(15.8)
Effective March 31, 2023, the Company wound-up one of its registered defined benefit plans. Additional benefit costs
and settlement expenses were recognized in net income (loss) in connection with the plan's final actuarial valuation,
which lowered the minimum funding reserve required to be held by the plan by $8.0 million in 2023 (2022 - $15.0
million recognized in connection with the wind-up of another registered defined benefit plan and derecognition of the
related surplus).
Significant assumptions
The actuarial assumptions used in measuring Canfor’s benefit plan provisions and benefit costs are as follows:
Discount rate
Rate of compensation increases
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate rate is reached
December 31, 2023
December 31, 2022
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
4.6%
2.0%
n/a
n/a
n/a
4.6%
n/a
5.0%
4.5%
2031
4.8%
3.0%
n/a
n/a
n/a
4.8%
n/a
5.0%
4.5%
2025
In addition to the significant assumptions listed in the table above, the average life expectancy of a 65-year-old at
December 31, 2023 is between 21.4 years and 24.4 years (December 31, 2022 – 21.3 years and 24.4 years). As at
December 31, 2023, the weighted average duration of the defined benefit plan obligation, which reflects the average
age of the plan members, is 12.4 years (December 31, 2022 – 12.7 years). The weighted average duration of the other
benefit plans is 11.2 years (December 31, 2022 – 10.7 years).
Sensitivity analysis
Assumed discount rates and medical cost trend rates have a significant effect on the accrued retirement benefit
obligation and related plan assets. A one percentage point change in these assumptions would have the following
effects on the accrued retirement benefit obligation for 2023:
(millions of Canadian dollars)
Defined benefit pension plan liabilities
Discount rate
Other benefit plan liabilities
Discount rate
Initial medical cost trend rate
1% Increase
1% Decrease
$
$
$
(35.8)
$
43.5
(6.2)
2.8
$
$
7.4
(2.7)
With respect to the discount rate sensitivity effect on the defined benefit pension plan liabilities, it is noted that 41%
(December 31, 2022 – 43%) is partially offset through the plan’s investment in debt securities.
As at December 31, 2023, estimated contribution payments of $8.3 million will be made to the Company’s defined
benefit pension plans in 2024 based on the last actuarial valuation for funding purposes.
Defined contribution and other plans
The total expense recognized in 2023 for Canfor’s defined contribution plans was $17.6 million (December 31, 2022 –
$16.6 million). Canfor contributes to various forest industry union benefit plans providing both pension and other
retirement benefits. These plans are accounted for as defined contribution plans. Contributions to these plans, not
included in the expense for defined contribution plans above, amounted to $17.6 million in 2023 (December 31, 2022
– $19.2 million).
78
14. Deferred Reforestation Obligations
The following table provides a reconciliation of the deferred reforestation obligations as at December 31, 2023 and
December 31, 2022:
(millions of Canadian dollars)
Reforestation obligations at beginning of year
Expense for year
Accretion expense
Acquisition (Note 27)
Changes in estimates
Paid during the year, net
Reforestation obligations at end of year
Less: Current portion
Long-term portion
2023
104.2
47.2
1.6
-
2.6
(55.6)
100.0
(52.6)
$
$
47.4
$
$
$
$
2022
112.9
46.9
0.6
11.8
(4.2)
(63.8)
104.2
(60.4)
43.8
The total undiscounted amount of the estimated cash flows required to settle the obligations at December 31, 2023 is
$106.6 million (December 31, 2022 – $110.3 million), with payments expected to occur over 15 years. Due to the
general long-term nature of the liability, the most significant area of uncertainty in estimating the provision is the future
costs that will be incurred. The estimated cash flows have been adjusted for inflation and discounted using risk-free
rates ranging from 3.1% to 4.7% at December 31, 2023 (December 31, 2022 – 3.3% to 4.6%).
15.
Asset Retirement Obligations
The following table provides a reconciliation of the asset retirement obligations included in ‘Other long-term provisions’
on the consolidated balance sheet as at December 31, 2023 and December 31, 2022:
(millions of Canadian dollars)
Asset retirement obligations at beginning of year
Accretion expense
Cash payments
Changes in estimates
Asset retirement obligations at end of year
2023
12.2
0.4
-
0.5
13.1
$
$
$
$
2022
12.9
0.3
(1.0)
-
12.2
Canfor’s asset retirement obligations (excluding CPPI) represent estimated undiscounted future payments of $15.7
million (December 31, 2022 – $11.2 million) to remediate landfills at the operations at the end of their useful lives. The
payments are expected to occur over periods ranging from 3 to 43 years and have been discounted at risk-free rates
ranging from 3.0% to 3.7% (December 31, 2022 – 3.3% to 3.6%).
CPPI’s asset retirement obligations include $9.3 million (December 31, 2022 – $9.3 million) of estimated undiscounted
future payments to remediate landfills at the operations at the end of their useful lives. The payments are expected to
occur over periods ranging from 2 to 28 years and have been discounted at risk-free rates ranging from 3.0% to 3.9%
(December 31, 2022 – 3.3% to 3.8%).
Canfor and CPPI have certain assets that have indeterminable retirement dates and, therefore, there is an
indeterminate settlement date for the related asset retirement obligations. As a result, no asset retirement obligations
are recorded for these assets. These assets include wastewater and effluent ponds that will have to be drained once
the related operating facility is closed and storage sites for which removal of chemicals, fuels and other related materials
will be required once the related operating facility is closed. When the retirement dates of these assets become
determinable and an estimate can be made, an asset retirement obligation will be recorded. It is possible that changes
in future conditions could require a material change in the recognized amount of the asset retirement obligations.
79
16.
Share Capital
Authorized
10,000,000 preferred shares, with a par value of $25 each.
1,000,000,000 common shares without par value.
Issued and fully paid
(millions of Canadian dollars, except number of shares)
Common shares at beginning of year
Common shares purchased
Common shares at end of year3
3 Based on trade date.
2023
2022
Number of
Shares
121,059,579
(2,127,800)
118,931,779
Amount
955.1
(16.8)
Number of
Shares
124,493,600
(3,434,021)
938.3
121,059,579
$
$
Amount
982.2
(27.1)
955.1
$
$
The holders of common shares are entitled to vote at all meetings of shareholders of the Company, except meetings
at which only holders of preferred shares would be entitled to vote. The common shareholders are entitled to receive
dividends as and when declared on the common shares.
Basic net income (loss) per common share is calculated by dividing the net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during the year. The weighted average
number of common shares outstanding for 2023 is 120,153,152 (December 31, 2022 – 123,198,290).
Normal course issuer bid
On March 17, 2023, the Company announced that it has received regulatory approval for a renewal of its normal course
issuer bid whereby it can purchase for cancellation up to 6,052,978 common shares, or approximately 5% of its issued
and outstanding common shares as at March 14, 2023. The renewed normal course issuer bid is set to expire on March
20, 2024.
During the year ended December 31, 2023, the Company purchased 2,127,800 common shares for $41.8 million (an
average of $19.64 per common share), with an additional $2.5 million paid in relation to shares purchased in the prior
year. During the year ended December 31, 2022, the Company purchased 3,434,021 common shares for $81.4 million
(an average of $23.70 per common share), of which $78.9 million was paid during the year.
As at December 31, 2023 and March 5, 2024, based on the trade date, there were 118,931,779 common shares of the
Company outstanding and Canfor’s ownership interest in CPPI and Vida was 54.8% and 70.0%, respectively (December
31, 2022 – 54.8% and 70.0%).
17. Non-Controlling Interests
The following table summarizes the non-controlling financial information for the Company’s lumber operations and
CPPI before inter-company eliminations:
Summarized Balance Sheets:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
As at December 31, 2023
As at December 31, 2022
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total equity
Total liabilities and equity
$
$
$
$
$
$
Lumber4,5
279.8 $
118.7
CPPI
113.6
191.6
$
Total
393.4
310.3
Lumber4,5
$ 325.6 $
119.0
CPPI
142.0 $
199.4
398.5 $
305.2 $
703.7
$ 444.6 $
341.4 $
80.8 $
39.7
120.5 $
278.0 $
398.5 $
120.7
32.2
152.9
152.3
305.2
$
$
$
$
$
201.5
71.9
90.7 $
36.6
75.0 $
73.4
273.4
$ 127.3 $
148.4 $
430.3
703.7
$ 317.3 $
$ 444.6 $
193.0 $
341.4 $
80
Total
467.6
318.4
786.0
165.7
110.0
275.7
510.3
786.0
Summarized Statements of Income (Loss) and Other Comprehensive Income:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
Year ended December 31, 2023
Year ended December 31, 2022
Sales
Net income (loss)
Other comprehensive income
Total comprehensive income (loss)
Dividends paid to non-controlling interests
Lumber4
431.2 $
21.0 $
CPPI
395.4 $
(43.4) $
Lumber4
Total
826.6
$ 515.4 $
(22.4) $ 109.6 $
CPPI
490.3
$
(35.8) $
-
2.6
2.6
-
5.2
21.0 $
(40.8) $
(19.8) $ 109.6 $
(30.6) $
62.3 $
-
$
62.3 $
62.8 $
-
$
$
$
$
$
Total
1,005.7
73.8
5.2
79.0
62.8
Summarized Statements of Cash Flows:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
Year ended December 31, 2023
Lumber4
38.6
CPPI
16.4
Total
55.0
$
$
Year ended December 31, 2022
Lumber4
$
147.8 $
CPPI
20.5
$
Total
168.3
Cash flows from operating activities
Cash flows from (used in) in financing
activities
$
$
$
Cash flows used in investing activities
4 Lumber non-controlling interest includes non-controlling interest related to Vida (30%), Houston Pellet Limited Partnership (40%), CSP Moultrie
Investment, LLC (5%) for the year ended December 31, 2023.
5 Lumber total equity includes a $28.9 million foreign exchange loss arising from the translation of foreign operations, recognized in 'Accumulated other
comprehensive income' on the consolidated balance sheet (December 31, 2022 – $31.0 million foreign exchange loss).
(65.0) $
(11.5) $
13.5
$
(27.0) $
(51.5) $
(38.5) $
(20.5) $
(11.8) $
3.7
$
(50.7) $
(16.8)
(62.5)
18.
Finance Income, Net
(millions of Canadian dollars)
Interest expense on borrowings
Interest expense on retirement benefit obligations, net (Note 13)
Interest income from duty deposits recoverable, net (Note 28)
Interest income
Other finance expenses
Finance income, net
2023
(32.6)
(6.5)
19.7
32.4
(2.6)
10.4
2022
(22.3)
(5.0)
13.4
16.0
(1.1)
1.0
$
$
$
$
19.
Asset Write-Downs, Impairments, and Restructuring Costs
In January 2023, the Company announced the decision to permanently close the Chetwynd sawmill and pellet plant
and temporarily close its Houston sawmill. Also in January 2023, CPPI announced the decision to permanently close
the pulp line at its Prince George Pulp and Paper mill. In connection with these closures, the Company recognized
restructuring costs of $15.4 million for the year ended December 31, 2023 (2022 – $7.9 million related to the
curtailment of CPPI’s Taylor Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) mill).
For the lumber segment, no indications of impairment were identified in 2023. As a result, an impairment test was not
performed as of December 31, 2023 (2022 – asset write-down and impairment charge of $89.0 million for the lumber
segment).
For the pulp and paper segment, as a result of continued uncertainty surrounding fibre availability for CPPI’s pulp mills,
CPPI performed an impairment test as of December 31, 2023, on the property, plant and equipment of the pulp
operations.
The recoverable amount of the property, plant and equipment within the pulp operations was determined based on an
assessment of value in use, estimated using a discounted cash flow model. This discounted cash flow model was
projected based on past experience and actual operating results as well as Management’s assessment of future trends
in the pulp industry, based on both external and internal sources of data. Significant assumptions included future
production volume, commodity prices, fibre and production costs, as well as the discount rate. Other assumptions
included applicable foreign exchange rates, operating rates of the assets, and the future capital required to maintain
the current operating condition of assets. Estimated future cash flows were discounted at a rate of 9% (12% before
tax), based on CPPI’s weighted average cost of capital for 2023 (unchanged from 2022).
As the recoverable amount of CPPI’s property, plant and equipment of the pulp operations exceeded net book value at
December 31, 2023, no impairment charge was recognized as of December 31, 2023 (2022 – asset write-down and
impairment charge of $49.6 million for the pulp and paper segment).
81
CPPI continues to closely monitor the direct and indirect impacts associated with the constraints on economic fibre,
especially in the near-term. If the availability of economically viable fibre within BC is further reduced CPPI’s production,
shipments and cost structure will be further affected. These factors could impact CPPI’s operating plan, liquidity, cash
flows and the valuation of long-lived assets.
20.
Income Taxes
The components of income tax recovery (expense) are as follows:
(millions of Canadian dollars)
Current
Deferred
Income tax recovery (expense)
2023
64.5
77.0
141.5
2022
(200.2)
(47.2)
(247.4)
$
$
$
$
The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:
(millions of Canadian dollars)
Income tax recovery (expense) at statutory rate of 27.0% (2022 – 27.0%)
Add (deduct):
Non-taxable income (loss) related to non-controlling interests
Entities with different income tax rates and other tax adjustments
Permanent difference from capital gains and losses and other non-deductible items
Income tax recovery (expense)
2023
132.3
2022
(299.3)
$
$
(1.1)
9.7
0.6
0.3
53.5
(1.9)
$
141.5
$
(247.4)
In addition to the amounts recorded to net income, a tax expense of $6.0 million was recorded to other comprehensive
income (loss) in relation to actuarial gains, net, on the defined benefit plans for the year ended December 31, 2023
(December 31, 2022 – $9.9 million).
CPPI has non-capital loss carry-forwards of approximately $186.3 million (2022 - $53.5 million) in Canada which expire
between 2042 and 2043.
The tax effects of the significant components of temporary differences that give rise to deferred income tax assets and
liabilities are as follows:
(millions of Canadian dollars)
Deferred income tax assets
Accruals not currently deductible
Loss carryforwards
Retirement benefit obligations
Lease obligations
Other
Deferred income tax liabilities
Depreciable capital assets
Goodwill and other intangible assets, net
Untaxed reserves
Duty deposits recoverable, net
Right-of-use assets
Other
Total deferred income tax liabilities, net
Less: Entities in a net deferred income tax asset position
Net deferred income tax liabilities
As at
December 31,
2023
As at
December 31,
2022
$
$
$
$
$
$
46.4
87.0
32.5
31.6
10.5
208.0
(330.7)
(7.1)
(77.3)
(76.7)
(30.2)
(6.6)
(528.6)
(320.6)
9.4
(330.0)
$
$
$
$
$
$
48.4
47.5
40.5
28.0
12.0
176.4
(361.0)
(1.7)
(71.6)
(100.7)
(25.8)
(7.5)
(568.3)
(391.9)
1.0
(392.9)
82
21. Net Change in Non-Cash Working Capital
(millions of Canadian dollars)
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable and accrued liabilities, and current portion of deferred reforestation
obligations
Net change in non-cash working capital
22. Related Party Transactions
2023
23.1
175.2
9.9
(45.4)
162.8
2022
100.9
88.2
(11.0)
(91.4)
86.7
$
$
$
$
Canfor undertakes transactions with various related entities. These transactions are in the normal course of business,
except where noted otherwise. The Jim Pattison Group is Canfor’s largest shareholder with an ownership interest of
53.6% at December 31, 2023 (December 31, 2022 – 52.6%). During 2023, subsidiaries owned by The Jim Pattison
Group provided lease, insurance, and other services to Canfor totaling $6.6 million (December 31, 2022 – $4.9 million).
During 2023, CPPI sold paper to subsidiaries owned by The Jim Pattison Group totaling $4.5 million (December 31,
2022 – $3.4 million). CPPI also made purchases from subsidiaries owned by The Jim Pattison Group totaling $0.7
million (December 31, 2022 – $0.5 million).
At December 31, 2023, an outstanding balance of $0.2 million was owed to subsidiaries owned by The Jim Pattison
Group (December 31, 2022 – receivable of $0.1 million).
Key management personnel
Key management includes members of the Board of Directors and the senior executive management team. The
compensation expense for key management for services is as follows:
(millions of Canadian dollars)
Short-term benefits
Post-employment benefits
2023
12.7
1.4
14.1
2022
13.4
0.9
14.3
$
$
$
$
Short-term benefits for members of the Board of Directors include an annual retainer.
23.
Segment Information
Canfor has two reportable segments, as described below, which offer different products and are managed separately
because they require different production processes and marketing strategies. The following summary describes the
operations of each of the Company’s reportable segments:
Lumber – Includes logging operations and manufacturing and sale of various grades, widths and lengths of
lumber, engineered wood and other lumber-related products, wood chips and wood pellets; and
Pulp and Paper – Includes purchase of residual fibre, and production and sale of pulp and paper products,
including Northern Bleached Softwood Kraft (“NBSK”) and BCTMP, as well as energy revenues. This segment
includes 100% of CPPI.
Sales between segments are accounted for at prices that approximate fair value. These include sales of residual fibre
from the lumber segment to the pulp and paper segment for use in the pulp production process. Information regarding
the operations of each reportable segment is included in the table below. The accounting policies of the reportable
segments are described in Note 3. The Company’s interest-bearing liabilities are not considered to be segment liabilities,
but rather are managed centrally by the treasury function. Other liabilities are not split by segment for the purposes of
allocating resources and assessing performance.
83
(millions of Canadian dollars)
Lumber
Pulp &
Paper
Unallocated
& Other
Elimination
Adjustment
Consolidated
Year ended December 31, 2023
Sales from contracts with
customers
Sales to other segments
Operating loss
Amortization
Capital expenditures6
Total assets
$
4,551.1
153.1
(348.7)
332.7
510.4
4,270.9
$
875.5
$
.2
-
(127.5)
85.0
60.5
654.0
-
-
(55.4)
2.7
16.1
1,206.5
$
-
$
5,426.6
(153.1)
-
-
-
-
-
(531.6)
420.4
587.0
6,131.4
$
Year ended December 31, 2022
Sales from contracts with customers
Sales to other segments
Operating income (loss)
Amortization
Capital expenditures6
Total assets
6 Capital expenditures represent cash paid for capital assets during the periods, excluding assets purchased as part of acquisitions (Note 27). Pulp &
1,085.4
0.2
(106.0)
97.8
112.6
738.5
-
-
(57.1)
1.7
5.0
1,773.8
6,341.3
140.1
1,237.2
297.7
507.7
4,226.9
-
(140.3)
-
-
-
-
-
1,074.1
397.2
625.3
6,739.2
7,426.7
$
$
$
$
Paper includes capital expenditures by CPPI that were partially financed by government grants.
Geographic information
Canfor operates manufacturing facilities in Canada, the US and Europe. Canfor’s products are marketed worldwide,
with sales made to customers in a number of different countries. In presenting information on the basis of geographical
location, sales are based on the geographical location of customers and assets are based on the geographical location
of the assets.
(millions of Canadian dollars)
Sales by location of customer
Canada
United States
Europe
Asia
Other
(millions of Canadian dollars)
Property, plant and equipment, ROU assets, timber licenses, goodwill and
other intangible assets by location
Canada
United States
Europe
Asia and Other
2023
637.4
2,799.0
1,051.1
806.8
132.3
5,426.6
11% $
55%
17%
15%
2%
100% $
2022
823.2
4,062.4
1,264.5
1,122.5
154.1
7,426.7
12% $
52%
19%
15%
2%
100% $
As at
December 31,
2023
As at
December 31,
2022
41% $
43%
16%
0%
100% $
1,417.5
1,447.5
553.9
0.1
3,419.0
46% $
37%
17%
0%
100% $
1,455.7
1,197.5
554.5
0.4
3,208.1
24.
Commitments and Contingencies
In the ordinary course of its business activities, the Company may be subject to, or enter into, legal actions and claims
with customers, unions, suppliers or others.
In circumstances where the Company is not able to determine the outcome of a legal action and claim, no amount is
recognized in the consolidated financial statements, with an amount accrued only when a reliable estimate of the
obligation can be made. Although there can be no assurance as to the disposition of a legal action and claim, it is the
opinion of Management, based upon the information available at this time, that the expected outcome of a legal action
and claim, individually or in aggregate, is unlikely to have a material adverse effect on the operating results and financial
condition of the Company as a whole.
84
Commitments
At December 31, 2023, Canfor had contractual obligations of $363.0 million (December 31, 2022 – $215.7 million)
reflecting commitments for the construction of capital assets (including commitments related to the construction of the
new Axis sawmill in southern Alabama), and other working capital items. The majority of these commitments are
expected to be settled within two years. In addition, the Company has committed to leases of property, plant and
equipment as outlined under Note 6.
The Company's total commitments of $363.0 million include contractual commitments with landowners to purchase a
fixed volume of logs at a future date for a negotiated, agreed upon price. For certain contracts, the Company pre-pays
a portion of the fee to the vendor, recognized in 'Prepaid expenses and other' on the Company's consolidated balance
sheet. At December 31, 2023, the Company determined that certain prepaid log purchase contracts had become
onerous, as the cost of the logs combined with the incremental cost to convert the logs to finished lumber, are
anticipated to exceed the future sales price. Therefore, an onerous contract provision of $6.5 million was recognized
in 'Accounts payable and accrued liabilities' as at December 31, 2023.
25. Risks and Uncertainties
Financial risk management
Canfor is exposed to a number of risks as a result of holding financial instruments. These risks include credit risk,
liquidity risk and market risk.
Canfor’s internal Risk Management Committee manages risk in accordance with a Board approved Price Risk
Management Controls Policy. This policy provides the framework for risk management related to commodity price,
foreign exchange, interest rate and counterparty credit risk of Canfor.
Credit risk:
Credit risk is the risk of financial loss to Canfor if a counterparty to a financial instrument fails to meet its contractual
obligations.
Financial instruments that are subject to credit risk include cash and cash equivalents, trade and other accounts
receivable, and certain investments and advances. Contract assets are also subject to credit risk. Cash and cash
equivalents include cash held through major Canadian and international financial institutions as well as temporary
investments that are readily convertible into known amounts of cash within three months or less from the date of
acquisition. The cash and cash equivalents balance at December 31, 2023 is $627.4 million (December 31, 2022 –
$1,268.7 million).
Canfor utilizes credit insurance to mitigate the risk associated with some of its trade accounts receivables. As at
December 31, 2023, approximately 64% (December 31, 2022 – 64%) of the outstanding trade accounts receivables
are covered by credit insurance. Canfor’s trade accounts receivable balance at December 31, 2023 is $302.2 million,
before a loss allowance of $4.3 million (December 31, 2022 – $340.3 million, before a loss allowance of $4.3 million).
At December 31, 2023, approximately 94% (December 31, 2022 – 96%) of the trade accounts receivable balance is
within Canfor’s established credit terms.
Liquidity risk:
Liquidity risk is the risk that Canfor will be unable to meet its financial obligations as they come due. Canfor manages
liquidity risk through regular cash flow forecasting in conjunction with adequate operating loan and term debt facilities.
At December 31, 2023, Canfor had $110.6 million drawn on its operating loans and facilities (December 31, 2022 –
$27.8 million) and $63.5 million reserved for several standby letters of credit (December 31, 2022 – $81.9 million),
leaving $1,140.5 million available and undrawn (December 31, 2022 – $1,158.7 million). As a result, including cash
and cash equivalents of $627.4 million (December 31, 2022 – $1,268.7 million) and CPPI’s $80.0 million non-revolving
term debt, which is restricted for use on the continued re-investment in its facilities, specifically Northwood’s RB1, at
December 31, 2023, Canfor had available liquidity of $1,847.9 million (December 31, 2022 – $2,427.4 million). The
Company also had accounts payable and accrued liabilities of $664.5 million (December 31, 2022 – $678.7 million) and
term debt of $159.9 million (December 31, 2022 – $258.9 million) as at December 31, 2023.
Market risk:
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in interest rates, foreign currency, commodity and energy prices.
85
(i) Interest rate risk:
Canfor is exposed to interest rate risk through its current financial assets, operating loan facilities and term
debt that bear variable interest rates.
Canfor may use interest rate swaps to reduce its exposure to interest rate risk associated with financial
obligations bearing variable interest rates. At December 31, 2023 and December 31, 2022, the Company had
no interest rate swaps outstanding.
(ii) Currency risk:
At a consolidated level, Canfor is exposed to foreign exchange risk related to the US-dollar, as Canfor’s
products are sold principally in US-dollars. In addition, Canfor holds US-dollar denominated financial assets
and liabilities.
An increase (decrease) in the value of the Canadian dollar by US$0.01 would result in a pre-tax: (i) loss (gain)
of approximately $4.3 million in relation to working capital balances denominated in US-dollars at year end
(including cash, trade accounts receivable and accounts payable); and a (ii) gain (loss) of approximately $1.7
million in relation to term debt denominated in US-dollars at year end. These amounts do not include foreign
exchange gains and losses arising from the translation of foreign operations which are recognized in
'Accumulated other comprehensive income' on the Company’s consolidated balance sheet.
A portion of the currency risk associated with US-dollar denominated sales is naturally offset by US-dollar
denominated expenses. A portion of the remaining exposure is sometimes reduced by foreign exchange collar
contracts that effectively limit the minimum and maximum Canadian dollar recovery related to the sale of
those US-dollars. At December 31, 2023 and December 31, 2022, the Company had no foreign exchange
collar contracts outstanding.
Although Vida primarily transacts in SEK, the Company also sells certain products in US-dollars, British Pounds
(“GBP”), AUD and Euros (“EUR”), and Norwegian krone (“NOK”) and holds US, GBP, AUD and EUR
denominated operating loan and term debt facilities (Notes 11 and 12) and limits its exposure to foreign
exchange risk using forward foreign exchange contracts and foreign exchange options. At December 31, 2023
and December 31, 2022, the following forward foreign exchange contracts were outstanding:
Maturity Date
Forward Foreign Exchange Contracts
0-6 months
0-18 months
0-6 months
Maturity Date
Forward Foreign Exchange Contracts
0-6 months
0-12 months
0-6 months
(iii) Commodity price risk:
As at December 31, 2023
Notional Amount
Currency
Notional
Amount
Exchange
Rates
(millions)
(rate of SEK to
notional currency)
GBP
USD
EUR
£ 40.0
$ 99.0
€15.0
13.35
10.31
11.62
As at December 31, 2022
Notional Amount
Currency
Notional
Amount
Exchange
Rates
(millions)
(rate of SEK to
notional currency)
GBP
USD
EUR
£48.0
$108.0
€15.0
12.41
10.57
10.83
Canfor is exposed to commodity price risk principally related to the sale of lumber and related products, pulp
and paper. From time to time, Canfor enters into futures contracts on the Chicago Mercantile Exchange for
lumber and forward contracts direct with customers or on commodity exchanges for pulp. Under the
Company’s Price Risk Management Controls Policy, up to 15% of lumber sales and 1% of pulp sales may be
sold in this way. Canfor is also exposed to commodity price risk on the sale of electricity in Canada. Prices are
set by third party regulatory bodies.
86
Canfor had the following lumber futures contracts at December 31, 2023 and December 31, 2022:
Maturity Date
Lumber Futures Contracts
Future sales contracts
0-6 months
(iv) Energy price risk:
As at December 31, 2023
As at December 31, 2022
Notional
Amount
(MMfbm)
Average
Rate
Notional
Amount
Average
Rate
(US-dollars per
Mfbm)
(MMfbm) (US-dollars per
Mfbm)
19.3
$565.2
5.2
$425.4
Canfor is exposed to energy price risk relating to purchases of natural gas and diesel oil for use in its
operations.
The annual exposure is, from time to time, hedged up to 100% through the use of floating to fixed swap
contracts or option contracts with maturity dates up to a maximum of eighteen months. At December 31,
2023 and December 31, 2022, the Company had no energy fixed swaps or option contracts outstanding.
Capital management
Canfor’s objectives when managing capital are to maintain a strong balance sheet and a globally competitive cost
structure that ensures adequate liquidity to maintain and develop the business throughout the commodity price cycle.
Canfor’s capital is comprised of net cash and total equity:
(millions of Canadian dollars)
Total debt (including operating loans)
Less: cash and cash equivalents
Net cash
Total equity
$
As at
December 31,
2023
270.5
(627.4)
(356.9)
4,277.4
3,920.5
$
$
As at
December 31,
2022
286.7
1, (1,268.7)
(982.0)
4,762.8
3,780.8
$
The Company has certain financial covenants on its debt obligations, including a maximum debt to total capitalization
ratio that is calculated by dividing total debt by total shareholders’ equity plus total debt. Debt obligations are held by
various entities within the Canfor group and the individual debt agreements specify the entities within the group that
are to be included in the covenant calculations. Canfor’s strategy is to ensure it remains in compliance with all of its
existing debt covenants, so as to ensure continuous access to capital. Canfor was fully in compliance with all its debt
covenants for the years ended December 31, 2023 and December 31, 2022.
The Company manages its capital structure through rigorous planning, budgeting and forecasting processes, and
ongoing management of operations, investments and capital expenditures. In 2023, the Company’s management of
capital primarily comprised of strategic capital investments, maintenance of business capital, and working capital
initiatives. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
87
26.
Financial Instruments
Canfor’s cash and cash equivalents, trade and other accounts receivable, certain long-term investments and advances,
accounts payable and accrued liabilities, other liabilities, operating loans, and term debt are classified as measured at
amortized cost in accordance with IFRS 9 Financial Instruments. The carrying amounts of these instruments, excluding
term debt, approximate fair value at December 31, 2023 and December 31, 2022.
Derivative instruments, investments in debt and equity securities (excluding associates accounted for under the equity
method) and net duty deposits recoverable are classified as measured at FVTPL. The put liability is measured initially
at fair value and subsequently at FVTEQ. IFRS 13 Fair Value Measurement, requires classification of financial
instruments within a hierarchy that prioritizes the inputs to fair value measurement.
The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, directly or indirectly;
Level 3 – Inputs that are not based on observable market data.
There were no transfers between fair value hierarchy levels in 2023 or 2022.
The following table summarizes Canfor’s financial instruments measured at fair value at December 31, 2023 and
December 31, 2022, and shows the level within the fair value hierarchy in which they have been classified:
(millions of Canadian dollars)
Financial assets measured at fair value
Investments
Derivative financial instruments
Duty deposits recoverable, net (Notes 9 and 28)
Financial liabilities measured at fair value
Put liability
Fair Value
Hierarchy
Level
As at
December 31,
2023
As at
December 31,
2022
Level 1 $
Level 2
Level 3
$
$
Level 3
$
89.1
4.4
289.5
383.0
$
187.7
187.7
$
31.7
2.0
372.9
406.6
172.7
172.7
During the year ended December 31, 2023, the Company purchased investments in certain funds at a cost of $59.4
million (2022 – nil). These highly liquid investments, with maturities exceeding one year, were subsequently measured
at fair value through net income (loss) and classified as level 1. These investments are included within ‘Long-Term
Investments and Other’ on the Company’s consolidated balance sheet (Note 9).
The Company uses a variety of derivative financial instruments from time to time to reduce its exposure to risks
associated with fluctuations in foreign exchange rates, lumber prices, energy prices, and floating interest rates on term
debt.
At December 31, 2023, the fair value of derivative financial instruments includes an asset of $4.4 million, which is
included in ‘Accounts receivable – Other’ on the Company’s consolidated balance sheet (December 31, 2022 – $2.0
million). The fair value of these financial instruments was determined based on prevailing market rates for instruments
with similar characteristics.
The following table summarizes the losses on derivative financial instruments recognized in the consolidated statement
of income (loss):
(millions of Canadian dollars)
Lumber futures
Foreign exchange forward contracts
Gain on derivative financial instruments
$
$
2023
(0.4) $
7.2
6.8
$
2022
2.0
1.9
3.9
88
At December 31, 2023, the fair value of duty deposits recoverable is a net asset of $289.5 million, recognized on the
Company’s consolidated balance sheet in ‘Long-term investments and other’ (Note 9) and adjusted to fair value through
the recognition of interest in ‘Finance income, net’ on the consolidated statement of income (loss) (Note 18).
During the year ended December 31, 2023, a loss of $12.1 million was recognized in ‘Other equity’ on the Company’s
consolidated balance sheet following remeasurement of the put liability (December 31, 2022 – loss of $26.8 million).
As a result of this remeasurement, combined with a foreign exchange loss of $2.9 million for the year ended December
31, 2023 (December 31, 2022 – gain of $10.3 million), the balance of the put liability was $187.7 million at December
31, 2023 (December 31, 2022 – $172.7 million).
27. Millar Western Acquisition
On March 1, 2022, Canfor completed the acquisition of Millar Western’s solid wood operations and associated forest
tenure for total consideration of $434.0 million, including $99.0 million in net working capital. Millar Western’s solid
wood operations, located in Alberta, Canada, consist of two sawmills and one high-value specialty facility and have an
annual production capacity of 630 million board feet. The transaction was accounted for as a business combination
under IFRS 3 Business Combinations (“IFRS 3”) and is included in Canfor’s lumber segment.
The following table summarizes the final recognized amounts of net assets acquired by Canfor at the acquisition date:
(millions of Canadian dollars)
Property, plant and equipment (Note 5)
Timber licenses (Note 7)
Non-cash working capital, net (including inventory)
Goodwill (Note 8)
Deferred reforestation obligations (Note 14)
Total net assets
$
$
236.7
83.7
99.0
26.4
(11.8)
434.0
The significant assumptions included replacement cost estimates of the acquisition date fair values of acquired property,
plant and equipment and physical depreciation assumptions. The Company leveraged insurance appraisals to estimate
the replacement cost of the assets.
The fair value of timber licenses acquired was determined by leveraging a market comparison technique based on
precedent tenure transactions in Alberta.
The fair value of inventory was determined by Canfor applying a market comparison technique, determined based on
the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale, and a
reasonable profit margin based on the effort required to complete and sell the inventories.
Goodwill of $26.4 million was recognized as part of the purchase, calculated as the excess of the aggregate
consideration transferred over the fair value of the net assets acquired. The goodwill arising from the acquisition was
attributable to expected future income and cash-flow projections, access to new customers and markets, and the ability
to further diversify Canfor’s product offering.
The Company incurred acquisition-related costs of $4.1 million, primarily related to external legal fees and due diligence
costs, which have been included in ‘Selling and administration costs’ in the consolidated statement of income when
incurred.
28.
Countervailing and Anti-Dumping Duties
In 2016, a petition was filed by the US Lumber Coalition to the US Department of Commerce (“DOC”) and the US
International Trade Commission (“ITC”) alleging certain subsidies and administered fees below the fair market value
of timber that favour Canadian lumber producers. Canfor was selected by the DOC as a “mandatory respondent” to
the countervailing and anti-dumping investigations and is subject to company specific CVD and ADD rates. As a result
of the DOC’s investigation, CVD and ADD were imposed on the Company’s Canadian lumber exports to the United
States beginning in 2017. As at December 31, 2023, Canfor has paid cumulative cash deposits of $931.0 million.
89
Canfor and other Canadian forest product companies, the Federal Government and Canadian Provincial Governments
continue to categorically deny the US allegations and strongly disagree with the current countervailing and anti-
dumping determinations made by the DOC. Canada has proceeded with legal challenges under the Canada-United
States-Mexico (“CUSMA”) Agreement and through the World Trade Organization, where Canadian litigation has proven
successful in the past. In October 2023, a CUSMA dispute panel ruled that certain elements of the DOC’s calculation of
softwood lumber duties were inconsistent with US law. The panel directed the DOC to revisit key elements of its duty
calculations. Most recently, in January 2024, Canada filed a notice of intent to challenge the US ITC’s decision to
maintain duties on Canadian softwood lumber products under Chapter 10 of the CUSMA Agreement. The results of this
dispute could potentially result in adjustments to Canfor’s prescribed duties and therefore its consolidated statement
of income (loss).
Fourth Period of Review (“POR4”)
In January 2023, the DOC announced the preliminary results for POR4 which is based on sales and cost data for 2021,
and in July 2023, finalized the rates. The Company’s final CVD rate was determined to be 1.36% (versus a cash deposit
rate of 2.63% from January to November 2021 and 2.42% for December 2021) while the final ADD rate was 5.25%
(versus a cash deposit rate of 1.99% from January to November 2021 and 17.12% for December 2021, and an
estimated accrual rate of 7.00%). In July 2023, upon finalization of these POR4 rates, a recovery of $43.3 million
(US$34.7 million) was recognized in the company’s consolidated statement of income (loss) in the third quarter of
2023, with a corresponding receivable included in ‘Long Term Investments and Other’ on the Company’s consolidated
balance sheet reflecting the difference between the combined accrual rate between January and November of 9.63%
and 9.42% for December 2021 and the final combined DOC rate for POR4 of 6.61%.
Also in July 2023, the Company’s combined cash deposit rate of 5.87% was reset to the final rate of 6.61% as
determined in POR4. This new cash deposit rate will apply to the Company’s Canadian lumber shipments destined to
the United States until completion of the administrative review for the fifth period of review (anticipated in the third
quarter of 2024). Despite the reduced rates for POR4, no cash duties will be refunded to the Company until such time
as the litigation regarding the imposition of CVD and ADD has been settled.
Fifth Period of Review (“POR5”)
On January 1, 2022, the Company moved into POR5, which was based on sales and cost data for 2022. Consistent
with prior periods of review, the Company was unable to estimate an applicable CVD rate separate from the DOC’s
cash deposit rate. As a result, CVD was expensed at a rate of 2.42% until July 2022 and 0.95% thereafter, while ADD
was expensed at an estimated rate of 9.00%.
Subsequent to year end, in February 2024, the DOC announced the preliminary rates for POR5, which indicated the
Company’s preliminary CVD rate at 6.14% and ADD rate at 9.65%, resulting in a preliminary combined rate of 15.79%
for 2022. Upon finalization of these rates (anticipated in the third quarter of 2024), an expense, estimated at $58.8M
(US$42.2 million), will be recognized in the Company’s consolidated financial statements to reflect the difference
between the combined accrual rate of 11.42% between January and July 2022 and 9.95% for August to December
2022, and the DOC rates for POR5. In addition, once final, the Company’s current combined cash deposit rate of 6.61%
will be reset to the DOC rates for POR5 (currently estimated to be 15.79% based on the preliminary determination).
Sixth Period of Review (“POR6”)
On January 1, 2023, the Company moved into POR6, which is based on sales and cost data in 2023. Consistent with
prior periods of review, the Company continues to be unable to estimate an applicable CVD rate separate from the
DOC’s cash deposit rate. As a result, CVD was expensed at a rate of 0.95% from January to July 2023 and 1.36%
thereafter, while ADD was expensed at an estimated accrual rate of 35.00%.
Despite cash deposits being made in 2022 and 2023 at rates determined by the DOC, the final liability associated with
duties is not determined until the completion of administrative reviews performed by the DOC for these periods.
90
Summary
A summary of the various combined rates is as follows:
Time Period
Accrued
Rate
April 2017 – December 2018
January 2019 – December 2019
January 2020 – November 2020
December 2020
January 2021 – November 2021
December 2021
January 2022 – July 2022
August 2022 – December 2022
January 2023 – July 2023
August 2023 – thereafter
7 Reflects preliminary rates. Final rates are anticipated in the third quarter of 2024.
15.84%
29.24%
18.24%
7.63%
9.63%
9.42%
11.42%
9.95%
35.95%
36.36%
Deposit
Rate
20.52%
20.52%
20.52%
4.62%
4.62%
19.54%
19.54%
5.87%
5.87%
6.61%
DOC Rate
4.62%
19.54%
5.87%
5.87%
6.61%
6.61%
15.79%7
15.79%7
Anticipated in 2025
Anticipated in 2025
Description
First Period of Review (“POR1”)
Second Period of Review (“POR2”)
Third Period of Review (“POR3”)
POR3
POR4
POR4
POR5
POR5
POR6
POR6
For accounting purposes, a net duty recoverable of $289.5 million is included on the Company’s consolidated balance
sheet (Note 9) as at December 31, 2023 (December 31, 2022 – $372.9 million) reflecting differences between the cash
deposit rates and the Company’s combined accrual rates for each period of review, including interest of $60.8 million
(December 31, 2022 - $40.8 million).
For the year ended December 31, 2023, the Company recorded a net duty expense of $143.8 million (2022 – net duty
expense of $49.1 million), comprised of the following:
(millions of Canadian dollars)
Cash deposits paid
Duty expense attributable to POR6 – combined CVD and ADD8
Duty recovery attributable to POR4 – combined CVD and ADD9
$
2023
43.1
144.0
(43.3)
Duty expense, net
8 Reflects Canfor’s combined accrual rate (35.95% from January to July 2023 and 36.36% thereafter) compared to the DOC’s deposit rate (5.87% from
$
143.8
January to July 2023 and 6.61% thereafter) for POR6.
9 Reflects Canfor’s combined accrual rate (9.63% from January to November 2021 and 9.42% for December 2021) compared to the DOC’s final
combined rate (6.61% for the entirety of 2021) for POR4.
Canfor will continue to reassess the ADD accrual estimate at each quarter-end, applying the DOC’s methodology to
updated sales and cost data as this becomes available. Quarterly revisions to the ADD rate may result in a material
adjustment to the consolidated statement of income (loss) while the Administrative Reviews are taking place. Changes
to the DOC’s existing CVD and ADD rates during each administrative review may also result in material adjustments to
the consolidated statement of income (loss).
29.
Subsequent Events
In February 2024, CPPI entered into an asset purchase agreement to sell its Taylor BCTMP mill site for total proceeds
of $7.0 million. The transaction is anticipated to close during the first quarter of 2024.
On March 1, 2024, CPPI received insurance proceeds of $15.0 million related to operational downtime experienced at
Northwood in recent years that will be recognized in ‘Other income, net’ on the Company’s consolidated statement of
income (loss) during the first quarter of 2024.
91
ADDI TION AL INF ORMATION
92
DIRECTORS AND OFFICERS
DIRECTORS
The name and municipality, province/state and country of residence of the Directors of the Company and their principal occupations as at
December 31, 2023 are as below. For more information visit canfor.com.
John Baird
Chairman
Canfor Corporation
Toronto, Ontario, Canada
Ryan Barrington-Foote, FCPA, FCA (1)(2)
President
The Jim Pattison Group
Vancouver, British Columbia, Canada
Glen Clark(4)(5)
Former President and Chief Operating Officer
The Jim Pattison Group
Vancouver, British Columbia, Canada
Santhe Dahl(4)(5)
Chairman
Vida
Växjö, Sweden
OFFICERS
Dieter Jentsch(1)(5)
Senior Advisor
Corporate Director
King City, Ontario, Canada
Donald Kayne
President and Chief Executive Officer
Canfor Corporation
Delta, British Columbia, Canada
Conrad Pinette(1)(5)
President
Condor Holdings
Vancouver, British Columbia, Canada
Dallas Ross(1)(2)(5)
Founder and General Partner
Kinetic Capital Partners
Vancouver, British Columbia, Canada
Ross Smith, FCPA, FCA (1)(2)
Member of the Board of Directors of
Rotherham Holdings Ltd.
West Vancouver, British Columbia, Canada
Frederick Stimpson III(2)(4)
Senior Advisor
Mobile, Alabama, United States
William Stinson(2)(3)5)
Chairman and Chief Executive Officer
Westshore Terminals Investment Corporation
Vancouver, British Columbia, Canada
Sandra Stuart(3)(4)
Senior Advisor
Vancouver, British Columbia, Canada
Dianne Watts(3)(4)
Senior Advisor
Corporate Director
Surrey, British Columbia, Canada
The name and municipality, province/state and country of residence of the executive officers of the Company and the offices held by them as at
December 31, 2023 are as below. For more information visit canfor.com.
John Baird
Chairman
Canfor Corporation
Toronto, Ontario, Canada
Donald Kayne
President and Chief Executive Officer
Delta, British Columbia, Canada
Patrick Elliott
Chief Financial Officer and Senior Vice
President, Sustainability
Vancouver, British Columbia, Canada
Stephen Mackie
Executive Vice President, North American
Operations
Kelowna, British Columbia, Canada
David Calabrigo, K.C.
Senior Vice President, Corporate Development,
Legal Affairs and Corporate Secretary
Vancouver, British Columbia, Canada
Kevin Horsnell
Senior Vice President, Canadian Operations
Prince George, British Columbia, Canada
Kevin Pankratz
Senior Vice President, Sales and Marketing
North Vancouver, British Columbia, Canada
Jim Bogle
Vice President, Technology and Digital
Surrey, British Columbia, Canada
Katy Player
Senior Vice President, People
North Vancouver, British Columbia, Canada
David Trent
Senior Vice President, Global Supply Chain
and Digital
West Vancouver, British Columbia, Canada
Susan Yurkovich
Senior Vice President, Global Business
Development
Vancouver, British Columbia, Canada
Måns Johansson
President, Canfor Europe
Växjö, Kronobergs Iän, Sweden
Lee Goodloe
President, Canfor Southern Pine
Mobile, Alabama, United States
Andreas Kammenos
Vice President, Residual Fibre and
Business Analytics
Abbotsford, British Columbia, Canada
Ross Lennox
Vice President, Woodlands Canada
Prince George, British Columbia, Canada
Mathew Parras
Vice President, Canadian Operations
Prince George, British Columbia, Canada
Katrina Wilson
Vice President, Controller
Surrey, British Columbia, Canada
(1) M e m b e r o f t h e A u d i t C o m m i t te e .
( 2 ) M e m b e r o f t h e J o i nt M a n a g e m e nt Re s o u r c e s a n d C o m p e n s a t i o n C o m m i t te e .
( 3) M e m b e r o f t h e J o i nt G o v e r n a n c e a n d S u s t a i n a b i l i t y C o m m i t te e (f o r m e r l y t h e J o i nt G o v e r n a n c e C o m m i t te e) .
( 4 ) M e m b e r o f t h e J o i nt E n v i r o n m e nt a l , H e a l t h a n d S a f e t y C o m m i t te e .
(5 ) M e m b e r o f t h e J o i nt C a p i t a l E x p e n d i t u r e C o m m i t te e .
(6) A l l c o m m i t te e s o f t h e C o m p a n y, o t h e r t h a n t h e A u d i t C o m m i t te e , h a v e a s m e m b e r s o n e o r m o r e d i r e c to r s o f C P P I a n d a r e j o i nt c o m m i t te e s w i t h C P P I . F o r m o r e i nf o r m a t i o n o n t h e p o w e r,
r e s p o n s i b i l i t i e s a n d c o m p o s i t i o n o f t h e j o i nt c o m m i t te e s , s e e t h e C o m p a n y ’s I nf o r m a t i o n C i r c u l a r d a te d M a r c h 13 , 2 0 2 4 , w h i c h c a n b e f o u n d o n S E D A R a t s e d a r. c o m .
T h e te r m o f o f f i c e o f e a c h D i r e c to r e x p i r e s o n t h e d a te o f t h e n e x t A n n u a l G e n e r a l M e e t i n g o f t h e C o m p a n y.
93
CORPORATE AND SHAREHOLDER INFORMATION
Annual General Meeting
The Annual General Meeting of Canfor Corporation will be held via webcast on May 1, 2024.
Auditors
KPMG LLP
Vancouver, BC
Transfer Agent and Registrar
AST Trust Company (Canada)
1600 - 1066 W. Hastings St.
Vancouver, BC, V6E 3X1
Stock Listing
Toronto Stock Exchange
Symbol: CFP
Canfor also produces an Annual Information Form. To obtain this publication or more information about the Company, please contact Canfor
Corporation or visit our website at canfor.com/investor-relations.
Investor Contact
Media Contact
Mina Laudan
Vice President, Corporate Affairs
Canfor Corporation
(604) 661-5241
mina.laudan@canfor.com
Patrick Elliott
Chief Financial Officer and Senior Vice
President, Sustainability
Canfor Corporation
(604) 661-5441
patrick.elliott@canfor.com
Investor Contact
Dan Barwin
Director, Corporate Finance
Canfor Corporation
(604) 661-5390
daniel.barwin@canfor.com
Canfor Corporation
Head Office
101 – 161 East 4th Avenue
Vancouver, BC, V5T 1G4
(604) 661-5241
info@canfor.com
www.canfor.com
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CANFOR.COM