Annual Report.
2024
Canfor Corporation
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Message to Shareholders
Consolidated Financial Statements
Additional Information
In this report.
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2024 Management’s Discussion and Analysis
2024 Highlights
Company Overview
Overview of Consolidated Results – 2024 compared to 2023
Operating Results By Business Segment – 2024 compared to 2023 – Lumber
Operating Results By Business Segment – 2024 compared to 2023 – 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
Three-year Comparative Review
Fourth Quarter Results
Changes in Financial Position
Selected Quarterly Financial Information
Specific Items Affecting Comparability of Net Loss
Outlook
Non-IFRS Financial Measures
Critical Accounting Estimates
Risks and Uncertainties
Outstanding Share Data
Disclosure Controls and Internal Controls Over Financial Reporting
Management’s Responsibility
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
Consolidated Statements of Other Comprehensive Income (Loss)
Consolidated Statements of Changes In Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Directors and Officers
Corporate and Shareholder Information
From the President & CEO
Message to Shareholders.
The past year has been one of transition for Canfor.
On the operational front, we closed multiple facilities in our
North American business while also continuing to invest
organically and through acquisition—significantly reshaping
our global operating platform. 2024 also marked a leadership
transition with the retirement of Don Kayne, our President
and CEO for the last 14 years, whose vision and unwavering
commitment helped shape our company over more than four
decades.
Navigating an evolving landscape
Fortunately, the forest sector has long been defined by its
ability to navigate through challenge and change and 2024
was no exception. Market volatility, escalating fibre costs,
geopolitical shifts and an increasingly unpredictable trade
environment placed considerable pressure on our industry.
Across our business, we executed on our strategic priorities,
adjusted our sales strategy, leveraged our global operating
footprint and focused on operational excellence. In doing so,
we have transformed the structure of our business which will
help us navigate the waters ahead.
With higher softwood lumber duties coming into effect and
continued challenges accessing enough economic fibre in
British Columbia, we made difficult but necessary changes
to our BC platform in 2024. The closure of three sawmills,
one pellet plants, and one pulp line in BC were among the
most challenging decisions in our company’s history. While
heartbreaking for our Company with its deep roots in the
province, they were critical to ensuring Canfor’s long-term
viability.
Focus on optimizing our global operating platform
While the BC landscape remains challenging, we continued
to identify opportunities to create additional value. In the
Kootenay region, with its unique mix of spruce, pine, fir, and
larch, we were able to advance higher-value products that
are increasing in demand, particularly in Europe, where the
embargo on Russian lumber has reshaped global supply
chains.
We also strengthened our presence in Alberta by expanding
our Canadian home centre programs, leveraging a more
reliable timber supply, and prioritizing high-value products for
customers.
In 2024, we completed new investments in our southern
United States operations, which continue to provide stability
and growth supported by access to a predictable supply of
quality, cost-competitive fibre. In August, we completed the
acquisition of a sawmill in El Dorado, Arkansas—an operation
that complements our product portfolio in Arkansas, increases
our southern yellow pine production and creates operational
synergies with our neighbouring glulam plant.
In November, we commissioned our new, state-of-the-art
sawmill in Axis, Alabama, replacing two aging operations in
Jackson and Mobile, while enhancing efficiency and increasing
our production capacity by approximately 20%. This year we
also completed an extensive rebuild of our Urbana Sawmill
in Arkansas—a two-year project completed without a single
safety incident.
Finally, we continued to enhance our position in Sweden
by acquiring an additional 7% ownership stake in Vida,
demonstrating our ongoing commitment to this important
business and the unique opportunities it offers.
Expanding beyond dimensional lumber
While dimensional lumber will remain the core of our business,
we are continuing to explore new opportunities to further
diversify and maximize value from our fibre supply. In addition
to pursuing the valorization of residuals, we are strengthening
our presence in the wood packaging sector and focusing on
vertical integration to further enhance our business.
Investing in our people
Our people are at the core of everything we do, and we are
committed to creating opportunities for growth, development,
and long-term success. In 2024, we invested $1 million in a
customized millwright and electrical training program in the
US to build a skilled trades workforce for the future. Our new
homegrown Industrial Leaders program saw 80% of our
frontline supervisors complete an immersive training program.
These efforts have led to a dramatic reduction in voluntary
turnover, particularly within the first six months of employment,
reflecting an enhanced working environment and progress in
our selection, onboarding, and orientation processes.
Positioned for the future
While the changes we made in the last year have not been
easy, they have set us up to be more agile and resilient.
With our focus on continuous improvement, combined with
our strategic investments and operational discipline, we
are positioned to navigate the uncertainty of the complex
geopolitical environment we are facing while also capitalizing
on the opportunities ahead.
As always, our success is built on the dedication of our
employees, whose commitment drives our business forward.
I want to express my sincere appreciation to them, and to our
customers, shareholders, and partners for their continued trust
and support. I would also like to thank our Board of Directors,
whose leadership and counsel have been invaluable this year.
Susan Yurkovich
President and Chief Executive Officer
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Canfor Corporation
2024 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 for the year ended December 31, 2024 relative to the year ended December 31, 2023, and the financial position of the
Company at December 31, 2024. 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, 2024 and 2023 (available at www.canfor.com). The financial information
contained in this MD&A has been prepared in accordance with IFRS Accounting 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 and One-Time Items, Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss)
before One-Time Items, 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 – 2024 Compared to 2023”) 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 and One-Time Items, Adjusted Operating Income (Loss), Adjusted Operating Income (Loss) before
One-Time Items, 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 and One-Time Items, Adjusted Operating Income (Loss),
Adjusted Operating Income (Loss) before One-Time Items, 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, Adjusted Operating Income (Loss) before Amortization and One-Time Items,
Adjusted Operating Income (Loss), Adjusted Operating Income (Loss) before One-Time Items 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. Throughout this discussion, reference is made to the current quarter, which refers to the results for the fourth quarter of 2024.
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 6, 2025.
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.
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Canfor Corporation
2024 Highlights.
2024 was a challenging year for Canfor, as the weak global lumber market conditions experienced at the end of 2023 continued through
most of the current year. Despite some periods of interest rate relief, ongoing inflationary pressures and general global economic
uncertainty gave rise to persistent consumer affordability concerns and relatively muted global lumber demand. For Canfor, these
subdued market conditions were combined with a continually constrained fibre supply environment, particularly in British Columbia
(“BC”). As a result, for 2024 overall, Canfor reported an operating loss of $942.2 million, compared to an operating loss of $531.6 million
in 2023.
In recent years, industry-wide rationalization in BC has removed approximately 5 billion board feet of annual Western Spruce/Pine/Fir
(“Western SPF”) production capacity, as a result of reductions in BC’s annual allowable cut (“AAC”). The reduced AAC is a product of
Mountain Pine Beetle (“MPB”) infestation, losses resulting from wildfire events, as well as other pressures on BC’s Timber Harvesting
Land Base, including BC’s old-growth forest deferrals and other BC Government policies and legislative initiatives. All of these factors
have resulted in significant uncertainty for the forestry industry in BC.
Over the same period of time, the Company has taken a number of actions in response to these significant fibre constraints, including
securing access to high-quality fibre, modifying manufacturing and harvesting operations to optimize the harvest of green, non-pine
leading stands, as well as making rationalization decisions with respect to its BC operating footprint. Most notably, the Company
permanently closed its Chetwynd sawmill and pellet plant in 2023, and in 2024, suspended its planned investment in its Houston sawmill
and permanently closed its Polar and Plateau sawmills as well as its Fort St. John sawmill and pellet plant facility. Canfor Pulp Products
Inc. (“CPPI”) permanently closed the pulp line at its Prince George pulp and paper mill (“PG”) in early 2023, and in 2024, indefinitely
curtailed one production line at its Northwood Northern Bleached Softwood Kraft (“NBSK”) pulp mill (“Northwood”).
Recognizing these permanent closures as well as the ongoing challenges to the businesses posed by the lack of economically available
fibre in BC, weak global lumber demand and increased export tariffs to the United States (“US”), the Company recorded asset write-
downs and impairment charges in 2024 totaling $342.9 million, consisting of $131.9 million in the lumber segment and $211.0 million in
the pulp and paper segment, as well as $76.7 million in restructuring-related costs over the same period.
In the US South, the Company acquired the El Dorado lumber manufacturing facility in Arkansas from Resolute Forest Products Inc., an
affiliate of Domtar Corporation (“Resolute”), and completed the construction on two significant projects in Urbana, Arkansas, and Axis,
Alabama in 2024. In addition, as part of the Company’s strategy to optimize its footprint in Alabama, it also permanently closed its
Jackson and Mobile sawmills. Lastly, in response to the weak lumber market conditions in the current year, especially for Southern
Yellow Pine (“SYP”), the Company indefinitely curtailed one shift at its Darlington facility in South Carolina, and reduced operating hours
at its Estill, South Carolina and Moultrie, Georgia locations.
After taking account of adjusting items, including the aforementioned $342.9 million in asset write-down and impairment charges, $76.7
million in restructuring costs, as well as other one-time items in 2024, as outlined in the ‘Selected financial information and statistics,
including adjusting and one-time items’ table, the Company’s adjusted operating loss was $466.6 million for the current year, compared
to adjusted operating loss of $619.9 million for the prior year.
2024 Lumber Segment Highlights.
For the lumber segment, the operating loss for 2024 was $660.4 million, compared to the previous year’s operating loss of $348.7
million. After taking account of adjustments and other one-time items, totaling $261.9 million, the adjusted operating loss for 2024 was
$398.5 million compared to a similarly adjusted operating loss of $434.6 million in 2023.
Improved adjusted lumber segment results in 2024 were predominantly driven by the Company’s Western Canadian operations,
moderated to a degree, by a decline in results from the US South, and to a much lesser extent, Europe. In Western Canada, the uplift in
results in the current year was primarily a result of a US$17 per Mfbm, or 4%, increase in the average North American Random Lengths
Western SPF 2x4 #2&Btr price, combined with the benefit of the changes in the Company’s operating footprint in BC, resulting from mill
closures and curtailments over the last two years. Lower earnings in the US South in 2024 were principally tied to the 16% year-over-year
decline in both the average SYP East 2x4 #2 and 2x6 #2 prices, combined with lower production and shipments as a result of mill
closures and market-related downtime. While in Europe, results in the current year were largely impacted by the ongoing log supply
constraints and rising fibre costs in the region.
North American lumber market conditions were under pressure for most of 2024, while lower interest rates year-over-year provided
some relief, affordability concerns persisted, and when combined with broader general economic uncertainty, led to a decline in
residential construction activity in the current year. In contrast, the repair and remodeling sector remained relatively stable year-over-
year, principally supported by an aging housing stock across North America. Overall, weaker demand put downward pressure on North
American benchmark lumber prices throughout most of 2024, especially SYP, which experienced a significant decline compared to
2023. In Western Canada, however, market-driven supply reductions, including temporary curtailments and permanent mill closures, led
to periods of improved pricing, resulting in an overall increase in Western SPF prices compared to the previous year. Offshore lumber
markets in Asia remained relatively weak throughout 2024, broadly consistent with 2023. While in Europe, lumber markets were
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Canfor Corporation
relatively subdued in the current year, as affordability concerns continued to weigh on residential construction activity. This weak
European demand was met with ongoing log supply constraints in the region, which resulted in periods of sawmill downtime throughout
the year and resulted in a slight improvement in European lumber pricing year-over-year.
2024 Pulp and Paper Segment Highlights.
For the pulp and paper segment, 2024 was another challenging year, as relatively weak global pulp market fundamentals were combined
with operational challenges driven by persistent shortages in the availability of economic fibre in northern BC. For 2024 overall, Canfor
Pulp reported an operating loss of $226.5 million, compared to an operating loss of $127.5 million in 2023.
After taking account of adjusting items, including the aforementioned 2024 asset write-down and impairment charge, CPPI’s adjusted
operating loss was $15.5 million for the current year, compared to an adjusted operating loss of $129.9 million for the prior year. These
results largely reflected moderately higher average NBSK pulp unit sales realizations, primarily driven by a 4% uplift in US-dollar NBSK
pulp list prices to China, combined with a 1 cent, or 1%, weaker Canadian dollar. Operationally, current year results were impacted by
reduced pulp production and shipments associated with the Northwood operational change that took effect in the latter part of the year.
However, a moderate improvement in pulp unit manufacturing costs in the current year, principally associated with lower energy and
maintenance spend, as well as a significant decline in fibre costs, largely correlated with a reduction in the volume of high-cost chips
purchased and consumed following the closure of PG pulp mill in 2023, helped to mitigate the impact of the Northwood curtailment on
CPPI’s 2024 results.
While global pulp market conditions were relatively subdued early in 2024, market fundamentals experienced an uptick mid-year, as
unplanned global supply disruptions led to positive pricing momentum, particularly from China. With the commencement of additional
hardwood capacity, however, global pulp producer inventories climbed to well above the balanced range, and purchasing activity
declined. As a result, prices to China, the world’s largest consumer of softwood pulp, dropped from a high of US$825 per tonne in May to
a low of US$750 per tonne in August. Later in the year, as global producer inventories began to reduce, global pulp pricing saw some
modest upward momentum, with China pulp list prices finishing the year at US$770 per tonne. For the 2024 year as a whole, NBSK pulp
list prices to China averaged US$774 per tonne, an increase of US$27 per tonne, or 4%, from the average price in 2023.
CPPI will continue 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 around 50 facilities across its diversified operating platform in Canada, the US, and Europe. The
Company has a 77% interest in Vida AB (“Vida”), one of Sweden’s largest sawmilling companies, and also owns a 54.8% interest in
CPPI. As of December 31, 2024, Canfor employed 6,634 people, of which 799 were employed by CPPI.
Significant changes to the Company’s business in 2024 and early in 2025 include the following:
•
On February 7, 2024, CPPI announced the sale of its Taylor Bleached Chemi-Thermo Mechanical Pulp (“BCTMP”) mill site for $7.0
million. The transaction closed on March 15, 2024.
•
On April 10, 2024, the Company announced that it will optimize its footprint in southern Alabama by permanently closing its Jackson
facility (effective June 2024) and expanding production at its Fulton facility with a second shift. These steps, together with the
construction of the greenfield sawmill in Axis, Alabama, will grow the Company’s regional manufacturing platform by 100 million
board feet of production capacity and consolidate operations at modern facilities that are positioned for the long-term.
•
On May 1, 2024, the Company announced that it had entered into an agreement with Resolute Forest Products Inc., an affiliate of
Domtar Corporation (“Resolute”), to purchase its El Dorado lumber manufacturing facility located in Union County, Arkansas. The
facility, named internally as Iron Mountain after a nearby roadway, produces dimensional lumber and specialty wood products and is
expected to increase Canfor’s annual Southern Yellow Pine (“SYP”) lumber capacity by 175 million board feet after an anticipated
$67.5 million (US$50 million) of planned upgrades.
•
On May 9, 2024, after a thorough analysis of the persistent shortage of economically available timber and challenging operating
conditions in BC, the Company announced the permanent closure of its Polar sawmill in Bear Lake, BC, and the suspension of its
planned reinvestment in Houston, BC. On the same date, CPPI announced the indefinite curtailment of one production line at its
Northwood pulp mill effective August 2024, also due to the decline in availability of economic fibre in the northern BC region. The
curtailment resulted in an annual reduction of approximately 300,000 tonnes of market kraft pulp.
•
On August 9, 2024, the Company completed the sale of its Chetwynd sawmill lands and equipment to a third party for proceeds of
$5.0 million
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Canfor Corporation
•
On September 4, 2024, the Company announced the indefinite curtailment of one shift at its Darlington facility in South Carolina, and
reduced operating hours at its Estill, South Carolina and Moultrie, Georgia locations due to persistent weak lumber markets. These
changes reduced lumber production by approximately 215 million board feet on an annualized basis.
•
Also, on September 4, 2024, the Company announced the permanent closure of its Plateau sawmill, as well as its Fort St. John
sawmill and pellet plant facility located in northern BC, as a result of the persistent challenges accessing economic fibre in the
region, ongoing financial losses, weak lumber markets and increased US tariffs. These closures will reduce Western SPF annual
production by approximately 670 million board feet.
•
On September 9, 2024, the Company completed its previously announced sale of its Mackenzie sawmill assets to Peak Mackenzie,
and sale of the forest tenure in the Mackenzie region to the McLeod Lake Indian Band and Tsay Keh Dene Nation for total proceeds
of $66.5 million.
•
On September 27, 2024, the Company announced that it entered into an approximately $424.9 million (US$315.0 million) loan
agreement with an affiliate of Farallon Capital Management, L.L.C. (“Farallon”) and received all advances thereunder, totaling
approximately $313.8 million (US$232.4 million). The loan is secured by certain accounts receivable related to countervailing
(“CVD”) and anti-dumping duties (“ADD”) paid to the US government. The borrowings under the loan have terms of four and eight
years, and each can be extended at the Company’s option for two additional ten-year terms. The Company anticipates the
repayment of the loan, including all interest and principal payments, will be met by refunds and interest receivable out of duty
refunds from the US government.
•
On December 10, 2024, the Company announced the acquisition of an additional 7% of the outstanding shares of Vida for total
consideration of $118.3 million (SEK 916.6 million). The shares were acquired from certain minority shareholders who utilized their
option privileges outlined in the February 2019 agreement, through which Canfor had initially purchased 70% of Vida. As a result of
this transaction, Canfor’s ownership in Vida increased from 70% to 77%.
Lumber.
As at December 31, 2024, Canfor’s lumber operations had an annual production capacity of approximately 6.0 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 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, a specialty facility, one whole log
chipping plant, and a trucking division. 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 also includes
its 77% interest in Vida’s ten value-added facilities (including the manufacturing and selling of wood packaging, modular housing,
industrial products and energy) as well as a treatment plant.
As at December 31, 2024, Canfor held approximately 8.4 million cubic metres 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, South
Korea, 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 products are 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.
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Canfor Corporation
Pulp and Paper.
During 2024, Canfor’s pulp and paper segment was comprised of two NBSK pulp mills and one NBSK paper mill located in Prince
George, BC, all of which are owned by CPPI. As at December 31, 2024, CPPI produces NBSK pulp and specialty paper. NBSK is primarily
a bleached product, although unbleached and semi-bleached grades were also produced by CPPI.
As at December 31, 2024, CPPI had an annual production capacity of approximately 780,000 tonnes of northern softwood market kraft
pulp (including 300,000 tonnes of annual production capacity that, effective August 2024, has been indefinitely curtailed), the majority of
which is bleached to become NBSK pulp, and approximately 140,000 tonnes of kraft paper.
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 that results in CPPI paying market prices for wood chips, subject to
adjustments to the formula to reflect market conditions and other factors such as wood chip quality. 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, support 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.
Leadership Transition.
Effective January 1, 2025, Susan Yurkovich succeeded Don Kayne as President and Chief Executive Officer of Canfor and joined the
Board of Directors for Canfor and CPPI.
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Canfor Corporation
Overview of Consolidated Results – 2024 compared to 2023.
Selected financial information and statistics, including adjusting and one-time items.
(millions of Canadian dollars, except for per share amounts)
2024
2023
Sales
$
5,252.8
$
5,426.6
Reported operating loss before amortization, asset write-down and impairment7
$
(170.2)
$
(111.2)
Reported operating loss
$
(942.2)
$
(531.6)
Asset write-down and impairment – lumber segment
$
131.9
$
-
Asset write-down and impairment – pulp and paper segment
$
211.0
$
-
Inventory write-down (recovery), net2
$
(29.7)
$
(57.2)
Adjusted operating loss1
$
(629.0)
$
(588.8)
One-time items – lumber segment1:
$
$
Restructuring and closure costs3
$
74.0
$
12.2
Gain on sale of assets, net4
$
(34.9)
$
-
Duty expense (recovery) related to finalized rates5
$
67.2
$
(43.3)
Duty expense related to refined fair value measurement6
$
53.4
$
-
One-time items – corporate restructuring costs1,3
$
2.7
$
-
Adjusted operating loss before one-time items1
$
(466.6)
$
(619.9)
Amortization7
$
429.1
$
420.4
Adjusted operating loss before amortization and one-time items1,7
$
(37.5)
$
(199.5)
Net loss
$
(736.2)
$
(348.5)
Net loss attributable to equity shareholders of the Company
$
(669.0)
$
(326.1)
Net loss per share attributable to equity shareholders of the Company, basic and diluted
$
(5.64)
$
(2.71)
ROIC – Consolidated1
(20.1)%
(11.4)%
Average exchange rate (US$ per Cdn$1.00)8
$
0.730
$
0.741
Average exchange rate (SEK per Cdn$1.00)8
$
7.715
$
7.856
1. Adjusted operating loss as well as adjusting and one-time items and consolidated ROIC are non-IFRS financial measures. Refer to the “Non-IFRS financial measures” section
for further details.
2. For the lumber segment, a $29.7 million net reversal of a previously recognized inventory write-down was recorded in 2024 (2023 – $54.8 million net reversal of a previously
recognized inventory write-down). For the pulp and paper segment, no inventory valuation adjustment was recognized in 2024 (2023 – $2.4 million net reversal of a previously
recognized inventory write-down).
3. Restructuring and closure costs of $76.7 million were recognized in 2024 ($74.0 million in the lumber segment and $2.7 million in the unallocated segment). These costs
were largely related to the permanent closure in BC of the Polar and Plateau sawmills, as well as the Fort St. John sawmill and pellet plant and the temporary closure of the
Houston sawmill. These costs also include the permanent closure of the Jackson and Mobile sawmills in the US South. (2023 – $12.2 million restructuring and closure costs
were recognized in the lumber segment related to the permanent closure of Chetwynd sawmill and pellet plants and temporary closure Houston sawmill).
4. On September 9, 2024, the Company completed the sale of its remaining Mackenzie sawmill assets and associated forest tenure to the McLeod Lake Indian Band and Tsay
Keh Dene Nation for total proceeds of $66.5 million. As a result of this transaction, as well as other asset sales in the year, a net gain on sale of $34.9 million was recognized in
2024.
5. A duty expense of $67.2 million (US$48.6 million) was recognized in 2024 following the finalization of CVD and ADD rates applicable to the fifth period of review (“POR5”)
(2023 - $43.3 million net duty recovery related to final rates for the fourth period of review (“POR4”)).
6. In 2024, the Company refined its estimate of the fair value measurement of net duty deposits recoverable. In accordance with IFRS Accounting Standards, this change in
accounting estimate was applied on a prospective basis.
7. Amortization includes amortization of certain capitalized major maintenance costs.
8. Source – Bank of Canada (monthly average rate for the period).
11
Canfor Corporation
Selected cash flow information.
(millions of Canadian dollars)
2024
2023
Operating loss by segment:
Lumber
$
(660.4)
$
(348.7)
Pulp and paper
$
(226.5)
$
(127.5)
Unallocated and other
$
(55.3)
$
(55.4)
Total operating loss
$
(942.2)
$
(531.6)
Add: Amortization9
$
429.1
$
420.4
Add: Asset write-downs and impairments
$
342.9
$
-
Total operating loss before amortization, asset write-downs and impairments
$
(170.2)
$
(111.2)
Add (deduct):
Non-cash working capital movements, net
$
(3.5)
$
166.1
Defined benefit plan contributions, net
$
(11.5)
$
(24.2)
Income taxes received (paid), net
$
75.0
$
(33.8)
Duties paid less than accruals10
$
194.7
$
100.7
Other operating cash flows, net11
$
89.7
$
57.1
Cash from operating activities
$
174.2
$
154.7
Add (deduct):
Capital additions, net
$
(527.1)
$
(587.0)
Proceeds from sale of property, plant and equipment and intangible assets
$
72.6
$
9.1
Proceeds from duty deposits loan
$
313.8
$
-
Conversion and changes in term debt, net
$
(45.0)
$
(96.1)
Acquisition of El Dorado sawmill
$
(100.6)
$
-
Partial acquisition of Vida non-controlling interest
$
(118.3)
$
-
Finance expenses paid
$
(34.8)
$
(33.6)
Share purchases
$
(9.0)
$
(44.3)
Purchase of long-term investments, net
$
(16.5)
$
(59.4)
Distributions paid to non-controlling interests, net
$
(65.4)
$
(62.3)
Foreign exchange gain (loss) on cash and cash equivalents
$
5.8
$
(6.7)
Other, net11
$
(14.0)
$
1.5
Change in cash / operating loans
$
(364.3)
$
(724.1)
9. Amortization includes amortization of certain capitalized major maintenance costs.
10. Adjusted to true-up ADD deposits to the Company’s current accrual rates.
11. Further information on cash flows may be found in the Company’s annual consolidated financial statements.
Analysis of specific items affecting comparability of net Income (loss).
After-tax impact, net of non-controlling interests
(millions of Canadian dollars, except for per share amounts)
2024
2023
Shareholder net loss, as reported
$
(669.0)
$
(326.1)
Foreign exchange (gain) loss on term debt
$
3.5
$
(6.0)
Foreign exchange loss on duty deposits loan
$
21.3
$
-
Loss (gain) on derivative financial instruments
$
6.9
$
(3.7)
Asset write-downs and impairments
$
181.9
$
-
Net impact of above items
$
213.6
$
(9.7)
Adjusted shareholder net loss12
$
(455.4)
$
(335.8)
Shareholder net loss per share (EPS), as reported
$
(5.64)
$
(2.71)
Net impact of above items per share
$
1.80
$
(0.08)
Adjusted shareholder net loss per share12
$
(3.84)
$
(2.79)
12. Adjusted shareholder net loss is a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section for further details.
12
Canfor Corporation
Operating Results By Business Segment – 2024 compared to 2023.
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.
(millions of Canadian dollars, unless otherwise noted)
2024
2023
Sales14
$
4,454.3
$
4,551.1
Reported operating loss14
$
(660.4)
$
(348.7)
Adjusting and one-time items13
$
261.9
$
(85.9)
Adjusted operating loss before one-time items13
$
(398.5)
$
(434.6)
Amortization
$
367.1
$
332.7
Adjusted operating loss before amortization and one-time items13,14
$
(31.4)
$
(101.9)
Capital expenditures (before acquisitions)
$
472.1
$
510.4
Average WSPF 2x4 #2&Btr lumber price in US$15
$
408
$
391
Average WSPF 2x4 #2&Btr lumber price in Cdn$15,17
$
559
$
528
Average SYP 2x4 #2 lumber price in US$16
$
394
$
468
Average SYP 2x4 #2 lumber price in Cdn$16,17
$
540
$
632
Average SYP 2x6 #2 lumber price in US$16
$
325
$
386
Average SYP 2x6 #2 lumber price in Cdn$16,17
$
445
$
521
US housing starts (thousand units SAAR)18
1,365
1,421
Production – WSPF lumber (MMfbm)19
1,874
2,071
Production – SYP lumber (MMfbm)19
1,683
1,727
Production – European lumber (MMfbm)14,19
1,391
1,319
Shipments – WSPF lumber (MMfbm)20
1,951
2,119
Shipments – SYP lumber (MMfbm)20
1,691
1,716
Shipments – European lumber (MMfbm)20
1,613
1,532
13. Adjusted operating loss as well as adjusting and one-time items referenced throughout this MD&A are defined as non-IFRS financial measures. Refer to the “Selected
financial information and statistics, including adjusting and one-time items“ and “Non-IFRS financial measures” section for further details.
14. 2024 includes sales of $1,440.5 million, operating income of $51.8 million, and operating income before amortization of $125.8 million from European operations (2023 –
sales of $1,333.2 million, operating income of $80.3 million, and operating income before amortization of $149.1 million). Operating income from the European operations in
2024 includes $37.4 million (2023 – $36.7 million) in incremental amortization and other expenses driven by the purchase price allocation at the acquisition date. Sawmill
production from European operations was 1,610 MMfbm in 2024 (2023 – 1,478 MMfbm).
15. Western Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths Publications, Inc.).
16. Southern Yellow Pine, Eastside, per thousand board feet (Source – Random Lengths Publications, Inc.).
17. Average lumber prices in Cdn$ 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.
18. Source – US Census Bureau, seasonally adjusted annual rate (“SAAR”).
19. Planer production, excluding production of trim blocks.
20. 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.
As mentioned, the weak global lumber market conditions and pricing experienced at the end of 2023 persisted throughout most of 2024.
In North American, while lower interest rates year-over-year provided some relief, affordability concerns persisted, and when combined
with broader general economic uncertainty, led to a decline in residential construction activity in the current year. In contrast, the repair
and remodeling sector remained relatively stable year-over-year, principally supported by an aging housing stock across North America.
Overall, weaker demand put downward pressure on North American benchmark lumber prices throughout most of 2024, especially SYP,
which experienced a significant decline compared to 2023. In Western Canada, however, market-driven supply reductions, including
temporary curtailments and permanent mill closures, led to periods of improved pricing, resulting in an overall increase in Western SPF
prices compared to the previous year.
13
Canfor Corporation
US housing starts, on a seasonally adjusted basis, averaged 1,365,000 units21 in 2024, a decrease of 4% from 2023 (Chart 1). This
decrease was primarily driven by multi-family starts, which averaged 405,000 units21 in 2024, down 27% from the prior year, due to an
accumulated surplus of multi-family homes under construction, particularly in the US South. In contrast, single-family starts, which
consume approximately three times as much lumber as multi-family starts, averaged 1,010,000 units21, up 6% from 2023.
Chart 1
In Canada, the housing market experienced similar trends compared to the prior year, with a seasonally adjusted annual rate of 245,000
units22, up 1% from 2023 (Chart 2), with multi-family starts making up 74% of overall starts in 2024 (2023 – 75%).
Chart 2
Offshore lumber markets in Asia remained relatively weak throughout 2024, broadly consistent with 2023. In China, demand remained at
low levels primarily driven by a depressed real estate sector and limited impact from government stimulus measures implemented in the
prior year. Pricing reflected this weak demand but saw some pockets of improvement as inventory levels fluctuated throughout the year.
In Japan, demand improved modestly in the multi-family rental housing and non-residential sectors in 2024. These factors, along with an
increased share of 2x4 housing construction, helped to mitigate the overall decline in the single-family sector, keeping prices in the
region broadly in line with the previous year.
21. US Bureau of the Census
22. Canada Mortgage and Housing Corporation (“CMHC”)
14
Canfor Corporation
Europe's lumber markets were relatively subdued in 2024, with affordability concerns continuing to weigh on residential construction
activity23 (Chart 3). In the first half of the year, steady demand in the repair and remodeling sector led to a slight uptick in pricing,
however, through the latter half of 2024, demand in this sector declined. For 2024 overall, weak European demand was met with ongoing
log supply constraints in the region, which resulted in periods of sawmill downtime throughout the year. This supply pressure did,
however, give rise to slight improvement in European lumber pricing year-over-year.
Chart 3
23. Eurostat
Sales.
Revenues for the lumber segment were $4.5 billion for 2024, down 2% from $4.6 billion in 2023. This decline was primarily driven by a
5% drop in North American shipments, most notably in Western Canada as a result of the permanent closures over the last two years,
combined with a significant decline in SYP lumber benchmark pricing (Chart 4) during the current year. These factors were tempered, to
a degree, by a moderate improvement in Western SPF lumber unit sales realizations year-over-year, coupled with a modest uptick in
European lumber unit sales realizations.
Total lumber shipments were approximately 5.26 billion board feet for the year, down 2% from the 5.37 billion board feet shipped in the
previous year, largely associated with a 3% decrease in production volumes over the same period, particularly in Western Canada.
The average North American Random Lengths Western SPF 2x4 #2&Btr price began the year at US$445 per Mfbm, experienced a slight
price appreciation towards the end of the first quarter, then declined throughout most of the year before seeing an uptick in the fourth
quarter, ending 2024 at US$438 per Mfbm. For the year overall, the Western SPF 2x4 #2&Btr price averaged US$408 per Mfbm, an
increase of US$17 per Mfbm, or 4%, from 2023, with more pronounced increases experienced in most wider width Western SPF lumber
products, as noted in the table below. As a result, the Company’s Western SPF lumber unit sales realizations experienced a moderate
increase compared to the prior year, largely reflecting the uplift in North American benchmark lumber pricing year-over-year, amplified,
to a degree, by a 1 cent, or 1%, weaker Canadian dollar (versus the US-dollar).
(Average Western SPF US$ price, per thousand board feet)24
2024
2023
Change
2x4 #2&Btr
$
408
$
391
$
17
2x4 #3
$
319
$
318
$
1
2x6 #2&Btr
$
441
$
400
$
41
2x10 #2&Btr
$
472
$
404
$
68
24. Random Lengths Publications, Inc.
In 2024, the North American Random Lengths SYP East 2x4 #2 opened the year at US$470 per Mfbm and saw a gradual decline
throughout the first half of the year. Despite a small uplift in pricing late summer to a peak of US$485 per Mfbm in October, the SYP East
2x4 #2 price declined through the latter part of the year, ending December at US$400 per Mfbm. For 2024 overall, the SYP East 2x4 #2
price averaged US$394 per Mfbm, down US$74 per Mfbm, or 16%, from 2023.
15
Canfor Corporation
The North American Random Lengths SYP East 2x6 #2 and wider-width SYP lumber products, experienced less pronounced, but similar
deteriorating trends throughout the current year as the SYP East 2x4 #2, as highlighted in the table below, with the SYP East 2x6 #2
averaging US$325 per Mfbm for 2024, a decrease of US$61 per Mfbm, or 16%, from 2023.
Consequently, the Company’s average SYP lumber unit sales realizations followed the same trend as SYP benchmark lumber prices,
experiencing a substantial drop compared to the previous year.
(Average SYP East US$ price, per thousand board feet)25
2024
2023
Change
2x4 #2
$
394
$
468
$
(74)
2x6 #2
$
325
$
386
$
(61)
2x8 #2
$
323
$
361
$
(38)
2x10 #2
$
345
$
399
$
(54)
2x12 #2
$
469
$
574
$
(105)
25. Random Lengths Publications, Inc.
Chart 4
For 2024, the Company’s European lumber unit sales realizations were modestly higher than the previous year, principally related to a
slight improvement in lumber market pricing in Central Europe and the UK, combined with a 2% weaker 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 moderately higher than the prior year, substantially driven by an increase
in residual fibre revenues and log sales from the Company’s European operations, moderated in part, by lower engineered wood sales in
the US South, and to a lesser extent, a decline in pellet sales in Western Canada.
Operations.
Total lumber production for 2024 was 4.95 billion board feet, down 3% from the prior year, as a 5% uplift in European lumber
production, largely correlated with improved productivity across the region, as well as an additional shift at one of the regions’ mills, was
more than offset by lower North American lumber production, especially in BC. The 10% reduction in production in Western Canada was
mostly tied to the full year impact of the permanent and temporary closures of the Company’s Chetwynd facilities and the Houston
sawmill in 2023, combined with the permanent closure of the Company’s Polar sawmill in early 2024, as well as the wind down of its
Plateau and Fort St. John sawmills in the latter part of the current year. In the US South, the 3% lower production year-over-year was
mainly due to the permanent closure of the Company’s Jackson and Mobile sawmills, combined with downtime at the Urbana sawmill to
complete its planned upgrade and expansion, and to a lesser extent, market-related curtailments. These factors were mitigated, to a
degree, by the acquisition of the Iron Mountain sawmill in August and the commissioning of the Company’s greenfield sawmill, in Axis,
Alabama, during the fourth quarter of 2024.
Lumber unit manufacturing and product costs were slightly higher than the previous year, principally reflecting an uplift in both per-unit
cash conversion costs and, to a lesser extent, log costs. In Europe, rising inflationary pressures on labour, maintenance and energy costs
more than outweighed the benefit of increased production volumes year-over-year, and gave rise to higher per-unit cash conversion
16
Canfor Corporation
costs in the region. In the US South, an uptick in per-unit cash conversion was correlated with increased labour and maintenance-related
spend, combined with the impact of lower production volumes in 2024. These factors were partially offset by the benefit of reduced cash
spend in Western Canada in the current year, mainly associated with the permanent sawmill closures in BC, combined with improved
productivity in the region, largely tied to reduced market-driven curtailments (approximately 645 million board feet in 2024 versus 760
million board feet in 2023).
The slight uptick in log costs year-over-year was primarily driven by significantly higher log costs in Europe, mostly associated with
ongoing log supply pressures in that region, mitigated in part, by reduced market-based stumpage costs in BC. Log costs in the US
South in 2024 were broadly comparable with 2023.
Asset write-downs and impairments.
In 2024, because of the permanent closure of the Polar and Plateau sawmills as well as the Fort St. John sawmill and pellet plant facility,
combined with the ongoing uncertainty with regards to the availability of economically viable timber supply within BC, an asset write-
down and impairment charge of $131.9 million was recorded in 2024 in the Company’s lumber segment. No asset write-down or
impairment charge was recognized in the prior year. See “Critical accounting estimates – Asset write-downs and impairments” for
further details.
Pulp and Paper.
Selected financial information and statistics – Pulp and paper.26
Summarized results for the pulp and paper segment for 2024 and 2023 are as follows:
(millions of Canadian dollars, unless otherwise noted)
2024
2023
Sales
$
798.6
$
875.5
Operating income (loss) before amortization, asset write-down and impairment 27
$
43.3
$
(42.5)
Operating loss
$
(226.5)
$
(127.5)
Asset write-down and impairment
$
211.0
$
-
Inventory write-down (recovery)
$
-
$
(2.4)
Adjusted operating loss28
$
(15.5)
$
(129.9)
Capital expenditures
$
50.8
$
60.5
Average NBSK pulp list price delivered to China – US$29
$
774
$
747
Average NBSK pulp list price delivered to China – Cdn$29
$
1,060
$
1,008
Production – pulp (000 mt)
511
603
Production – paper (000 mt)
128
130
Shipments – pulp (000 mt)
526
609
Shipments – paper (000 mt)
130
129
26. Includes 100% of CPPI, which is consolidated in Canfor’s operating results.
27. Amortization includes amortization of certain capitalized major maintenance costs.
28. Adjusted operating loss is a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section for further details.
29. 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.
Markets.
As previously highlighted, the relatively weak global pulp market fundamentals experienced in the latter part of 2023 continued into the
early part of 2024, principally tied to generally subdued demand, particularly from Asia. Towards the middle of the year, NBSK US-dollar
pulp list prices to China, the world’s largest pulp consumer, showed some upward momentum, largely driven by global pulp supply
concerns, tied in part, to Finland’s national transport workers’ strike and further compounded by unplanned downtime at some softwood
pulp production facilities. In the second half of 2024, global softwood pulp market fundamentals came under pressure, however, as the
traditionally slower summer season was combined with the introduction of additional global hardwood capacity, which gave rise to 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 slowly 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 2024 year at US$730 per tonne, peaked in
May at US$825 per tonne and declined to US$750 per tonne in August. As global pulp market fundamentals, and therefore pricing,
slowly improved in the latter part of the year, China pulp list prices ended the year at US$770 per tonne. For 2024 overall, US-dollar
NBSK pulp list prices to China averaged US$774 per tonne, up US$27 per tonne, or 4%, from the average price in 2023.
17
Canfor Corporation
North American pulp list prices experienced similar trends to Asia, albeit lagged by several months, with list prices to that region starting
the year at US$1,380 per tonne in January, peaking at US$1,790 per tonne in July, before declining through the balance of the year to end
December at US$1,675 per tonne (before taking account of customer discounts, which were broadly unchanged year-over-year).
Global softwood pulp producer inventories began 2024 at 40 days of supply30 and remained relatively steady until August, when pulp
producer inventories spiked to 50 days of supply30, largely driven by the introduction of additional global hardwood capacity. As the
balance of the year progressed, however, these elevated pulp producer inventory levels slowly moderated, principally as a result of a
modest uptick in purchasing activity from China late in the fourth quarter of 2024. Consequently, global softwood pulp inventories
trended down to within the balanced range, ending the year at 42 days of supply30. Market conditions are generally considered balanced
when inventories are in the 32-43 days of supply range30.
The following charts show the China NBSK pulp list price movements in 2024, 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 2024, principally led by steady demand and balanced inventories in the
North American market.
30. 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 balanced range are the average level plus or minus one standard deviation, based on the last
60 data points (i.e. last five years).
18
Canfor Corporation
Sales.
Pulp shipments in 2024 were 526,000 tonnes, down 83,000 tonnes, or 14%, from 2023, principally driven by a 15% reduction in pulp
production year-over-year.
As mentioned, for the 2024 year as a whole, NBSK pulp list prices to China averaged US$774 per tonne, up $27 per tonne, or 4%,
compared to the average in 2023. North American NBSK pulp list prices averaged US$1,646 per tonne for the current year, up US$198
per tonne, or 14%, year-over-year (before discounts, which were largely unchanged). As a direct result, CPPI’s average NBSK pulp unit
sales realizations were moderately higher in 2024 compared to the prior year, amplified, to a degree, by a 1 cent, or 1%, weaker Canadian
dollar.
Energy revenues in 2024 were down compared to the prior year primarily due to a reduction in power generation associated with lower
pulp production, particularly at Northwood following the indefinite curtailment of one production line, and a correlated decrease in
turbine operating days.
Paper shipments were broadly comparable year-over-year, at 130,000 tonnes. Paper unit sales realizations for 2024 were slightly higher
than the prior year, primarily due to a favourable product mix, combined with the weaker Canadian dollar.
Operations.
Pulp production was 511,000 tonnes in 2024, down 92,000 tonnes, or 15%, from the prior year, primarily reflecting the indefinite
curtailment of one production line at CPPI’s Northwood NBSK pulp mill in August 2024, offset in part by reduced unplanned downtime in
the current year.
Pulp productivity at Northwood and at CPPI’s Intercontinental NBSK pulp mill (“Intercon”) were challenged by extreme winter weather
conditions at the start of the year. Subsequently, in May 2024, following the successful completion of Intercon’s scheduled maintenance,
downtime at the mill was extended to address unforeseen recovery boiler repairs. For 2024 overall, despite improved operational
efficiency and reliability, sustained fibre shortages continued to weigh on the business, and in August, CPPI wound down and indefinitely
curtailed one production line at its Northwood pulp mill. Combined, these factors reduced NBSK pulp production by approximately
245,000 tonnes in 2024, of which the aforementioned curtailment at Northwood represented approximately 125,000 tonnes in the
current year.
In 2023, pulp production was most notably impacted by fibre-related curtailments, including a temporary curtailment at Intercon early in
the year and the subsequent permanent closure of the pulp line at CPPI’s PG pulp and paper mill. When combined with the labour
disputes at the Ports of Vancouver and Prince Rupert, as well as the impact of efficiency and reliability challenges, especially following
the scheduled maintenance outage at Northwood, pulp production in the prior year was reduced by approximately 420,000 tonnes, of
which the 210,000 tonnes was associated with the PG pulp line wind down.
Pulp unit manufacturing costs moderately improved in 2024 compared to the prior year, as lower fibre costs were combined with
reduced energy and maintenance spend. The decrease in fibre costs compared to the prior year was largely due to a reduction in the
volume of high-cost chips purchased and consumed following the closure of PG pulp mill in 2023.
Paper production in 2024 was largely in line with prior year, at 128,000 tonnes. Paper unit manufacturing costs in 2024 were moderately
higher, as an increase in slush pulp costs (linked to higher Canadian dollar NBSK pulp market prices) were combined with higher energy
costs in the current year following the closure of CPPI’s PG pulp mill in April 2023.
Asset write-down and impairment.
An asset write-down and impairment charge of $211.0 million was recorded in 2024 on the property, plant, and equipment for the pulp and
paper segment, driven by the ongoing uncertainty surrounding economic fibre availability that continued to impact CPPI. CPPI did not
recognize any asset write-down or impairment charge in the prior year. See “Critical accounting estimates – Asset write-down and
impairment” for further details.
19
Canfor Corporation
Unallocated and Other Items.
Selected financial information.
(millions of Canadian dollars)
2024
2023
Corporate costs
$
(55.3)
$
(55.4)
Finance income (expense), net
$
(51.7)
$
10.4
Foreign exchange gain (loss) on term debt, duty deposits loan and duty deposits recoverable, net
$
(10.6)
$
4.5
Gain (loss) on derivative financial instruments
$
(11.9)
$
6.8
Other income, net
$
32.9
$
19.9
Corporate costs.
Corporate costs were $55.3 million in 2024, broadly in line with the prior year, as the decrease in head office and general administrative
expenses was more than offset by higher legal costs associated with the softwood lumber dispute.
Finance income (expense), net.
Net finance expense for 2024 of $51.7 million, compared to net finance income of $10.4 million in 2023, principally due to a decrease in
accrued interest income on recoverable duty deposits stemming from the finalization of CVD and ADD rates for the fifth period of review
(“POR5”), combined with lower interest income associated with the Company’s US-dollar short-term investments and an uplift in interest
expenses associated with the Company’s duty deposits loan as well as its operating loan and term debt facilities (see the “Liquidity and
financial requirements” and “Softwood lumber agreement” sections for further discussion).
Foreign exchange gain (loss) on translation of term debt, duty deposits loan and duty deposits recoverable, net.
In 2024, the Company recognized a net foreign exchange loss of $10.6 million, primarily consisting of a loss of $21.3 million on its US-
dollar denominated duty deposits loan and a loss of $4.4 million on its US-dollar term debt held by Canadian entities, moderated, to a
degree, by a foreign exchange gain of $15.1 million on its US-dollar denominated net duty deposits recoverable, all due to the weakening
of the Canadian dollar at the close of 2024 relative to the exchange rate at the close of 2023 (see further discussion in the “Liquidity and
financial requirements” section).
Gain (loss) 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 2024, the Company recorded a net loss of $11.9 million (2023 – net
gain of $6.8 million) in relation to its derivative financial instruments, primarily due to unrealized and realized mark-to-market losses on
SEK foreign exchange forward 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)
2024
2023
Lumber futures
$
(0.4)
$
(0.4)
Foreign exchange forward contracts
$
(11.5)
$
7.2
Gain (loss) on derivative financial instruments
$
(11.9)
$
6.8
During 2024, a net gain of $74.3 million (2023 – $12.1 million loss) was recognized in ‘Other equity’ on the Company’s consolidated
balance sheet following Vida’s non-controlling shareholders’ exercising a portion of their put options in December 2024 combined with
the remeasurement of the remaining put liability. Further discussion is provided in the “Partial acquisition of Vida’s non-controlling
interest” section of this document.
Additional information on financial instruments in place at year end can be found in the “Liquidity and financial requirements” section,
later in this document.
20
Canfor Corporation
Other income, net.
Other income, net of $32.9 million in 2024, was principally attributable to CPPI’s receipt of $16.2 million in insurance proceeds related to
operational downtime experienced at the Northwood in recent years, combined with favourable foreign exchange movements on US-dollar
denominated working capital balances held by the Canadian operations. Other income, net of $19.9 million for 2023, largely reflected the
receipt of insurance proceeds related to Northwood, 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.
Income tax recovery.
The Company recorded an income tax recovery of $247.3 million in 2024, compared to a recovery of $141.5 million in 2023, with an
overall effective tax rate of approximately 25%.
The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:
(millions of Canadian dollars)
2024
2023
Net loss before income taxes
$
(983.5)
$
(490.0)
Income tax recovery at statutory rate of 27%
$
265.5
$
132.3
Add (deduct):
Non-taxable loss related to non-controlling interests
$
(2.1)
$
(1.1)
Entities with different income tax rates and other tax adjustments
$
(11.4)
$
9.7
Permanent difference from capital gains and losses and other non-deductible items
$
(4.7)
$
0.6
Income tax recovery
$
247.3
$
141.5
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 $2.9 million was recorded to other comprehensive income
(loss) in relation to actuarial gains, net, on the defined benefit plans in 2024.
Other Comprehensive Income (Loss).
(millions of Canadian dollars)
2024
2023
Defined benefit plan actuarial gains, net of tax
$
7.9
$
16.4
Foreign exchange translation of foreign operations, net of tax
$
152.3
$
(37.1)
Other comprehensive income (loss), net of tax
$
160.2
$
(20.7)
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 2024, a gain of $10.8 million (before-tax) was recorded to other comprehensive income (loss) in relation to the Company's net
defined benefit obligations (comprised of defined benefit pension plans as well as other benefit plans) as a 0.1% increase in the discount
rate used to value the defined benefit plans, was combined with a gain associated with the distribution of a plan surplus to members
following the final settlement of one of the Company’s registered pension plans.
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 more information, see “Critical accounting estimates – Employee future benefits” later in this document and in Note 14 to Canfor’s
2024 consolidated financial statements
The Company recorded an after-tax gain of $152.3 million in other comprehensive income (loss) in 2024 related to foreign exchange
differences for foreign operations, mainly reflecting a weaker Canadian dollar relative to the US-dollar through the majority of 2024
compared to prior year. This compared to an after-tax loss of $37.1 million in other comprehensive income (loss) in 2023 related to
foreign exchange differences for foreign operations, largely due to 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.
21
Canfor Corporation
Summary of Financial Position.
The following table summarizes Canfor’s financial position as at December 31, 2024 and 2023:
(millions of Canadian dollars, except for ratios)
2024
2023
Cash and cash equivalents
$
259.3
$
627.4
Operating working capital (includes drawings on operating loans and current portion of term debt)
$
582.6
$
725.1
Net working capital
$
841.9
$
1,352.5
Property, plant and equipment
$
2,440.9
$
2,429.8
Right-of-use assets
$
132.2
$
123.1
Timber licenses
$
323.0
$
346.8
Goodwill and other intangible assets
$
529.7
$
519.3
Long-term investments and other (excluding deferred tax asset)
$
284.3
$
445.3
Net working capital and long-term assets
$
4,552.0
$
5,216.8
Term debt (long-term portion)
$
72.5
$
115.1
Duty deposits loan
$
335.1
$
-
Retirement benefit obligations
$
133.4
$
132.9
Lease obligations (long-term portion)
$
106.9
$
98.2
Deferred reforestation obligations (long-term portion)
$
46.9
$
47.4
Other long-term liabilities
$
36.6
$
37.5
Put liability
$
110.7
$
187.7
Deferred income taxes, net (including deferred tax asset)
$
126.1
$
320.6
Non-controlling interests
$
272.0
$
459.2
Equity attributable to shareholders of Company
$
3,311.8
$
3,818.2
$
4,552.0
$
5,216.8
Ratio of current assets to current liabilities
1.9 : 1
2.5 : 1
Net debt (cash) to total capitalization31
7.8%
(9.1)%
Cumulative duty deposits paid
$
996.9
$
931.0
31. Net debt (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 2024 was 1.9:1 compared to 2.5:1 at the end of 2023, largely reflecting a
decline in the Company’s cash balances, mainly tied to the acquisition of the El Dorado manufacturing facility in August 2024 for $100.6
million and the acquisition of an additional 7% of the outstanding shares in Vida for $118.3 million in December 2024.
The Company’s net debt to total capitalization was 7.8% at December 31, 2024 (December 31, 2023 – net cash of 9.1%), principally tied
to aforementioned acquisitions during 2024 combined with the impact on the net debt to total capitalization ratio of the duty deposits
loan completed in the current year.
In 2024, the Company continued to pay cash deposits on Canadian lumber exports destined for the US as a result of the imposition of
duties by the US Department of Commerce (“DOC”) in the latter half of 2017. As of December 31, 2024, the Company had paid
cumulative duty deposits of $996.9 million (December 31, 2023 – $931.0 million) and had accrued interest on duty deposits recoverable
of $54.5 million (December 31, 2023 – $60.8 million).
Included in this $54.5 million is $6.5 million in interest receivable from the US government on certain CVD and ADD related accounts
receivable balances secured under the terms of the duty deposits loan related to the period from September 27, 2024 to December 31,
2024 and payable to Farallon Capital Management L.L.C. (“Farallon”).
Further discussion is provided in the “Softwood Lumber Agreement” section of this document and Notes 13 and 29 to Canfor’s 2024
consolidated financial statements.
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Canfor Corporation
Changes in Financial Position.
At the end of 2024, Canfor had $259.3 million of cash and cash equivalents.
(millions of Canadian dollars)
2024
2023
Decrease in cash and cash equivalents32
$
(373.9)
$
(634.6)
Operating activities
$
174.2
$
154.7
Financing activities
$
124.1
$
(185.6)
Investing activities
$
(672.2)
$
(603.7)
32. 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 2024 are discussed in the following sections.
Operating activities.
For the 2024 year, Canfor generated cash from operations of $174.2 million, up $19.5 million from the cash generated of $154.7 million in
the previous year. The improvement in operating cash flow was principally due to the uplift in cash earnings in 2024, combined with the
receipt of income tax refunds in the current year, offset in part by unfavourable movements in non-cash working capital balances. The
latter primarily reflected an increase in the trade receivable balance year-over-year, largely correlated with the uplift in North American
benchmark lumber pricing towards the end of 2024, offset in part, by a timing-related increase in accounts payable and accrued
liabilities. Cash duty deposits paid in 2024 were $65.9 million compared to $43.1 million in the prior year.
Financing activities.
Financing activities in 2024 generated cash of $124.1 million compared to cash used of $185.6 million in 2023. Financing activities in
2024 were largely comprised of proceeds received from a duty deposits loan of $313.8 million, partially offset by $65.4 million in
distributions to non-controlling interests, as well as $45.0 million in long-term debt repayments, and, to a lesser extent, lease and
interest payments. Financing activities in 2023 were principally related to distributions to non-controlling interests, share purchases,
and, to a lesser extent, lease and interest payments. Finance activities in the prior 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.
Investing activities.
In 2024, the Company used net cash for investing activities of $672.2 million, compared to $603.7 million in 2023. The increase year-
over-year was mainly associated with the Company’s acquisition of the El Dorado manufacturing facility in August 2024 for $100.6
million (US$72.6 million) combined with the acquisition of an additional 7% of the outstanding shares in Vida for $118.3 million (SEK
916.6 million) in December 2024 (see further details outlined below). These investments were offset in part by the receipt of $72.6 million
in net proceeds from the sale of assets in the current year, including proceeds received from the sale of the Mackenzie sawmill and
related tenure, as well as the sale of the Chetwynd sawmill and CPPI’s Taylor Bleached Chemi-Thermo Mechanical Pulp mill.
Additions to property, plant and equipment (excluding acquisitions) totaled $527.1 million in 2024, down $59.9 million from 2023. In the
lumber segment, capital expenditures of $472.1 million principally reflected the construction costs associated with the Company’s
greenfield sawmill in Axis, Alabama, and the upgrade and expansion of the Company’s Urbana sawmill in Arkansas, both of which were
completed in the latter part of 2024, as well as ongoing spend associated with the expansion of the Bruza sawmill at the Company’s
European operations, and maintenance-of-business capital projects across all three lumber operating regions. In the pulp and paper
segment, capital spending of $50.8 million in 2024 was largely associated with maintenance-of-business capital spend, including
Intercon’s scheduled maintenance outage.
Acquisition of El Dorado.
On August 1, 2024, the Company completed the purchase of Resolute’s El Dorado lumber manufacturing facility located in Union County,
Arkansas, for $100.6 million (US$72.6 million), including a net working capital adjustment of $4.2 million (US$3.1 million). The facility,
named internally as Iron Mountain after a nearby roadway, produces dimensional lumber and specialty wood products and is expected
to increase the Company’s annual SYP lumber production capacity by 175 million board feet after an anticipated further $67.5 million
(US$50.0 million) in planned upgrades. Additional details on the acquisition are contained in Note 28 to Canfor’s 2024 consolidated
financial statements.
23
Canfor Corporation
Partial acquisition of Vida’s non-controlling interest.
On December 10, 2024, the Company announced the acquisition of an additional 7.0% of the outstanding shares in Vida for total
consideration of $118.3 million (SEK 916.6 million). The shares were acquired from certain minority shareholders who utilized their option
privileges outlined in the February 2019 agreement, through which Canfor had initially purchased 70.0% of Vida. As a result of this
transaction, Canfor’s ownership in Vida increased from 70.0% to 77.0%. As control was retained, the transaction was accounted for as
an equity transaction with owners. Additional details on the partial acquisition are contained in Note 30 to Canfor’s 2024 consolidated
financial statements.
Liquidity and Financial Requirements.
Operating loans.
Operating loans – Consolidated.
At December 31, 2024, on a consolidated basis, including CPPI and Vida, the Company had cash and cash equivalents of $259.3 million,
with $106.8 million drawn on its operating loans and facilities, and an additional $54.2 million reserved for several standby letters of
credit. At the end of the year, the Company had available and undrawn operating loan facilities of $1,321.6 million, including an undrawn
committed revolving credit facility.
Operating loans – Canfor, excluding Vida and CPPI.
At December 31, 2024, Canfor, excluding Vida and CPPI, had available operating loan facilities totaling $1,221.2 million, with $48.2
million reserved for several standby letters of credit, the majority of which related to unregistered pension plans, leaving $1,173.0 million
available and undrawn at the end of the year.
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’s net debt to total capitalization ratios.
Canfor’s principal committed operating loan facility matures on April 16, 2028. Canfor’s committed revolving credit facility matures on
June 28, 2025. On June 28, 2025, 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, 2030.
Operating loans – Vida.
At December 31, 2024, Vida had $8.8 million drawn on its $101.4 million operating loan facilities, leaving $92.6 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 4.4% to 8.3%.
Vida also has separate overdraft facilities with fixed interest rates ranging from 4.0% to 7.6%.
Operating loans – CPPI.
At December 31, 2024, CPPI had $98.0 million drawn on its $160.0 million operating loan facility, with $6.0 million reserved for several
standby letters of credit, leaving $56.0 million available and undrawn at the end of the year.
In December 2024, CPPI amended certain of the covenants under its operating loan facility. These amendments provide increases to the
net debt to total capitalization threshold and in certain cases reduce the interest coverage ratio. Refer to the “Debt covenants” section of
this document for further details.
Other terms of the operating loan facility remain unchanged, including the repayment date of May 2, 2027. Interest is payable at floating
rates that vary depending on the ratio of net debt to total capitalization and is based on the lenders’ Canadian prime rate, bankers’
acceptances, US-dollar base rate or US-dollar floating rate, plus a margin.
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.
In combination with the amendment of its operating loan facility, CPPI’s $80.0 million of non-revolving term debt was cancelled undrawn.
This term debt had been restricted for use specifically for upgrades to Northwood’s recovery boiler number one (“RB1”).
24
Canfor Corporation
Debt covenants.
As mentioned, Canfor and CPPI, excluding Vida, have certain financial covenants on its debt obligations that stipulate a maximum net
debt to total capitalization ratio of 50.0%. The net 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 net debt to total capitalization exceeds a 42.5%, Canfor and CPPI is subject to an interest coverage ratio that
requires a minimum amount of two times earnings before interest, taxes, depreciation and amortization (“EBITDA”) relative to net
interest expense. As at December 31, 2024, neither Canfor nor CPPI are currently subject to this test.
In December 2024, CPPI amended certain of the covenants under its operating loan facility. Key amendments included the establishment
of a covenant relief period during which the maximum net debt to total capitalization ratio increases from 50.0% to 60.0% for 2025 and
55.0% for 2026. In addition, if the net debt to total capitalization reaches a certain threshold, this amendment introduces a general
security agreement on the property of CPPI and lowers the minimum EBITDA interest coverage ratio to one and a half times.
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, 2024.
Substantially all borrowings of Vida and CPPI are non-recourse to other entities within the Company.
Duty deposits loan.
On September 27, 2024, Canfor entered into a secured loan agreement for approximately $424.9 million (US$315.0 million) with an
affiliate of Farallon Capital Management, L.L.C. (“Farallon”) and received all advances thereunder, totaling approximately $313.8 million
(US$232.4 million). The loan is secured by certain accounts receivable related to CVD and ADD paid to the US government. The
borrowings under the loan have terms of four and eight years, with an effective interest rate of 7.5% and 3.9%, respectively.
Principal and interest on the loan is payable at the end of the respective terms with the repayment of the loan, including all interest and
principal payments, anticipated to be met by refunds and interest receivable out of duty refunds from the US government. To the extent
duty refunds have not been received at the end of each respective term, the terms can be extended, at Canfor’s option, for two additional
ten-year terms.
Interest received by Canfor on the secured accounts receivable balances from September 27, 2024, to the date of duty refunds from the
US government, will also be payable to Farallon at the end of the respective terms of the borrowings under the loan.
Additional details on the duty deposit loan are contained in Note 13 to Canfor’s 2024 consolidated financial statements.
Net debt and liquidity.
As at December 31, 2024, on a consolidated basis, including CPPI and Vida, the Company had total net debt of $303.2 million, a $660.1
million change from net cash of $356.9 million at the end of the previous year. Available liquidity of $1,580.9 million, decreased by
$197.0 million from the previous year.
Normal course issuer bid.
On March 19, 2024, the Company renewed its normal course issuer bid whereby it can purchase for cancellation up to 5,942,508
common shares, or approximately 5% of its issued and outstanding common shares as of March 15, 2024. The renewed normal course
issuer bid is set to expire on March 20, 2025.
In 2024, 526,700 common shares were purchased under this normal course issuer bid for $8.4 million (an average of $15.95 per
common share), before tax of $0.6 million, all of which was paid during the year.
25
Canfor Corporation
Shares outstanding.
As at December 31, 2024 and March 6, 2025 there were 118,405,079 common shares of the Company outstanding, and Canfor’s
ownership interest in CPPI and Vida was 54.8% and 77.0%, respectively (December 31, 2023 – 54.8% and 70.0%).
2025 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 $350 million in 2025, which will include approximately $300 million in the lumber segment and approximately $50 million
in the pulp and paper segment (including costs related to scheduled maintenance outages).
For the lumber business, projected spending is 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 2025 will be primarily focused on projects aimed at improving the reliability of its
operations.
Details of the Company’s additional commitments and term debt obligations in 2025 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 2025.
Derivative financial instruments.
As at December 31, 2024, the Company had the following significant derivative financial instruments outstanding:
As at December 31, 2024
Maturity Date
Notional Amount
Average Rate
Lumber Futures Contracts
(MMfbm)
(US-dollars
per Mfbm)
Future sales contracts
0-6 months
14.5
$601.4
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.
As at December 31, 2024
Maturity Date
Notional Amount
Currency
Notional Amount
Exchange Rates
Forward Foreign Exchange Contracts
(millions)
(rate of SEK to
notional currency)
Future sales contracts
0-6 months
GBP
£40.0
13.54
0-12 months
USD
$66.0
10.16
0-6 months
EUR
€15.0
11.43
At December 31, 2024, the fair value of derivative financial instruments includes an asset of $1.1 million which is included in ‘Other
receivables’ and a liability of $5.2 million which is included in ‘Accounts payable and accrued liabilities’ on the Company’s consolidated
balance sheet. The fair value of these financial instruments was determined based on prevailing market rates for instruments with similar
characteristics.
26
Canfor Corporation
Other commitments.
The following table summarizes Canfor’s term debt obligations excluding interest at December 31, 2024 for each of the next five years
and thereafter:
(millions of Canadian dollars)
2025
2026
2027
2028
2029
Thereafter
Total
Term debt obligations
$
48.1
$
0.1
$
72.2
$
0.2
$
-
$
-
$
120.6
Interest payments include interest of 4.4% on the Company’s US$33.3 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 $242.5 million reflecting commitments for the construction of capital assets, and other working
capital items. The majority of these commitments are expected to be settled within five years. In addition, the Company has
committed to leases of property, plant and equipment as outlined under Note 6 of Canfor’s 2024 consolidated financial statements.
The Company's total commitments of $242.5 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, 2024, 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 $9.2 million was
recognized in 'Accounts payable and accrued liabilities' as at December 31, 2024.
•
Deferred reforestation, for which a liability of $104.5 million has been recorded at December 31, 2024. 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,
2024 was $116.9 million. As at December 31, 2024, Canfor estimates that total contribution payments of $8.2 million will be made to
its defined benefit pension plans in 2025.
•
CPPI has energy purchase agreements with a BC energy company (the “Energy Agreements”) for its kraft pulp mills. Two of these
agreements are for the sale of incremental electrical energy and the third agreement is for load displacement (completed in 2024).
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, 2024, CPPI had posted $2.0 million of standby letters of credit under 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 CPPI’s requirements in any given year.
Transactions with Related Parties.
The Company undertakes transactions with various related entities. These transactions are in the normal course of business and are
generally on similar terms as those accorded to unrelated third parties, except where otherwise noted.
The Jim Pattison Group is Canfor’s largest shareholder with an ownership interest of 53.8% at December 31, 2024. During 2024,
subsidiaries owned by the Jim Pattison Group provided lease, insurance, and other services to Canfor totaling $6.5 million.
During 2024, CPPI sold paper to subsidiaries owned by the Jim Pattison Group totaling $3.8 million. CPPI also made purchases from
subsidiaries owned by the Jim Pattison group totaling $0.5 million.
Also during 2024, Vida purchased sawlogs from former owners and current key management personnel totalling $2.0 million (SEK 15.1
million).
Additional details on related party transactions are contained in Note 23 to Canfor’s 2024 consolidated financial statements.
27
Canfor Corporation
Environmental, Social and Governance (“ESG”) Strategy, Reporting and Related Matters.
The Company’s annual Sustainability Report includes sustainability goals and targets and demonstrates progress made to date.
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 and they will be disclosed in our 2024 Sustainability Report. In 2024, Canfor has
approved near and long-term science-based emissions reduction targets with the Science Based Targets Initiative (SBTi). in line with the
Paris Agreement and limiting global warming to 1.5° Celsius above preindustrial levels. Direct emissions reductions will be prioritized,
and all residual emissions will be neutralized (if applicable) in line with SBTi criteria before reaching net-zero emissions.
More detailed information on the Company’s sustainability strategy and performance is provided in the annual Sustainability Report (to
be issued in the first quarter of 2025) and at https://sustainability.canfor.com.
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 the expected time periods, that some or all of the expected opportunities
may fail to materialize, result in increased capital expenditures or other costs to its operations. This may be due to events and
circumstances, such as, but not limited to: general global economic, market and business conditions; pricing, supply, demand for
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. In addition, 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 is committed to sustainable forest management practices, which
considers climate change and includes consultation engagement with Indigenous partners and stakeholders.
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.
Three-year Comparative Review.
(millions of Canadian dollars, except per share amounts)
2024
2023
2022
Sales
$
5,252.8
$
5,426.6
$
7,426.7
Net income (loss)
$
(736.2)
$
(348.5)
$
861.1
Shareholder net income (loss)
$
(669.0)
$
(326.1)
$
787.3
Total assets
$
5,571.9
$
6,131.4
$
6,739.2
Term debt
$
120.6
$
159.9
$
258.9
Shareholder net income (loss) per share, basic and diluted
$
(5.64)
$
(2.71)
$
6.39
28
Canfor Corporation
Fourth Quarter Results.
Q4 overview, including adjusting and one-time items33.
(millions of Canadian dollars)
Q4
2024
Q3
2024
YTD
2024
Q4
2023
YTD
2023
Reported operating loss
$
(45.9)
$
(559.7)
$
(942.2)
$
(191.3)
$
(531.6)
Asset write-down and impairment – lumber segment
$
-
$
100.3
$
131.9
$
-
$
-
Asset write-down and impairment – pulp and paper segment
$
-
$
211.0
$
211.0
$
-
$
-
Inventory write-down (recovery), net34
$
(36.1)
$
(14.8)
$
(29.7)
$
(41.1)
$
(57.2)
Adjusted operating loss33
$
(82.0)
$
(263.2)
$
(629.0)
$
(232.4)
$
(588.8)
One-time items – lumber segment33:
Restructuring and closure costs35
$
4.9
$
36.5
$
74.0
$
-
$
12.2
Gain on sale of assets, net36
$
-
$
(34.9)
$
(34.9)
$
-
$
-
Duty expense (recovery) related to finalized rates37
$
-
$
67.2
$
67.2
$
-
$
(43.3)
Duty expense related to refined fair value measurement38
$
-
$
53.4
$
53.4
$
-
$
-
One-time items – corporate restructuring costs33,35
$
0.6
$
2.1
$
2.7
$
-
$
-
Adjusted operating loss before one-time items33
$
(76.5)
$
(138.9)
$
(466.6)
$
(232.4)
$
(619.9)
Amortization
$
98.6
$
104.0
$
429.1
$
102.2
$
420.4
Adjusted operating income (loss) before amortization and
one-time items33
$
22.1
$
(34.9)
$
(37.5)
$
(130.2)
$
(199.5)
33. Adjusted operating income (loss) as well as adjusting and one-time items referenced throughout this MD&A are non-IFRS financial measures. Refer to the “Non-IFRS
financial measures” section for further details.
34. For the lumber segment, a $36.1 million net reversal of a previously recognized inventory write-down was recorded in Q4 2024 (Q3 2024 – $14.8 million net reversal of a
previously recognized inventory write-down, Q4 2023 – $30.2 million net reversal of a previously recognized inventory write-down). For the pulp and paper segment, no
inventory valuation adjustment was recognized in Q4 2024 and Q3 2024 (Q4 2023 – $10.9 million net reversal of a previously recognized inventory write-down).
35. Restructuring and closure costs of $5.5 million ($4.9 million in the lumber segment and $0.6 million in the unallocated segment), were recognized in Q4 2024 largely related
to the permanent closure of the Jackson and Mobile sawmills in the US South (Q3 2024 – restructuring and closure costs of $38.6 million, $36.5 million in the lumber segment
related to the permanent closures of Plateau and Fort St. John and $2.1 million in the unallocated segment; Q4 2023 – no restructuring and closure costs were recognized).
36. On September 9, 2024, the Company completed the sale of its remaining Mackenzie sawmill assets and associated forest tenure to the McLeod Lake Indian Band and Tsay
Keh Dene Nation for total proceeds of $66.5 million. As a result of this transaction, as well as other asset sales in the period, a net gain on sale of $34.9 million was recognized in
Q3 2024.
37. A duty expense of $67.2 million (US$48.6 million) was recognized in Q3 2024 following the finalization CVD and ADD rates applicable to POR5.
38. In Q3 2024, the Company refined its estimate of the fair value measurement of net duty deposits recoverable. In accordance with IFRS Accounting Standards, this change in
accounting estimate was applied on a prospective basis.
For the fourth quarter of 2024, the Company reported an operating loss of $45.9 million, compared to an operating loss of $559.7 million
for the third quarter of 2024. After taking account of adjusting and one-time items, as outlined in the table above, the Company’s
operating loss for the fourth quarter of 2024 was $76.5 million compared to a similarly adjusted operating loss of $138.9 million for the
previous quarter. These results primarily reflect an improvement in earnings for the lumber segment, and to a lesser extent, the pulp and
paper segment.
For the lumber segment, the operating loss was $36.6 million for the fourth quarter of 2024, compared to the previous quarter’s
operating loss of $336.2 million. After taking account of adjusting and other one-time items, the lumber segment operating loss was
$67.8 million, compared to a similarly adjusted operating loss of $128.5 million in the prior quarter. These results principally reflected
improved results from the Company’s North American operations combined with another quarter of solid earnings from its European
operations. The former was largely driven by an uptick in most North American lumber benchmark prices towards the end of the current
quarter and a 2 cent, or 3%, weaker Canadian dollar (versus the US-dollar). This slight improvement in market conditions was combined
with the benefit of higher production and shipments in Europe and Western Canada following seasonal and market-related downtime
taken, respectively, in the previous quarter.
For the pulp and paper segment, operating income was $4.1 million for the fourth quarter of 2024, compared to an operating loss of
$209.3 million for the third quarter of 2024. After taking account of adjusting items, including an asset write-down and impairment
charge in the prior period, CPPI’s adjusted operating income improved $2.4 million compared to an adjusted operating income for the
third quarter of 2024 of $1.7 million.
Notwithstanding the decline in adjusted results from its pulp operations in the current period, principally due to the full quarter impact of
the one line curtailment at Northwood on pulp production, shipments and costs, the improvement in operating income for CPPI as a
whole, largely reflected a moderate uplift in paper unit sales realizations, particularly to North American markets, combined with an
increase in paper production quarter-over-quarter.
29
Canfor Corporation
Compared to the fourth quarter of 2023, adjusted operating results were up $155.9 million from an adjusted operating loss of $232.4
million in the comparative period, primarily consisting of a $124.6 million improvement in lumber segment results combined with a $30.1
million increase in pulp and paper segment earnings.
After taking into consideration the adjusting and one-time items, the lumber segment operating loss in the fourth quarter of 2024 was
$67.8 million, compared to a similarly adjusted operating loss of $192.4 million in the fourth quarter of 2023. Higher lumber segment
results in the current period were predominantly driven by the Company’s Western Canadian operations, and to a much lesser extent,
Europe, mitigated to a degree, by a slight decline in results from the US South quarter-over-quarter. In Western Canada, the uplift in
results in the current quarter was primarily a result of a US$35 per Mfbm, or 9%, increase in the average North American Random
Lengths Western SPF 2x4 #2&Btr price, combined with the benefit of the changes in the operating footprint in BC, resulting from mill
closures and curtailments over the course of 2024. Improved earnings in Europe in the current quarter were principally tied to improved
market pricing in that region, while in the US South, the small decline in results quarter-over-quarter was largely associated with market-
related downtime and the correlated increase in lumber unit manufacturing costs in that region.
The adjusted operating results for the pulp and paper segment increased by $30.1 million compared to the fourth quarter of 2023, as
significantly higher US-dollar NBSK pulp list prices and a substantial improvement in paper unit sales realizations in the current quarter
were combined with a 2 cent, or 3%, weaker Canadian dollar, more than outweighing the impact of reduced pulp production and
shipment volumes quarter-over-quarter.
An overview of the results by business segment for the fourth quarter of 2024 compared to the third quarter of 2024 and the fourth
quarter of 2023 follows.
30
Canfor Corporation
Operating results by business segment.
Lumber.
Selected financial information and statistics – Lumber.
(millions of Canadian dollars, unless otherwise noted)
Q4
2024
Q3
2024
Q4
2023
Sales40
$
1,122.6
$
1,009.7
$
1,089.0
Reported operating loss40
$
(36.6)
$
(336.2)
$
(162.2)
Adjusting and one-time items39
$
(31.2)
$
207.7
$
(30.2)
Adjusted operating loss before one-time items39
$
(67.8)
$
(128.5)
$
(192.4)
Amortization
$
89.8
$
86.1
$
85.3
Adjusted operating income (loss) before amortization and one-time items39,40
$
22.0
$
(42.4)
$
(107.1)
Average WSPF 2x4 #2&Btr lumber price in US$41
$
435
$
366
$
400
Average WSPF 2x4 #2&Btr lumber price in Cdn$41,43
$
608
$
499
$
545
Average SYP 2x4 #2 lumber price in US$42
$
424
$
380
$
448
Average SYP 2x4 #2 lumber price in Cdn$42,43
$
593
$
518
$
610
Average SYP 2x6 #2 lumber price in US$42
$
367
$
270
$
333
Average SYP 2x6 #2 lumber price in Cdn$42,43
$
513
$
368
$
454
US housing starts (thousand units SAAR)44
1,379
1,332
1,481
Production – WSPF lumber (MMfbm)45
449
412
503
Production – SYP lumber (MMfbm)45
392
395
438
Production – European lumber (MMfbm)40,45
361
316
324
Shipments – WSPF lumber (MMfbm)46
464
442
510
Shipments – SYP lumber (MMfbm)46
387
417
434
Shipments – European lumber (MMfbm)46
419
369
389
39. Adjusted operating income (loss) as well as adjusting and one-time items referenced throughout this MD&A are defined as non-IFRS financial measures. Refer to the “Q4
overview, including adjusting and one-time items” and “Non-IFRS financial measures” sections for further details.
40. Q4 2024 includes sales of $363.8 million, operating income of $6.8 million, and operating income before amortization of $25.6 million from European operations (Q3 2024 –
sales of $329.9 million, operating income of $5.5 million, and operating income before amortization of $23.9 million; Q4 2023 – sales of $324.7 million, operating loss of $2.3
million, and operating income before amortization of $15.5 million). Operating income from the European operations in Q4 2024 includes $9.3 million in incremental
amortization and other expenses driven by the purchase price allocation at acquisition (Q3 2024 – $9.5 million; Q4 2023 – $9.3 million). Sawmill production from European
operations was 407 MMfbm in Q4 2024 (Q3 2024 – 352 MMfbm; Q4 2023 – 370 MMfbm).
41. Western Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths Publications, Inc.).
42. Southern Yellow Pine, Eastside, per thousand board feet (Source – Random Lengths Publications, Inc.).
43. Average lumber prices in Cdn$ 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.
44. Source – US Census Bureau, seasonally adjusted annual rate (“SAAR”).
45. Planer production, excluding production of trim blocks.
46. 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 markets saw a modest improvement in the fourth quarter of 2024. While affordability concerns persisted, a
quarter-over-quarter decline in interest rates contributed to a slight uptick in US residential construction activity. The repair and
remodeling sector remained steady during the period. This subtle improvement in demand was coupled with reduced supply due to fibre
shortages and market-related curtailments in both the US South and Western Canada and led to a rise in North American benchmark
lumber prices in the current quarter.
US housing starts averaged 1,379,000 units on a seasonally adjusted basis for the current quarter, up 4% from the previous quarter,
reflecting a 3% and 6% increase in single family and multi-family starts, respectively. In Canada, housing starts averaged 248,000 units
on a seasonally adjusted basis in the fourth quarter of 2024, up 4% from the previous quarter, largely driven by an increase in the
construction of single-family units, and to a lesser extent, multi-family units.
Offshore lumber markets in Asia saw improved pricing during the current quarter, despite continued low demand. In China, reduced
imports from Russia and lower volumes from Europe, due largely to the impact of the spruce beetle, led to supply pressure in the region,
resulting in some price appreciation. Similarly, Japan experienced fewer imports from Europe, impacted by both the spruce beetle
supply constraints and geopolitical logistics challenges, contributing to a quarter-over-quarter improvement in pricing in that region.
31
Canfor Corporation
In Europe, lower interest rates and easing inflation provided a small improvement in affordability, leading to a slight increase in
residential construction activity during the current quarter. However, demand in the repair and remodeling sector weakened during the
fourth quarter. As a result, overall European demand, and therefore market pricing, was muted quarter-over-quarter.
Sales.
Sales revenues for the lumber segment for the fourth quarter of 2024 were $1,122.6 million, up $112.9 million compared to the previous
quarter. The 11% increase in lumber sales revenue over the prior period was primarily driven by higher North American lumber unit sales
realizations, coupled with an uptick in shipments from Western Canada and Europe, and to a lesser extent, a 3% weaker Canadian dollar
(versus the US-dollar) in the current quarter. These factors were moderated, to a degree, by lower SYP shipments and fairly flat
European lumber unit sales realizations quarter-over-quarter.
Compared to the fourth quarter of 2023, sales revenues increased $33.6 million, or 3%, primarily attributable to an uplift in Western SPF
and European lumber unit sales realizations, combined with the benefit of increased European shipment volumes and, to a lesser extent,
a 3% weaker Canadian dollar (versus the US-dollar), partly offset by lower North American shipments in the current quarter.
Total lumber shipments at 1,270 billion board feet, were up 3% from the previous quarter, largely tied to a 14% uplift in European lumber
shipments, following the seasonal production downtime taken in the prior period. North American lumber shipments were broadly
comparable quarter-over-quarter as a production-driven increase in Western SPF shipments, was largely offset by a timing-related
decline in SYP shipments in the current period.
Compared to the fourth quarter of 2023, total lumber shipments declined 5%, as an increase in European shipments quarter-over-
quarter was more than offset by a 10% drop in North American shipments, primarily correlated with reduced production in the current
quarter, largely tied to the impact of temporary and permanent mill closures implemented in 2024.
The North American Random Lengths Western SPF 2x4 #2&Btr price opened the quarter at a low of US$380 per Mfbm and steadily
improved as the quarter progressed, ending December at US$438 per Mfbm. For the current quarter overall, the North American
Random Lengths Western SPF 2x4 #2&Btr price averaged US$435 per Mfbm, up US$69 per Mfbm, or 19%, from the previous quarter.
The Company’s Western SPF unit sales realizations significantly improved quarter-over-quarter, primarily reflecting this uplift in Western
SPF 2x4 #2&Btr lumber pricing, as well as more pronounced increases in pricing for most wider width products and the 3% weaker
Canadian dollar (versus the US-dollar), offset in part by a timing lag in shipments vs orders.
The average North American SYP East 2x4 #2 price began the quarter at US$432 per Mfbm, reached a high of US$485 per Mfbm
towards the end of October, then gradually declined and ended December at US$400 per Mfbm. Overall, the SYP East 2x4 #2 price
averaged US$424 per Mfbm in the fourth quarter of 2024, up US$44 per Mfbm, or 12%, from the previous quarter. The SYP East 2x6 #2
price experienced greater appreciation than the SYP East 2x4 #2, averaging US$367 per Mfbm for the current quarter, an increase of
US$97 per Mfbm, or 36%, quarter-over-quarter. As a direct result, the Company's SYP unit sales realizations experienced a substantial
improvement in the current quarter, principally tied to the aforementioned upward trend in SYP lumber benchmark pricing.
The Company’s European lumber unit sales realizations were broadly comparable with the previous quarter as fairly flat lumber market
pricing in Europe and the UK, was combined with a 1% stronger Canadian dollar (versus the SEK).
Compared to the fourth quarter of 2023, the average North American Random Lengths Western SPF 2x4 #2&Btr price increased by
US$35 per Mfbm, or 9%. A significant uplift in the Company’s Western SPF lumber unit sales realizations quarter-over-quarter largely
reflected this increase, combined with favorable pricing gains for most wider-width products and a 3% weaker Canadian dollar (versus
the US-dollar). In the US South, SYP lumber unit sales realizations increased slightly compared to the fourth quarter in the prior year, as a
US$24 per Mfbm, or 5%, decrease in the average North American SYP East 2x4 #2 price, was more than offset by the US$34 per Mfbm,
or 10%, uptick in the average SYP East 2x6 #2 price over the same comparative period. The Company’s European lumber unit sales
realizations experienced a moderate increase from the same period in the prior year, primarily tied to improved lumber market pricing in
Europe in the current quarter, tempered in part by a 1% stronger Canadian dollar (versus the SEK).
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, combined with
seasonally higher log sales in Western Canada in the current period. Other revenues for the fourth quarter of 2024 were broadly
comparable with the same period in the prior year.
Operations.
Total lumber production, at 1.20 billion board feet, was 7% higher than the prior quarter, principally due to the benefit of increased
operating days at the Company’s European operations following the aforementioned seasonal downtime, combined with an uptick in
Western SPF production, primarily driven by a reduction in market-related curtailments in the current period (approximately 155 million
32
Canfor Corporation
board feet in the current quarter versus 200 million board feet in the prior quarter). SYP lumber production was broadly in line with the
prior quarter as capital related downtime associated with the completion of the Urbana sawmill upgrade in the third quarter of 2024 was
largely offset by reduced operating schedules in the fourth quarter of 2024, principally tied to an increase in statutory holidays.
Compared to the fourth quarter of 2023, total lumber production decreased by 5%, primarily reflecting, in Western Canada, the impact
of the permanent closure of the Polar sawmill (April 2024) and the wind-down of Plateau and Fort St. John sawmills during the current
quarter. These factors were combined with market-related downtime in the US South and the permanent closure of the Jackson (June
2024) and Mobile sawmills (October 2024). The impact of these closures on North American lumber production was offset in part by
acquisition of Iron Mountain (August 2024), the ramp up of Urbana, following its upgrade and expansion project completed during the
third quarter of 2024, as well as start-up of the greenfield sawmill in Axis, Alabama through the fourth quarter of 2024. In contrast,
production from the Company’s European operations increased by 11% compared to the same period in the prior year, mostly tied to the
benefit of an additional shift at the Borgstena sawmill in early 2024, as well as improved productivity at most of the Company’s sawmills
in that region.
Lumber unit manufacturing and product costs were slightly lower than the previous quarter, primarily due to a decrease in per-unit
conversion costs principally driven by higher production volumes in the current period. Log costs were broadly comparable quarter-
over-quarter, as increased European log costs, associated with ongoing log supply pressures, were offset by lower log costs in BC in the
current quarter.
Compared to the fourth quarter of 2023, lumber unit manufacturing costs were modestly higher, as a minor increase in per-unit
conversion costs, was combined with a slight uplift in log costs. The former was most pronounced in the US South, principally due to
lower production in the current period. In Western Canada, the impact of lower production quarter-over-quarter, was largely mitigated
by reduced spending. In Europe, per-unit conversion costs experienced a slight reduction, as the benefit of higher production was mostly
offset by inflationary-related pressures on spend. Higher log costs in the current period were largely driven by significant market-based
log price increases in Europe due to ongoing log supply constraints, offset, in part, by lower market-based stumpage costs in BC. Log
costs in the US South were broadly comparable quarter-over-quarter.
Pulp and Paper.
Selected financial information and statistics – Pulp and paper.47
Q4
Q3
Q4
(millions of Canadian dollars, unless otherwise noted)
2024
2024
2023
Sales
$
163.1
$
193.2
$
193.9
Reported operating income (loss)
$
4.1
$
(209.3)
$
(15.1)
Adjusting and one-time items48
$
-
$
(211.0)
$
(10.9)
Adjusted operating income (loss) before one-time items48
$
4.1
$
1.7
$
(26.0)
Amortization49
$
8.2
$
17.1
$
16.2
Adjusted operating income (loss) before amortization and one-time items48, 49
$
12.3
$
18.8
$
(9.8)
Average NBSK pulp list price delivered to China – US$50
$
767
$
771
$
748
Average NBSK pulp list price delivered to China – Cdn$50
$
1,073
$
1,052
$
1,019
Production – pulp (000 mt)
98
125
148
Production – paper (000 mt)
34
30
34
Shipments – pulp (000 mt)
97
125
136
Shipments – paper (000 mt)
28
31
32
47. Includes 100% of Canfor Pulp Products Inc., which is consolidated in Canfor’s operating results.
48. Adjusted operating income (loss) as well as adjusting and one-time items referenced throughout this MD&A are defined as non-IFRS financial measures. Refer to the “Q4
overview, including adjusting and one-time items” and “Non-IFRS financial measures” sections for further details.
49. Amortization includes amortization of certain capitalized major maintenance costs.
50. Per tonne, NBSK pulp list net price delivered to China (as published by Resource Information Systems, Inc. (“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.
Global softwood pulp market fundamentals remained relatively flat through the fourth quarter of 2024, following a moderate decline in
the preceding quarter. However, later in the period, global demand and purchasing activity experienced some positive momentum as
producers worked to reduce their higher-than-average inventory levels. Consequently, US-dollar NBSK list prices to China, the world’s
largest pulp consumer, saw a slight increase towards the end of the current quarter, ending December at US$770 per tonne. Despite this
late improvement, for the current quarter overall, US-dollar NBSK pulp list prices to China averaged US$767 per tonne, down US$4 per
33
Canfor Corporation
tonne, or 1%, from the prior quarter. Compared to the same period in the prior year, however, pulp list prices to China were up US$19 per
tonne, or 3%.
Notwithstanding the subtle positive trends seen in China late in the current period, other global regions, including North America,
continued to experience price moderation through the fourth quarter, with the average US-dollar NBSK pulp list price to North America
down US$75 per tonne, or 4%, from the previous quarter, to US$1,687 per tonne (before discounts). Compared to the fourth quarter of
2023, however, pulp list prices to North America were up US$375 per tonne, or 29%.
Global softwood pulp producer inventories steadily improved as the fourth quarter progressed, ending December 2024 at 42 days of
supply51, a decline of 7 days compared to September 2024. Market conditions are generally considered balanced when inventories are in
the 32-43 days of supply range51.
Global kraft paper market demand and pricing remained stable through most of the fourth quarter of 2024, with some weakness
experienced in the North American region toward the end of the year.
Sales.
CPPI’s pulp shipments for the fourth quarter of 2024 totaled 97,000 tonnes, down 28,000 tonnes, or 22%, from the previous quarter,
and down 39,000 tonnes, or 29% from the fourth quarter of 2023, primarily driven by a reduction in pulp production following the wind
down of one production line at CPPI’s Northwood pulp mill in August 2024. Pulp shipments for the fourth quarter of 2023 were impacted
by the delayed restart of Northwood following the completion of its scheduled maintenance outage (approximately 30,000 tonnes).
CPPI’s average NBSK pulp unit sales realizations were broadly comparable to the prior quarter, as slightly weaker US-dollar NBSK pulp
list prices to China were offset by a 2 cent, or 3%, weaker Canadian dollar.
Compared to the fourth quarter of 2023, CPPI’s average NBSK pulp unit sales realizations experienced a substantial increase, primarily
attributable to improved market fundamentals quarter-over-quarter, including a 3% increase in US-dollar NBSK pulp list prices to China
and a 29% increase in pricing to North America (before discounts), combined with a 2 cent, or 3%, weaker Canadian dollar.
Energy revenues increased in the current quarter compared to the third quarter of 2024, principally driven by seasonally higher power
pricing. Compared to the fourth quarter of 2023, energy revenues declined, largely a result of lower production associated with the wind
down of one production line at Northwood and the correlated decline in energy generation.
CPPI’s paper shipments in the fourth quarter of 2024 were 28,000 tonnes, down 3,000 tonnes from the previous quarter, and down
4,000 from the fourth quarter of 2023, largely due to the timing of shipments quarter-over-quarter and the replenishment of inventory
levels in the current period as a result of minor mechanical failures impacting productivity in the prior quarter.
Paper unit sales realizations in the fourth quarter of 2024 were moderately higher than the previous quarter, principally reflecting a
favourable product mix (timing-related), combined with the weaker Canadian dollar. Compared to the fourth quarter of 2023, paper unit
sales realizations experienced a substantial increase, primarily associated with a notable improvement in US-dollar paper prices quarter-
over-quarter, especially to North American markets, combined with the weaker Canadian dollar.
Operations.
Pulp production was 98,000 tonnes for the fourth quarter of 2024, down 27,000 tonnes, or 22%, from the third quarter of 2024, and
down 50,000 tonnes, or 34%, compared to the same period in the prior year, principally reflecting the aforementioned indefinite closure
of one pulp line at Northwood in August 2024. In the fourth quarter of 2023, NBSK pulp production was reduced by approximately
30,000 tonnes as a result of a delayed restart following Northwood’s scheduled maintenance outage.
Pulp unit manufacturing costs experienced a moderate increase compared to the prior quarter primarily driven by lower pulp production,
and to a lesser extent, elevated chemical and maintenance costs (timing-related), offset to a degree by reduced energy spend in the
current period. Fibre costs were relatively unchanged quarter-over-quarter as the market-based price for sawmill residual chips (linked
to Canadian dollar NBSK pulp sales realizations) and the proportion of higher-cost whole log chips compared to sawmill residual chips,
were broadly in line with the preceding quarter.
Compared to the fourth quarter of 2023, pulp unit manufacturing costs were slightly higher, as the impact on unit costs of a significant
reduction in pulp production was offset in part by reduced energy and maintenance spend in the current period.
51. World 20 data is based on twenty producing countries representing 80% of 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 balanced range are the average level plus or minus one standard deviation, based on the last 60
data points (i.e. last five years).
34
Canfor Corporation
Paper production for the fourth quarter of 2024 was 34,000 tonnes, up 4,000 tonnes from the third quarter of 2024, and in line with the
fourth quarter of 2023. The former was principally driven by improved productivity following minor mechanical failures in the prior
period.
Paper unit manufacturing costs were slightly lower than the third quarter of 2024, largely due to improved paper production quarter-
over-quarter, and to a lesser extent, reduced slush pulp costs. Compared to the fourth quarter of 2023, paper unit manufacturing costs
saw a moderate increase, primarily driven by higher slush pulp costs (tied to increased Canadian dollar NBSK pulp unit sales
realizations), offset in part by lower energy costs and maintenance spend (timing-related).
Unallocated Items.
Selected financial information.
(millions of Canadian dollars)
Q4
2024
Q3
2024
Q4
2023
Corporate costs
$
(13.4)
$
(14.2)
$
(14.0)
Finance income (expense), net
$
(18.8)
$
(20.3)
$
2.7
Foreign exchange gain (loss) on term debt, duty deposits loan and duty deposits
recoverable, net
$
(12.6)
$
2.6
$
(0.3)
Gain (loss) on derivative financial instruments
$
(8.2)
$
0.7
$
9.0
Other income, net
$
5.9
$
4.3
$
4.6
Corporate costs were $13.4 million for the fourth quarter of 2024, down $0.8 million from the previous quarter and down $0.6 million
from the same quarter in the prior year, primarily reflecting lower restructuring costs in the current quarter, partially offset by higher
head office and general administrative expenses.
Net finance expense of $18.8 million for the fourth quarter of 2024 was down $1.5 million from the previous quarter, principally due to a
reduction in interest expense on term debt facilities combined with lower financing fees associated with letters of credit, offset in part by
the full quarter impact of interest expense associated with the duty deposits loan during the current quarter. Net finance income of $2.7
million in the fourth quarter of 2023 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, partially offset by interest expenses.
In the fourth quarter of 2024, the Company recognized a net foreign exchange loss of $12.6 million, primarily consisting of a loss of $21.3
million on its US-dollar denominated duty deposits loan, resulting from the weakening of the Canadian dollar at the close of the current
quarter compared to the end of September 2024, offset in part, by a gain of $6.0 on its US-dollar denominated duty deposits recoverable
and, to a lesser extent, a gain on US-dollar term debt held by its US entities.
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 2024, the Company recorded a net loss of $8.2
million, primarily related to unrealized and realized mark-to-market losses on SEK foreign exchange forward contracts.
Other income, net, of $5.9 million in the fourth quarter of 2024 mainly reflected favourable foreign exchange movements on US-dollar
denominated working capital balances at the end of the current period compared to the end of the prior quarter, combined with CPPI’s
receipt of insurance proceeds related to operational downtime experienced at Northwood in recent years. Other income, net, of $4.3
million in the third quarter of 2024 was largely comprised of proceeds on sale of long-term investments, partly offset by unfavourable
foreign exchange movements on US-dollar denominated working capital balances. In the fourth quarter of 2023, other income, net, of
$4.6 million, was principally related to mark-to-market gains on investments in certain highly liquid funds, partly offset by unfavourable
foreign exchange movements on US-dollar denominated working capital balances.
35
Canfor Corporation
Other comprehensive income.
The following table summarizes Canfor’s other comprehensive income (loss) for the comparable periods:
(millions of Canadian dollars)
Q4
2024
Q3
2024
Q4
2023
Defined benefit plan actuarial gain, net of tax
$
5.9
$
3.7
$
5.5
Foreign exchange translation differences for foreign operations, net of tax
$
98.3
$
7.0
$
10.8
Other comprehensive income, net of tax
$
104.2
$
10.7
$
16.3
In the fourth quarter of 2024, the Company recorded a gain of $8.1 million (before tax) in relation to the Company's net defined benefit
obligations (comprised of defined benefit pension plans as well as other benefit plans), primarily reflecting a gain associated with the
distribution of a plan surplus to members following the final settlement of one of the Company’s registered pension plans.
In the third quarter of 2024, the Company recorded a gain of $5.0 million (before tax) 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 driven by a higher
than anticipated return on plan assets, offset to a degree, by a 0.1% decrease in the discount rate used to value the net defined benefit
obligations.
Similarly, 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.
In addition, the Company recorded an accounting gain of $98.3 million in the fourth quarter of 2024 related to foreign exchange
differences for foreign operations principally due to the weakening of the Canadian dollar relative to the US-dollar at the close of the
current quarter. This compared to a gain of $7.0 million in the third quarter of 2024 and a gain of $10.8 million in the fourth quarter of
2023.
Changes in Financial Position.
At the end of 2024, Canfor had $259.3 million of cash and cash equivalents.
(millions of Canadian dollars, except ratios)
Q4
2024
Q3
2024
Q4
2023
Increase (decrease) in cash and cash equivalents52
$
(267.3)
$
103.8
$
(229.7)
Operating activities
$
87.9
$
51.6
$
(8.4)
Financing activities
$
(108.8)
$
215.5
$
(48.1)
Investing activities
$
(246.4)
$
(163.3)
$
(173.2)
Ratio of current assets to current liabilities
1.9 : 1
2.2 : 1
2.5:1
Net debt (cash) to total capitalization53
7.8%
1.4%
(9.1)%
Cumulative duty deposits paid
$
996.9
$
971.8
$
931.0
52. Increase (decrease) in cash and cash equivalents shown before foreign exchange translation on cash and cash equivalents.
53. Net debt (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 generated from operating activities was $87.9 million in the fourth quarter of 2024, compared to cash generated of $51.6 million in
the previous quarter and cash used of $8.4 million in the fourth quarter of 2023. The $36.3 million increase in operating cash flows from
the prior period primarily reflected improved cash earnings, offset in part by the impact of the receipt of income tax refunds in the third
quarter of 2024. Compared to the fourth quarter of 2023, operating cash flows were up $96.3 million, mainly due to higher cash earnings
in the current period combined with favourable movements in non-cash working capital balances, as a decline in log and finished lumber
inventories at the end of the current period, primarily associated with the permanent closure of BC sawmills in 2024, was combined with
a timing-related increase in accounts payable and accrued liabilities balances.
36
Canfor Corporation
Financing activities.
Cash used from financing activities in the fourth quarter of 2024 was $108.8 million, compared to cash generated of $215.5 million in the
previous quarter and cash used of $48.1 million in the fourth quarter of 2023. Financing activities in the current quarter largely consisted
of $50.7 million in net cash distributions to non-controlling interests, the majority of which relates to a Vida dividend payment during the
current period, combined with a $45.0 million repayment of long-term debt, and, to a lesser extent, lease and interest payments. In the
third quarter of 2024, financing activities primarily included proceeds received from a duty deposits loan of $313.8 million, offset in part
by a net $80.7 million repayment of the Company’s operating loan facilities, and to a lesser extent, share repurchases, lease and interest
payments. In the fourth quarter of 2023, financing activities principally 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).
Investing activities.
Cash used for investing activities was $246.4 million for the current quarter, compared to $163.3 million for the previous quarter and
$173.2 million for the same quarter of 2023. Investing activities in the current quarter were comprised of capital additions of $136.6
million and the acquisition of an additional 7% of the outstanding shares in Vida for $118.3 million (SEK 916.6 million).
As mentioned, capital additions in the fourth quarter of 2024 were $136.6 million, up $19.9 million from the previous quarter and down
$35.5 million from the fourth quarter of 2023. In the lumber segment, current quarter capital expenditures principally reflected ongoing
construction costs related to the Company’s completed greenfield sawmill in Axis, Alabama, (which came online towards the end of the
current quarter) and, to a lesser extent, the wrap up of spend associated with the upgrade and expansion of the Company’s Urbana
sawmill as well as the commencement of spend at the recently acquired Iron Mountain sawmill in Arkansas. Capital spend in the current
period also included maintenance-of-business capital across all three lumber operating regions. In the pulp and paper segment, capital
expenditures were predominantly associated with maintenance-of-business capital spend.
Selected Quarterly Financial Information.
Q4
2024
Q3
2024
Q2
2024
Q1
2024
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Sales and income (loss)
(millions of Canadian dollars)
Sales
$
1,285.7
$ 1,202.9
$
1,381.5
$
1,382.7
$
1,282.9
$ 1,312.3
$ 1,446.0
$ 1,385.4
Operating income (loss) before amortization, asset write-
downs and impairments54
$
52.7
$
(144.4)
$ (98.3) $
19.8
$
(89.1)
$
42.6
$
41.0
$ (105.7)
Operating loss
$
(45.9)
$
(559.7)
$ (250.8)
$ (85.8) $ (191.3) $
(65.1)
$
(66.7)
$
(208.5)
Net loss
$
(62.2)
$
(423.3)
$ (186.4) $ (64.3) $ (121.6) $
(34.7)
$
(48.6)
$
(143.6)
Shareholder net loss
$
(63.3)
$ (350.1)
$
(191.1)
$
(64.5) $
(117.1)
$
(23.1)
$
(43.9)
$ (142.0)
Per common share (Canadian dollars)
Shareholder net loss – basic and diluted
$
(0.53)
$
(2.96)
$ (1.61)
$
(0.54) $
(0.98) $
(0.19)
$ (0.36)
$ (1.17)
Book value55
$
27.97
$ 27.41
$
30.32
$ 31.69 $
32.10
$
32.89
$
32.63
$
33.81
Statistics
Lumber shipments (MMfbm)56
1,270
1,228
1,386
1,371
1,333
1,288
1,406
1,340
Pulp shipments (000 mt)
97
125
145
159
136
142
179
152
Average exchange rate – US$/Cdn$
$
0.715
$ 0.733
$ 0.731
$
0.741
$
0.734
$ 0.746
$ 0.745
$
0.740
Average exchange rate – SEK/Cdn$
7.708
7.639
7.806
7.706
7.819
8.056
7.833
7.726
Average Western SPF 2x4 #2&Btr lumber price (US$)
$
435
$
366
$ 386
$ 446 $ 400
$ 419
$ 358
$
386
Average SYP (East) 2x4 #2 lumber price (US$)
$
424
$
380
$ 354
$ 419 $ 448
$ 452
$ 486
$
485
Average SYP (East) 2x6 #2 lumber price (US$)
$
367
$
270
$ 308
$ 354 $ 333
$ 404
$ 385
$
420
Average NBSK pulp list price delivered to China (US$)
$
767
$
771
$ 811
$ 745 $ 748
$ 680
$ 668
$
891
54. Amortization includes amortization of certain capitalized major maintenance costs; includes asset write-down and impairment charges of $311.3 million in Q3 2024, and $31.6
million in Q2 2024.
55. 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.
56. 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.
37
Canfor Corporation
(millions of Canadian dollars, except ratios)
Q4
2024
Q3
2024
Q2
2024
Q1
2024
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Operating income (loss) by segment:
Lumber
$
(36.6)
$ (336.2) $ (230.5) $
(57.1)
$
(162.2)
$
(1.3) $
(15.5)
$
(169.7)
Pulp and paper
$
4.1
$ (209.3) $ (5.6) $
(15.7)
$
(15.1)
$ (49.3) $
(37.9)
$
(25.2)
Unallocated and other
$
(13.4)
$ (14.2) $ (14.7)
$
(13.0)
$
(14.0)
$
(14.5) $
(13.3)
$
(13.6)
Total operating loss
$
(45.9)
$
(559.7) $
(250.8) $
(85.8)
$
(191.3)
$
(65.1)
$
(66.7)
$ (208.5)
Add: Amortization57
$
98.6
$
104.0
$
120.9
$
105.6
$
102.2
$
107.7
$
107.7
$
102.8
Add: Asset write-downs and impairments
$
-
$
311.3
$
31.6
$
-
$
-
$
-
$
-
$
-
Total operating income (loss) before amortization, asset write-
downs and impairments
$
52.7
$
(144.4) $
(98.3) $ 19.8
$
(89.1)
$
42.6
$
41.0
$ (105.7)
Add (deduct):
Non-cash working capital movements, net
$
8.1
$
(2.1)
$
145.2
$ (154.7)
$
(18.0)
$
151.8
$
152.3
$
(120.0)
Defined benefit plan contributions, net
$
(2.7)
$
(2.0) $
(3.5) $
(3.3)
$
(2.5)
$
(2.9) $
(15.4)
$
(3.4)
Income taxes received (paid), net
$
8.4
$
81.1
$
(11.6) $
(2.9)
$
(0.5)
$
41.8
$
(17.9)
$
(57.2)
Duties paid (greater) less than accruals58
$
0.8
$
138.5
$
40.0
$
15.4
$
81.5
$
(22.8) $
22.6
$
19.4
Other operating cash flows, net59
$
20.6
$
(19.5) $
43.9
$
44.7
$
20.2
$ (4.9) $
1.2
$
40.6
Cash from (used in) operating activities
$
87.9
$ 51.6
$
115.7
$
(81.0)
$
(8.4)
$
205.6
$
183.8
$
(226.3)
Add (deduct):
Capital additions, net
$
(136.6)
$ (116.7) $ (170.4)
$
(103.4)
$
(172.1)
$
(192.9) $
(142.4)
$
(79.6)
Proceeds from sale of property, plant and equipment and
intangible assets
$
0.7
$
64.4
$
5.6
$
1.9
$
1.7
$
2.8
$
1.8
$
2.8
Proceeds from duty deposits loan
$
-
$ 313.8
$
-
$
-
$
-
$
-
$
-
$
-
Conversion and changes in term debt, net
$
(45.0)
$ (0.2)
$
-
$
0.2
$
(46.0)
$ (0.1)
$
(50.1)
$
0.1
Acquisition of El Dorado sawmill
$
-
$ (100.6) $
-
$
-
$
-
$
-
$
-
$
-
Partial acquisition of Vida non-controlling interest
$
(118.3)
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Finance expenses paid
$
(8.2)
$ (9.5)
$ (8.5)
$
(8.6)
$
(10.5)
$
(6.7) $
(10.8)
$
(5.6)
Share purchases
$
(0.6)
$ (0.2)
$ (4.9)
$
(3.3)
$
(9.5)
$
(12.2) $
(11.5)
$
(11.1)
Purchase of long-term investments, net
$
3.0
$ (14.8)
$ (1.4) $
(3.3)
$
(11.4)
$
(48.0) $
-
$
-
Distributions paid to non-controlling interests, net
$
(50.7)
$
1.1
$ (15.4)
$
(0.4)
$
-
$
(0.4) $
(61.9)
$
-
Foreign exchange gain (loss) on cash and cash equivalents $
0.8
$
10.4
$
5.9
$
(11.3)
$
19.4
$ 12.4
$
(40.3)
$
1.8
Other, net59
$
(5.2)
$ (0.2)
$
(6.1)
$
(2.5)
$
(0.2)
$
(2.9) $
(0.3)
$
5.0
Change in cash / operating loans
$
(272.2)
$
199.1
$ (79.5)
$
(211.7)
$ (237.0)
$
(42.4) $
(131.7)
$
(312.9)
57. Amortization includes amortization of certain capitalized major maintenance costs.
58. Adjusted to true-up ADD deposits to the Company’s current accrual rates.
59. Further information on cash flows may be found in the Company’s annual consolidated financial statements.
Specific Items Affecting Comparability of Net Loss.
Other 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
2024
Q3
2024
Q2
2024
Q1
2024
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Shareholder net loss, as reported
$
(63.3) $
(350.1)
$ (191.1)
$
(64.5)
$
(117.1)
$
(23.1)
$
(43.9)
$ (142.0)
Foreign exchange (gain) loss on term debt
$
(2.7)
$
(3.5)
$
3.1
$
6.6
$ (5.3) $
6.4
$
(6.7)
$ (0.4)
Foreign exchange loss on duty deposits loan
$
21.3
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(Gain) loss on derivative financial instruments
$
4.8
$
0.2
$
(3.9) $
5.8
$ (4.8) $ (2.7)
$
6.3
$
(2.5)
Asset write-downs and impairments
$
-
$
158.7
$
23.2
$
-
$
-
$
-
$
-
$
-
Net impact of above items
$
23.4
$
155.4
$
22.4
$
12.4
$ (10.1) $
3.7
$
(0.4) $
(2.9)
Adjusted shareholder net loss60
$
(39.9) $
(194.7)
$ (168.7)
$
(52.1)
$ (127.2) $ (19.4)
$ (44.3) $
(144.9)
Shareholder net loss per share (EPS), as reported
$
(0.53)
$
(2.96)
$ (1.61)
$ (0.54)
$ (0.98) $ (0.19)
$
(0.36) $
(1.17)
Net impact of above items per share
$
0.20
$
1.31
$
0.19
$ 0.10
$ (0.08) $
0.03
$
-
$ (0.03)
Adjusted net loss per share60
$
(0.33)
$
(1.65)
$
(1.42)
$
(0.44)
$ (1.06) $ (0.16)
$
(0.36) $
(1.20)
60. Adjusted shareholder net loss is a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section for further details.
38
Canfor Corporation
Outlook.
Lumber.
Looking ahead, continued volatility in global lumber market conditions is anticipated through the first half of 2025 despite longer-term
underlying fundamentals remaining solid. In North America, affordability constraints combined with broader economic and political
uncertainty are projected to weigh on demand for both new home construction and repair and remodeling activity in the short-term. On
the supply side, permanent mill closures, particularly in Western Canada, along with fibre and market-related curtailments, are
anticipated to give rise to some modest pricing improvement through the first quarter and into the second quarter of 2025.
Subsequent to year-end, in March 2025, the preliminary anti-dumping results for the sixth period of review (“POR6”) were announced,
which indicated that the Company’s ADD rate for 2023 was 34.61%. Upon finalization of this rate (anticipated in the third quarter of
2025), the Company’s current combined cash deposit rate of 16.58% will be reset to 40.75% (based on this preliminary ADD rate
determination of 34.61% combined with the Company’s current CVD cash deposit rate of 6.14%). In addition, the DOC is anticipated to
release preliminary countervailing results for POR6 on or before May 2025, which are anticipated to further impact the Company’s
combined cash deposit rate later in 2025.
In addition, in March 2025, US tariffs of 25% have been imposed on Canadian goods and these tariffs will be in addition to the pre-
existing CVD and ADD. There is also the potential that further tariffs may be imposed on Canadian forest product imports into the US
going forward. With a diversified operating platform in the US South and Sweden, in addition to Canada, the Company is well positioned
to mitigate some of these costs. However, actual and potential tariffs do present challenges for the Company’s Canadian operations, and,
as result, the Company is continuing its strategy of refocusing those products on domestic markets, particularly in Western Canada, and
strengthening its presence in offshore markets.
The subdued offshore lumber market conditions in China experienced in the fourth quarter of 2024 are projected to persist through the
first quarter of 2025, with continuing headwinds from a depressed real estate sector as the benefits of new government policies remain
slow to materialize. In Japan, modest improvement in the multi-family rental and non-residential sectors, coupled with lower import
volumes, are anticipated to tighten supply and support a modest uplift in pricing.
In Europe, lumber pricing is forecast to gain some upward momentum in the first quarter of 2025, largely driven by supply constraints in
the region following the impact of the spruce beetle, while demand is projected to remain relatively soft, despite some modest
improvements in affordability in the region.
In BC, despite the Company’s recent changes with regards to its operating footprint, it is anticipated that this region will continue to face
challenging operating conditions especially with respect to the availability of economically viable fibre and high duties on lumber
shipments to the US.
Pulp and Paper.
Looking forward, global softwood pulp market conditions are projected to improve through the balance of the first quarter and into the
second quarter of 2025, as global supply dynamics adjust to new hardwood capacity and as pulp producer inventories normalize. On the
demand side, steady Chinese demand is anticipated to absorb these changes in supply.
CPPI, like Canfor, continues to monitor the trade situation between Canada and the US and mitigation plans are underway to mostly
offset the impact of the tariffs on US shipments.
CPPI remains focused on optimizing its operating footprint, enhancing operational reliability as well as closely managing manufacturing
and fibre costs. Looking forward, there remains significant uncertainty with regards to the availability of economically viable fibre within
BC. As a result, CPPI continues to anticipate that escalating log cost pressures and transportation costs in BC will translate into a higher
cost fibre supply for its pulp mills (both for sawmill residual chips and whole log chips). CPPI will continue to evaluate operating
conditions and adjust operating rates at its pulp mills to align with economically viable fibre supply. These factors could also affect CPPI’s
operating plan, liquidity, cash flows and the valuation of long-lived assets.
No major maintenance outages are planned for the first and second quarters of 2025. In the third quarter of 2025 a maintenance outage
is scheduled at Northwood with a projected 10,000 tonnes of reduced NBSK market pulp production. In the fourth quarter of 2025, a
maintenance outage is scheduled at Intercon, with a projected 5,000 tonnes of reduced NBSK market pulp production.
Demand for bleached kraft paper is projected to remain steady through the remainder of the first quarter of 2025. A maintenance outage
is currently planned at the Company’s paper machine in the fourth quarter of 2025 with a projected 5,000 tonnes of reduced paper
production.
39
Canfor Corporation
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 condensed consolidated interim financial statements:
(millions of Canadian dollars)
Q4
2024
Q3
2024
YTD
2024
Q4
2023
YTD
2023
Reported operating loss
$
(45.9)
$
(559.7)
$
(942.2)
$
(191.3)
$
(531.6)
Asset write-down and impairment – lumber segment
$
-
$
100.3
$
131.9
$
-
$
-
Asset write-down and impairment – pulp and paper segment
$
-
$
211.0
$
211.0
$
-
$
-
Inventory write-down (recovery), net61
$
(36.1)
$
(14.8)
$
(29.7)
$
(41.1)
$
(57.2)
Adjusted operating loss
$
(82.0)
$
(263.2)
$
(629.0)
$
(232.4)
$
(588.8)
One-time items – lumber segment:
Restructuring and closure costs62
$
4.9
$
36.5
$
74.0
$
-
$
12.2
Gain on sale of assets, net63
$
-
$
(34.9)
$
(34.9)
$
-
$
-
Duty expense (recovery) related to finalized rates64
$
-
$
67.2
$
67.2
$
-
$
(43.3)
Duty expense related to refined fair value measurement65
$
-
$
53.4
$
53.4
$
-
$
-
One-time items – corporate restructuring costs62
$
0.6
$
2.1
$
2.7
$
-
$
-
Adjusted operating loss before one-time items
$
(76.5)
$
(138.9)
$
(466.6)
$
(232.4)
$
(619.9)
Amortization
$
98.6
$
104.0
$
429.1
$
102.2
$
420.4
Adjusted operating income (loss) before amortization and
one-time items
$
22.1
$
(34.9)
$
(37.5)
$
(130.2)
$
(199.5)
61. For the lumber segment, a $36.1 million net reversal of a previously recognized inventory write-down was recorded in Q4 2024 (Q3 2024 – $14.8 million net reversal of a
previously recognized inventory write-down, Q4 2023 – $30.2 million net reversal of a previously recognized inventory write-down). For the pulp and paper segment, no
inventory valuation adjustment was recognized in Q4 2024 and Q3 2024 (Q4 2023 – $10.9 million net reversal of a previously recognized inventory write-down).
62. Restructuring and closure costs of $5.5 million ($4.9 million in the lumber segment and $0.6 million in the unallocated segment), were recognized in Q4 2024 largely related
to the permanent closure of the Jackson and Mobile sawmills in the US South (Q3 2024 – restructuring and closure costs of $38.6 million, $36.5 million in the lumber segment
related to the permanent closures of Plateau and Fort St. John and $2.1 million in the unallocated segment; Q4 2023 – no restructuring and closure costs were recognized).
63. On September 9, 2024, the Company completed the sale of its remaining Mackenzie sawmill assets and associated forest tenure to the McLeod Lake Indian Band and Tsay
Keh Dene Nation for total proceeds of $66.5 million. As a result of this transaction, as well as other asset sales in the period, a net gain on sale of $34.9 million was recognized in
Q3 2024.
64. A duty expense of $67.2 million (US$48.6 million) was recognized in Q3 2024 following the finalization CVD and ADD rates applicable to POR5.
65. In Q3 2024, the Company refined its estimate of the fair value measurement of net duty deposits recoverable. In accordance with IFRS Accounting Standards, this change in
accounting estimate was applied on a prospective basis.
(millions of Canadian dollars, except ratios)
2024
2023
Reported operating loss
$
(942.2)
$
(531.6)
Realized (gain) loss on derivative financial instruments
$
3.4
$
(4.2)
Other income, net
$
32.9
$
19.9
Less: non-controlling interests
$
68.8
$
39.0
Loss
$
(837.1)
$
(476.9)
Average invested capital66
$
4,171.7
$
4,166.9
Return on invested capital (ROIC)
(20.1)%
(11.4)%
66. 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.
As at
December 31,
As at
December 31,
(millions of Canadian dollars, except ratios)
2024
2023
Term debt
$
120.6
$
159.9
Duty deposits loan
$
335.1
$
-
Operating loans
$
106.8
$
110.6
Less: cash and cash equivalents
$
259.3
$
627.4
Net debt (cash)
$
303.2
$
(356.9)
Total equity
$
3,583.8
$
4,277.4
Total capitalization
$
3,887.0
$
3,920.5
Net debt (cash) to total capitalization
7.8%
(9.1)%
40
Canfor Corporation
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 financial statements. On an ongoing basis, Management reviews its estimates, including those related to useful
lives for amortization, impairment of long-lived assets, certain receivables, pension and other employee future benefit plans, asset
retirement and deferred reforestation obligations, as well as the determination of the Company’s estimated ADD net duty deposits
recoverable based upon 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 the
Company’s financial condition, 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 29 of the consolidated financial statements.
Employee future benefits.
Canfor has several funded and unfunded defined benefit plans, defined contribution plans and other non-pension post-retirement benefit
plans, that provide 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 Accounting
Standards.
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:
December 31, 2024
December 31, 2023
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Discount rate
4.7%
4.7%
4.6%
4.6%
Rate of compensation increases
2.0%
n/a
2.0%
n/a
Initial medical cost trend rate
n/a
5.0%
n/a
5.0%
Ultimate medical cost trend rate
n/a
4.5%
n/a
4.5%
Year ultimate rate is reached
n/a
2031
n/a
2031
In addition to the significant assumptions listed in the table above, the average life expectancy of a 65-year-old at December 31, 2024 is
between 21.4 years and 24.5 years. As at December 31, 2024, the weighted average duration of the defined benefit obligation, which
reflects the average age of the plan members, is 13.0 years. The weighted average duration of the other benefit plans is 11.1 years.
Assumed discount rates, medical cost trend rates and mortality assumptions have a significant effect on the accrued 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 2024:
(millions of Canadian dollars)
1% Increase
1% Decrease
Defined benefit pension plan liabilities
Discount rate
$
(20.0)
$
24.2
Other benefit plan liabilities
Discount rate
$
(6.2)
$
7.4
Initial medical cost trend rate
$
2.8
$
(2.7)
With respect to this discount rate sensitivity effect on the defined benefit pension plan liabilities, however, it is noted that 39% is partially
offset through the plan’s investment in debt securities.
Annuity contracts.
In 2024, the Company purchased buy-out annuities for a portion of its defined benefit pension plans. As a result, $159.1 million of the
accrued benefit obligation and a similar amount of defined benefit plan assets were derecognized from the Company’s consolidated
balance sheet.
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Canfor Corporation
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 2.6% to 3.4%. 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.
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 $14.6 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 2 to
42 years and have been discounted at risk-free rates ranging from 3.0% to 3.4%. 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 27 years and have been
discounted at risk-free rates ranging from 3.0% to 3.4%.
Canfor and 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 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.
In connection with the previously highlighted closure announcements, as well as the ongoing uncertainty with respect to the availability
of economic fibre, the Company determined there were indicators of impairment at certain of its Western Canadian lumber operations
for the year ended December 31, 2024.
The recoverable amount of the timber licenses and property, plant and equipment within the Western Canadian lumber operations was
determined based on the higher of fair value less costs to sell and value in use. A discounted cash flow model was used to estimate value
in use. This discounted cash flow model was projected based on past experience as well as Management’s assessment of future trends
in the forest industry, based on external and internal sources of data. Assumptions include future production volumes, commodity prices,
log and production costs, the discount rate, applicable foreign exchange rates, operating rates of the assets, and the future capital
required to maintain the assets for their current operating conditions. Estimated future cash flows were discounted at a rate of 11% (15%
before tax), based on the Company’s weighted average cost of capital in that area for 2024.
In addition, because of ongoing uncertainty surrounding economic fibre availability, heightened by the recent sawmill closure
announcements in the BC Interior, CPPI performed an impairment assessment for the year ended December 31, 2024 on the property,
plant and equipment of its pulp and paper segment. The recoverable amount of CPPI’s property, plant and equipment within its pulp and
paper operations was determined based on the higher of fair value less costs to sell and value in use. A discounted cash flow model was
used to estimate value in use. This discounted cash flow model was projected based on past experience as well as Management’s
42
Canfor Corporation
assessment of future trends in the pulp industry, based on external and internal sources of data. Significant assumptions include future
production volumes, commodity prices, fibre and production costs, as well as the discount rate. Other assumptions include applicable
foreign exchange rates, operating rates of the assets, and the future capital required to maintain the assets for their current operating
conditions. Estimated future cash flows were discounted at a rate of 9% (12% before tax), based on CPPI’s weighted average cost of
capital for 2024.
As previously indicated, as a result of these announced closures, as well as the aforementioned impairment assessments, an asset write-
down and impairment charge totaling $342.9 million was recognized for the year ended December 31, 2024. Of the $342.9 million,
$131.9 million was recognized as a reduction of the carrying value of the Company’s Western Canadian lumber operations and $211.0
million as a reduction to the carrying value of CPPI’s pulp assets within 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, 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 2024 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, 2024. 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, 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.
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.
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 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.
43
Canfor Corporation
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, non-regulatory pressure to reduce greenhouse gas emissions, and the risk that
the Company may not achieve its publicly stated sustainability targets. The Company monitors all regulatory changes including any
climate-related regulations, as well as monitoring progress towards targets, to assess their impact on operations. 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 and operational efficiency projects.
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 has established 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 conditions.
Competitive markets.
The Company’s products are sold primarily in the US, Canada, Europe and Asia. These global markets are highly competitive, with
numerous companies selling into each region. The Company’s competitive position is influenced by the price, availability, quality and
cost of its raw materials, as well as production and transportation costs. Additionally, the capabilities and productivity of its operating
facilities and customer service relative to its competitors play a crucial role. Market dynamics, including global trade agreements and
government relations, also impact on the competitive position of companies in these regions. These factors include free trade, global
demand, supply chains, production input costs and transportation, especially amid geopolitical tensions and events. Such factors could
potentially limit market growth opportunities or limit Canfor’s ability to serve its customers. An unfavourable settlement of the Softwood
Lumber Agreement could also result in a material increase in duty expenditures. Additional details are provided in the “Softwood lumber
agreement” section below. Canfor continues to monitor the trade situation between Canada and the US and mitigation plans are
underway to mostly offset the impact of the tariffs on US shipments. With Canfor’s geographic diversified operating platform, in Canada,
the US South and Sweden, as well as its high quality, specialty product offering and market diversification, the Company is well-
positioned to respond to actual and potential tariffs.
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 North American operations are subject to environmental regulation by Canada and United States 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 including the Swedish Environmental
Code and more broadly, the European Union, with its forest operations governed by the Swedish Forestry 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. 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
44
Canfor Corporation
result in governmental or private claims for damage to a 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 Governance and Sustainability Committee,
and environmental professionals 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 CPPI’s operations 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 North American operations are 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.
Fibre cost and availability.
The Company’s fibre costs are affected by several factors which could significantly impact operating results. Lumber market
fluctuations, access to economically viable fibre 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 allowable annual cut (“AAC”) in BC, in particular, has been reduced in
many areas, which has exacerbated the log supply and demand imbalance. As a result of these and other factors influencing fibre
availability, 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 rights 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 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 would result in a decline of the Timber Harvesting Land Base of 1.4 million hectares
and a corresponding reduction in AAC of 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 and other 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. In 2024, the Company
announced the permanent closure of its Polar and Plateau sawmills, as well as its Fort St. John sawmill and pellet plant facility, as a result
of the persistent challenge to source sufficient volume of economically viable fibre in BC. These disruptions and closures resulted 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.
45
Canfor Corporation
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.
(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 receivables, as well as 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, 2024 was $259.3
million.
Canfor utilizes credit insurance to mitigate the risk associated with some of its trade receivables. As at December 31, 2024,
approximately 68% of the outstanding trade receivables are covered by credit insurance. Canfor’s trade receivable balance at December
31, 2024 was $322.7 million, before a loss allowance of $4.4 million. At December 31, 2024, approximately 94% of the trade 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, 2024, Canfor had $106.8 million drawn on its operating loans and facilities and $54.2 million reserved for several
standby letters of credit, leaving $1,321.6 million available and undrawn. As a result, including cash and cash equivalents of $259.3
million, at December 31, 2024, Canfor had available liquidity of $1,580.9 million. The Company also had accounts payable and accrued
liabilities of $724.1 million, term debt of $120.6 million and a duty deposit loan of $335.1 million as at December 31, 2024. 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, 2024, 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 $1.8
million in relation to working capital balances denominated in US-dollars at year end (including cash, trade receivables and
accounts payable); and a (ii) gain (loss) of approximately $5.4 million in relation to term debt and the duty deposits loan
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, 2024, the Company had no foreign
exchange collar contracts outstanding.
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Canfor Corporation
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, 2024, 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,
2024, 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, 2024, 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 2025
forecast production, shipments, and year end foreign exchange rates, are set out in the following table:
(millions of Canadian dollars)
Impact on annual
pre-tax earnings
Western SPF lumber – US$10 change per Mfbm67,68
$
22
SYP lumber – US$10 change per Mfbm67,68
$
26
European lumber – SEK100 change per Mfbm67,68
$
19
Softwood lumber duties – 5% change69
$
18
NBSK Pulp – US$10 change per tonne70
$
5
Canadian dollar – 1% change per US-dollar71
$
13
Canadian dollar – 1% change per SEK71
$
1
67. Based on sales of Canfor-produced products, before softwood lumber duties.
68. Excluding impacts of exchange rate, freight, discounting, potential change in fibre costs and other deductions.
69. Based on a 5% increase in the combined CVD and ADD deposit rate for 2025.
70. Includes 100% of CPPI.
71. 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.
The MPB epidemic has run its course in BC and the provincial Chief Forester has subsequently reduced the AAC to account for the
decline of sawlog quality timber. The Company anticipates that the majority of MPB-induced AAC reductions have culminated and the
provincial AAC will now level out at or near current levels, for the foreseeable future.
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 its existing manufacturing facilities to optimize the harvest of green, non-pine leading
stands and by permanently closing several manufacturing facilities throughout northern BC. 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 operations located in Prince
George and Skookumchuk.
in Alberta, with MPB populations subsiding to historic and endemic levels, detection, survey and control programs have been focused on
the southern part of the province where larger, but steadily declining regional populations still exist. General industry and government
experts agree that the province has now seen a transition from an epidemic to an endemic population state. Most of the recent
infestations can be found in the Bow Valley and Exshaw corridors between and around Banff and Calgary. Recent survey data from 2023
indicated these populations are also on the verge of collapse. For the immediate future, the threat and risk of MPB mortality appears to
be low. The province of Alberta continues to monitor populations during peak annual MPB flight periods to establish a population
baseline for future monitoring, detection & early control.
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Canfor Corporation
Following an accelerated harvest of susceptible pine in most of Canfor’s Alberta forest tenure areas since 2009, in conjunction with
government control efforts, both of which prevented spread and managed populations throughout the epidemic, there has been no
indication of further spread in these areas in recent years. Subsequently, salvage harvest for MPB mortality trees in Canfor’s operating
areas is near completion with annual harvest levels in affected areas expecting to return to post-epidemic levels by 2026.
Post-MPB, Alberta’s forest health focus has since shifted to continued insect & disease detection in provincial forests, assessing causes
and impacts of observed aspen dieback, and a renewed interest in tree adaptation and improvement to promote forest resilience.
Once again British Columbia and Alberta each experienced significant wildfire seasons in 2024. In 2024, wildfires burned 705,000
hectares in Alberta and 1.1 million hectares in British Columbia. Although the 2024 wildfire season compared favorably to the 2023
wildfire season, burning 2.2 million hectares in Alberta and 2.8 million hectares in British Columbia, 2024 was the second worst wildfire
season on record, with a combined 1.8 million hectares burned. The continuation of significant warming and drying trends combined to
create severe drought conditions in much of Western Canada. Canfor is collaborating with government agencies and Indigenous
communities to pursue salvage harvesting operations in areas affected by the 2023-24 wildfire seasons. Long-term fibre supply impacts
associated with these wildfires 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.
Geopolitics, government and other regulations.
The Company sells its products across Asia, North America and other markets, as noted previously. Global events taking place in any of
these jurisdictions could affect the ability of the Company to do business with existing or new customers and suppliers.
In addition, 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 license or permit, Canfor’s business, financial condition, results of
operations and cash flows could be materially adversely affected. In addition, 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 expenditure 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 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
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Canfor Corporation
such agreements, and work is continuing to better define this. 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, but 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 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”). 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, however, negative long-term impacts on fibre availability are anticipated.
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 public 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 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 mutually beneficial partnerships, collaboration, and improved certainty in order 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 pressure
on these goods and services 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
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Canfor Corporation
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 invest in enhanced technologies to detect and respond to these external threats in addition to developing and enhancing
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 exploring opportunities that will incorporate generative artificial intelligence and machine learning tools (“AI”) into its
business processes and has established an Artificial Intelligence Usage Policy that sets out the Company’s rules and requirements for
the responsible, ethical and secure use of AI by all personnel for the protection of the Company, its personnel and business partners and
to mitigate the risk of misuse, unethical outcomes, potential biases, inaccuracies, loss of personal information or other confidential
information, and cybersecurity breaches. All personnel are prohibited from using AI or AI tools for any Company business unless the
requirements set out in this policy are met.
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 its 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 Canfor’s sawmills in BC,
except as noted below, expired on June 30, 2023. A new collective agreement with the USW was ratified in September 2024 and will
expire on June 30, 2027.
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 will expire on October 1, 2028.
For the Company’s European lumber operations, 43% of workers are represented by GS, with the current agreements effective from
April 1, 2023 to March 31, 2025. Ongoing negotiations with the unions are actively underway, which is anticipated to be ratified by April 1,
2025. The Company’s operations in the US South are not unionized.
Labour agreements with the Unifor and the Public and Private Workers of Canada (“PPWC”) covering CPPI’s operations were ratified in
February 2022 and will expire on April 30, 2025. CPPI anticipates bargaining will commence with Unifor and PPWC on or before the
current contracts’ expiration date.
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
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Canfor Corporation
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 between the governments of Canada and the US 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 the US International Trade
Commission(“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 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 fourth period of review (“POR4”), which was based on sales and cost
data in 2021, and in July 2023, finalized the rates. The Company’s final CVD rate was determined to be 1.36%, while the final ADD rate
was 5.25%. The DOC’s final combined cash deposit rate of 6.61% applied to the Company’s Canadian lumber shipments destined to the
United States from August 2023 until the completion of the administrative review for the fifth period of review in August 2024.
In February 2024, the DOC announced the preliminary results for POR5, which was based on sales and cost data in 2022, and in August
2024, finalized the rates. The Company’s final CVD and ADD rates were determined to be 6.14% and 10.44%, respectively. In August
2024, upon finalization of these POR5 rates, an expense of $67.2 million (US$48.6 million), was recognized in the Company’s
consolidated financial statements to reflect the difference between the combined accrual rate (11.42% between January and July 2022
and 9.95% for August through to December 2022), and the DOC’s final combined rate for POR5 of 16.58%.
In addition, the Company’s combined cash deposit rate of 6.61% was reset to the final DOC rates for POR5 of 16.58% and was applied to
the Company’s Canadian lumber shipments destined to the United States from August 2024 until the completion of the administrative
review for the sixth period of review (anticipated mid-2025).
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Canfor Corporation
Subsequent to year-end, in March 2025, the DOC announced the preliminary anti-dumping results for the sixth period of review
(“POR6”), which indicated that the Company’s preliminary anti-dumping duty (“ADD”) rate for 2023 was 34.61%. The DOC is anticipated
to release preliminary countervailing results for POR6 on or before May 2025.
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 CVD and ADD determinations made by the DOC. Canada has
proceeded with legal challenges under the Canada-United States-Mexico Agreement (“CUSMA”) and through the World Trade
Organization, where Canadian litigation has proven successful in the past. On September 9, 2024, the Canadian Federal Government
launched two legal challenges against the US DOC related to the final rates for POR5.
Species at risk.
The Government of Canada, pursuant to its authority under the Species at Risk Act (“SARA”), has determined hundreds of 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 species 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 created the legal obligation for BC to preserve certain sections of land from all resource,
commercial, and recreational use, which ultimately resulted in the expansion of an existing Class A Park (finalized on June 14, 2024),
where commercial, recreational, and industrial activities are now prohibited. In addition, 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. It is expected that these and other initiatives to conserve and
protect caribou habitat will ultimately result in a further significant impact to available timber supply and ultimately to the reduction of
AAC in the region. The Company continues to work with governments at all levels (federal, provincial, municipal), as well as with
Indigenous Nations 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, 2025. 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
time.
Transportation services.
While Canfor utilizes its own team of supply chain professionals to oversee and respond to disruptions for the transportation of its
products, as well as the delivery of raw materials, it is reliant on railroad, trucking, and shipping third parties to carry out a significant
proportion of its transportation operations. 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 find alternative arrangements 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.
52
Canfor Corporation
Outstanding Share Data.
At March 6, 2025, there were 118,405,079 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, 2024, 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, 2024, 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, 2024, the CEO and CFO have concluded that these
controls are operating effectively.
Additional information about the Company, including its 2024 Annual Information Form, is available at sedarplus.com or at canfor.com.
Consolidated
Financial Statements.
53
Canfor Corporation
54
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 6, 2025
“Susan L. Yurkovich”
“Patrick A. J. Elliott”
Susan L. Yurkovich
Patrick A. J. Elliott
President and Chief Executive Officer
Chief Financial Officer and Corporate Secretary
KPMG LLP
777 Dunsmuir Street
Vancouver, BC V7Y 1K3
Canada
Tel 604-691-3000
Fax 604-691-3031
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global
organizaƟon of independent member firms affiliated with KPMG InternaƟonal Limited, a
private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
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, 2024 and December 31, 2023
•
the consolidated statements of income (loss) for the years then ended
•
the consolidated statements of 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, 2024 and December 31, 2023, 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 ethical 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.
Canfor Corporation
March 6, 2025
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, 2024. 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 indicators of impairment for property, plant and equipment and timber licenses
related to the Western Canadian lumber operations
Description of the matter
We draw attention to Notes 3, 5, 7 and 20 to the financial statements. Property, plant and equipment
and timber licenses are assessed at each reporting date to determine whether there are any
indicators of impairment, and an impairment test is performed whenever events or circumstances
indicate that the carrying amounts may not be recoverable. The Entity identified indicators of
impairment for specific sawmills in its Western Canadian lumber operations and performed an
impairment test to estimate the recoverable amounts of the specific sawmills. The Entity recorded
an impairment charge pertaining to these sawmills of $131.9 million for the year ended December
31, 2024. The recoverable amount was determined on an assessment of fair value less cost of
disposal. With the exception of the specific sawmills for which impairment was recorded, the Entity
has not identified any indicators of impairment for property, plant and equipment and timber
licenses related to the Western Canadian lumber operations.
Why the matter is a key audit matter
We identified the assessment of the indicators of impairment for property, plant and equipment and
timber licenses related to the Western Canadian lumber operations 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 indicators of impairment exist as of the balance sheet date. Significant auditor judgment
was required to assess the Entity’s determination of whether various internal and external factors,
individually and in aggregate, result in indicators of impairment. Specifically, significant auditor
judgement was required to assess the availability of economic fibre, current operating results and
cash flows of certain Western Canadian lumber operations and the difference between the Entity
market capitalization and the carry 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 evaluated the Entity’s assessment of indicators of impairment for Western Canadian
lumber operations which included consideration of the availability of economic fibre and
current operating results and cashflows of certain operations.
56
Canfor Corporation
March 6, 2025
•
We assessed whether the information in the Entity’s analysis was consistent with information
included in the Entity’s press releases, management’s discussion and analysis, and other
public filings.
•
We involved valuation professionals with specialized skills and knowledge to assist in
assessing the difference between the Entity’s market capitalization and the carrying value of
its net assets.
Assessment of the recoverable amounts of each of the pulp and paper segment’s property, plant
and equipment
Description of the matter
We draw attention to Notes 3, 5 and 20 to the financial statements. The Entity identified indicators
of impairment for each of its pulp and paper segment’s property, plant and equipment and
performed impairment tests to estimate their recoverable amounts. The Entity recorded an
impairment loss of $211.0 million for the pulp and paper segment for the year ended December 31,
2024. The recoverable amounts for each of the pulp and paper segment’s property, plant and
equipment are determined based on an assessment of values in use and fair values less costs to
sell. Significant assumptions used in determining values 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 each of the pulp and paper segment’s
property, plant and equipment as a key audit matter. The values in use were 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 rates used in the values in use assessment of the recoverable amounts of each of the pulp
and paper segment’s property, plant and equipment.
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 future production volumes and future 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 future 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 rates used in the estimated values in use by comparing to a discount
range that was independently developed using publicly available market data for comparable
entities.
57
Canfor Corporation
March 6, 2025
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 “2024 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 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 “2024 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.
58
Canfor Corporation
March 6, 2025
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.
•
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.
59
Canfor Corporation
March 6, 2025
•
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 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.
•
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business units within the group as a basis for forming an
opinion on the group financial statements. We are responsible for the direction, supervision and
review of the audit work performed for the purposes of the group audit. We remain solely
responsible for our audit opinion.
•
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 6, 2025
60
Canfor Corporation
61
Canfor Corporation.
Consolidated Balance Sheets
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Assets
Current assets
Cash and cash equivalents
$
259.3
$
627.4
Trade receivables
318.3
297.9
Other receivables
100.4
105.6
Income taxes recoverable
86.9
109.3
Inventories (Note 4)
929.1
994.8
Prepaid expenses and other
125.1
122.7
Total current assets
1,819.1
2,257.7
Property, plant and equipment (Note 5)
2,440.9
2,429.8
Right-of-use assets (Note 6(a))
132.2
123.1
Timber licenses (Note 7)
323.0
346.8
Goodwill and other intangible assets (Note 8)
529.7
519.3
Long-term investments and other (Note 9)
327.0
454.7
Total assets
$
5,571.9
$
6,131.4
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 10)
$
724.1
$
664.5
Operating loans (Note 11)
106.8
110.6
Current portion of deferred reforestation obligations (Note 15)
57.6
52.6
Current portion of term debt (Note 12)
48.1
44.8
Current portion of lease obligations (Note 6(b))
34.2
30.6
Income taxes payable
6.4
2.1
Total current liabilities
977.2
905.2
Term debt (Note 12)
72.5
115.1
Duty deposits loan (Note 13)
335.1
-
Retirement benefit obligations (Note 14)
133.4
132.9
Lease obligations (Note 6(b))
106.9
98.2
Deferred reforestation obligations (Note 15)
46.9
47.4
Other long-term liabilities (Note 16)
36.6
37.5
Put liability (Note 27)
110.7
187.7
Deferred income taxes, net (Note 21)
168.8
330.0
Total liabilities
$
1,988.1
$
1,854.0
Equity
Share capital (Note 17)
$
934.1
$
938.3
Contributed surplus and other equity (Notes 27 and 30)
(87.6)
(169.8)
Retained earnings
2,267.5
3,004.2
Accumulated other comprehensive income
197.8
45.5
Total equity attributable to equity shareholders of the Company
3,311.8
3,818.2
Non-controlling interests (Note 18)
272.0
459.2
Total equity
$
3,583.8
$
4,277.4
Total liabilities and equity
$
5,571.9
$
6,131.4
Commitments and Contingencies (Note 25) and Subsequent Event (Note 29)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD
“R.S. Smith”
“The Hon. J.R. Baird”
Director, R.S. Smith
Director, The Hon. J.R. Baird
Canfor Corporation
62
Canfor Corporation.
Consolidated Statements of Income (Loss)
Years ended December 31,
(millions of Canadian dollars, except per share data)
2024
2023
Sales
$
5,252.8
$
5,426.6
Costs and expenses
Manufacturing and product costs
4,306.1
4,522.6
Freight and other distribution costs
647.0
688.8
Countervailing and anti-dumping duty expense, net (Note 29)
260.6
143.8
Amortization
429.1
420.4
Selling and administration costs
167.5
170.4
Restructuring costs and other items, net (Note 20)
41.8
12.2
Asset write-downs and impairments (Note 20)
342.9
-
6,195.0
5,958.2
Operating loss
(942.2)
(531.6)
Finance income (expense), net (Note 19)
(51.7)
10.4
Foreign exchange gain (loss) on term debt
(4.4)
6.9
Foreign exchange loss on duty deposits loan and duty deposits recoverable, net
(6.2)
(2.4)
Gain (loss) on derivative financial instruments (Note 27)
(11.9)
6.8
Other income, net
32.9
19.9
Net loss before income taxes
(983.5)
(490.0)
Income tax recovery (Note 21)
247.3
141.5
Net loss
$
(736.2)
$
(348.5)
Net loss attributable to:
Equity shareholders of the Company
$
(669.0)
$
(326.1)
Non-controlling interests (Note 18)
(67.2)
(22.4)
Net loss
$
(736.2)
$
(348.5)
Net loss per common share: (in Canadian dollars)
Attributable to equity shareholders of the Company
-
Basic and diluted (Note 17)
$
(5.64)
$
(2.71)
The accompanying notes are an integral part of these consolidated financial statements.
Canfor Corporation
63
Canfor Corporation.
Consolidated Statements of Other Comprehensive Income (Loss)
Years ended December 31,
(millions of Canadian dollars)
2024
2023
Net loss
$
(736.2) $
(348.5)
Other comprehensive income (loss)
Items that will not be reclassified subsequently to net income (loss):
Defined benefit plan actuarial gains, net (Note 14)
10.8
22.4
Income tax expense on defined benefit plan actuarial gains, net (Note 21)
(2.9)
(6.0)
7.9
16.4
Items that may be reclassified subsequently to net income (loss):
Foreign exchange translation of foreign operations, net of tax
152.3
(37.1)
Other comprehensive income (loss), net of tax
160.2
(20.7)
Total comprehensive loss
$
(576.0)
$
(369.2)
Total comprehensive loss attributable to:
Equity shareholders of the Company
$
(509.1)
$
(349.4)
Non-controlling interests (Note 18)
(66.9)
(19.8)
Total comprehensive loss
$
(576.0)
$
(369.2)
The accompanying notes are an integral part of these consolidated financial statements.
Canfor Corporation
64
Canfor Corporation.
Consolidated Statements of Changes in Equity
Years ended December 31,
(millions of Canadian dollars)
2024
2023
Share capital
Balance at beginning of year
$
938.3
$
955.1
Share purchases (Note 17)
(4.2)
(16.8)
Balance at end of year
$
934.1
$
938.3
Contributed surplus and other equity
Balance at beginning of year
$
(169.8)
$
(157.7)
Put liability (Note 27)
82.2
(12.1)
Balance at end of year
$
(87.6)
$
(169.8)
Retained earnings
Balance at beginning of year
$
3,004.2
$
3,341.5
Net loss attributable to equity shareholders of the Company
(669.0)
(326.1)
Partial dissolution of non-controlling interests (Note 30)
(70.5)
-
Defined benefit plan actuarial gains, net of tax
7.6
13.8
Share purchases (Note 17)
(4.8)
(25.0)
Balance at end of year
$
2,267.5
$ 3,004.2
Accumulated other comprehensive income (loss)
Balance at beginning of year
$
45.5
$
82.6
Foreign exchange translation of foreign operations, net of tax
152.3
(37.1)
Balance at end of year
$
197.8
$
45.5
Total equity attributable to equity shareholders of the Company
$
3,311.8
$
3,818.2
Non-controlling interests
Balance at beginning of year
$
459.2
$
541.3
Net loss attributable to non-controlling interests
(67.2)
(22.4)
Defined benefit plan actuarial gains attributable to non-controlling interests, net of tax
0.3
2.6
Distributions to non-controlling interests, net (Note 18)
(64.4)
(62.3)
Partial dissolution of non-controlling interests (Note 30)
(55.9)
-
Balance at end of year (Note 18)
$
272.0
$
459.2
Total equity
$ 3,583.8
$ 4,277.4
The accompanying notes are an integral part of these consolidated financial statements.
Canfor Corporation
65
Canfor Corporation.
Consolidated Statements of Cash Flows
Years ended December 31,
(millions of Canadian dollars)
2024
2023
Cash generated from (used in):
Operating activities
Net loss
$
(736.2)
$
(348.5)
Items not affecting cash:
Amortization
429.1
420.4
Income tax recovery (Note 21)
(247.3)
(141.5)
Change in long-term portion of deferred reforestation obligations, net
(2.1)
1.9
Foreign exchange (gain) loss on term debt
4.4
(6.9)
Foreign exchange loss on duty deposits loan and duty deposits recoverable, net
6.2
2.4
Duties paid less than accruals (Note 29)
194.7
100.7
Changes in mark-to-market value of derivative financial instruments
8.5
(2.6)
Employee future benefits expense
11.0
12.5
Finance (income) expense, net (Note 19)
51.7
(10.4)
Restructuring costs and other items, net (Note 20)
41.8
12.2
Asset write-downs and impairments (Note 20)
342.9
-
Other, net
9.5
6.4
Defined benefit plan contributions, net
(11.5)
(24.2)
Income taxes received (paid), net
75.0
(33.8)
177.7
(11.4)
Net change in non-cash working capital (Note 22)
(3.5)
166.1
174.2
154.7
Financing activities
Operating loan drawings (repayments), net (Note 11)
(0.3)
83.2
Conversion and changes in term debt, net (Note 12)
(45.0)
(96.1)
Duty deposits loan (Note 13)
313.8
-
Payments of lease obligations (Note 6(b))
(35.2)
(32.5)
Finance expenses paid
(34.8)
(33.6)
Share purchases (Note 17)
(9.0)
(44.3)
Distributions paid to non-controlling interests, net (Note 18)
(65.4)
(62.3)
124.1
(185.6)
Investing activities
Additions to property, plant and equipment and intangible assets, net (Notes 5 and 8)
(527.1)
(587.0)
Proceeds from the sale of property, plant and equipment and intangible assets (Note 20)
72.6
9.1
Partial acquisition of Vida non-controlling interest (Note 30)
(118.3)
-
Acquisition of El Dorado sawmill (Note 28)
(100.6)
-
Interest income received
18.3
35.2
Purchase of long-term investments, net (Notes 9 and 27)
(16.5)
(59.4)
Other, net
(0.6)
(1.6)
(672.2)
(603.7)
Foreign exchange gain (loss) on cash and cash equivalents
5.8
(6.7)
Decrease in cash and cash equivalents*
(368.1)
(641.3)
Cash and cash equivalents at beginning of year*
627.4
1,268.7
Cash and cash equivalents at end of year*
$
259.3
$
627.4
*Cash and cash equivalents include cash on hand less unpresented cheques.
The accompanying notes are an integral part of these consolidated financial statements.
Canfor Corporation
66
Canfor Corporation
Notes to the Consolidated Financial Statements
Years ended December 31, 2024 and December 31, 2023
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, 2024, 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 77.0%, respectively, at
December 31, 2024.
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 6, 2025.
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 judgements.
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 7 – Timber Licenses;
• Note 8 – Goodwill and Other Intangible Assets;
• Note 9 – Long-Term Investments and Other;
• Note 14 – Employee Future Benefits;
• Note 20 – Restructuring, Asset Write-Downs and Impairments, and
Other Items;
• Note 21 – Income Taxes;
• Note 28 – Acquisition of El Dorado Sawmill; and
• Note 29 – 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.
Canfor Corporation
67
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 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, term
debt, duty deposits loan, 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 and accretion 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 and accretion expense as well as foreign exchange gains and losses of all financial liabilities are recognized in net income.
Canfor’s financial instruments are classified and subsequently measured as follows:
Financial assets
Cash and cash equivalents
Amortized cost
Trade and other receivables
Amortized cost
Advances and other long-term assets
Amortized cost
Duty deposits recoverable, net
FVTPL
Other investments
FVTPL
Derivative contracts
FVTPL
Foreign exchange forward contracts
FVTPL
Canfor Corporation
68
Financial liabilities
Accounts payable and accrued liabilities
Amortized cost
Other liabilities
Amortized cost
Operating loans
Amortized cost
Term debt
Amortized cost
Duty deposits loan
Amortized cost
Put liability
FVTEQ
Impairment.
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 overhead costs (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-to-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 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 net income.
Canfor Corporation
69
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
5 to 50 years
Pulp and paper machinery and equipment
8 to 20 years
Sawmill machinery and equipment
1 to 15 years
Logging machinery and equipment
4 to 20 years
Logging roads and bridges
5 to 25 years
Mobile and other equipment
2 to 10 years
Timber licenses.
Timber licenses include tree farm licenses, forest licenses and timber licenses with the Provinces of British Columbia (“BC”) 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.
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 year, 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.
Canfor Corporation
70
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:
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 BC 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.
Canfor Corporation
71
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 (loss).
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 at 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 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.
Canfor Corporation
72
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)
As at
December 31,
2024
As at
December 31,
2023
Logs
$
138.5
$
199.4
Finished products
595.2
600.6
Residual fibre
44.8
38.2
Materials and supplies1
150.6
156.6
$
929.1
$
994.8
1. Net of a $24.3 million asset write-down and impairment charge in 2024 (2023 – nil)
The above inventory balances are stated at the lower of cost and net realizable value. For the year ended December 31, 2024, a $29.7
million net reversal of a previously recognized inventory write-down was recognized for the lumber segment (2023 — $54.8 million
net reversal of a previous write-down). As a result of this remeasurement, combined with net foreign exchange loss of $0.7 million
(2023 – nil), an inventory provision of $11.9 million has been recognized for logs and lumber (December 31, 2023 – $40.9 million
inventory provision).
For the year ended December 31, 2024, no inventory valuation adjustment was recognized for the pulp and paper segment (2023 –
$2.4 million net reversal of a previous write-down). At December 31, 2024, no inventory provision has been recognized for the pulp
and paper segment (December 31, 2023 – no inventory provision).
Inventory expensed in 2024 and 2023 is included in ‘Manufacturing and product costs’ and ‘Amortization’ on the consolidated
statement of income (loss).
5. Property, Plant and Equipment
(millions of Canadian dollars)
Land
Pulp &
paper mills
Solid wood
operations3
Logging assets &
other equipment
Construction
in progress
Total
Cost
Balance at January 1, 2023
$
74.7
$
1,928.5
$
3,259.7
$
269.1
$
435.5
$
5,967.5
Additions2
1.0
0.4
2.2
-
584.3
587.9
Disposals
-
(62.0)
(52.6)
(1.5)
-
(116.1)
Transfers
0.6
55.9
464.7
40.4
(561.6)
-
Effect of movements in exchange rates
-
-
(21.2)
(0.3)
(6.4)
(27.9)
Balance at December 31, 2023
$
76.3
$
1,922.8
$
3,652.8
$
307.7
$
451.8
$
6,411.4
Additions2
0.8
-
0.6
-
525.7
527.1
Acquisition (Note 28)
0.5
-
95.9
-
-
96.4
Asset write-downs and impairments (Note 20)
(1.1)
-
-
-
(29.6)
(30.7)
Disposals
(3.9)
(51.2)
(249.3)
(30.7)
-
(335.1)
Transfers
-
35.9
706.7
16.4
(759.0)
-
Effect of movements in exchange rates
2.1
-
132.0
1.2
30.5
165.8
Balance at December 31, 2024
$
74.7
$
1,907.5
$
4,338.7
$
294.6
$
219.4
$
6,834.9
Canfor Corporation
73
(millions of Canadian dollars)
Land
Pulp &
paper mills
Solid wood
operations3
Logging assets &
other equipment
Construction
in progress
Total
Amortization and Impairments
Balance at January 1, 2023
$
(1.7)
$
(1,535.6)
$
(2,002.6)
$
(208.5)
$
-
$
(3,748.4)
Amortization for the year
-
(77.8)
(266.9)
(19.5)
-
(364.2)
Disposals and transfers
-
72.1
48.5
2.1
-
122.7
Effect of movements in exchange rates
-
-
8.3
-
-
8.3
Balance at December 31, 2023
$
(1.7)
$
(1,541.3)
$
(2,212.7)
$
(225.9)
$
-
$
(3,981.6)
Amortization for the year
-
(55.0)
(302.2)
(15.9)
-
(373.1)
Disposals and transfers
1.5
43.3
232.3
28.0
-
305.1
Asset write-downs and impairments (Note 20)
-
(176.9)
(104.6)
(6.4)
-
(287.9)
Effect of movement in exchange rates
-
-
(55.9)
(0.6)
-
(56.5)
Balance at December 31, 2024
$
(0.2)
$
(1,729.9)
$
(2,443.1)
$
(220.8)
$
-
$
(4,394.0)
Carrying Amounts
At January 1, 2023
$
73.0
$
392.9
$
1,257.1
$
60.6
$
435.5
$
2,219.1
At December 31, 2023
$
74.6
$
381.5
$
1,440.1
$
81.8
$
451.8
$
2,429.8
At December 31, 2024
$
74.5
$
177.6
$
1,895.6
$
73.8
$
219.4
$
2,440.9
2. Net of capital expenditures by CPPI that are financed by government grants.
3. Solid Wood operations include those sawmills, pellet plants, engineered wood and other lumber-related product plants, that are consolidated on a line-by-line basis.
6. Leases
(a)
Right-of-Use Assets
(millions of Canadian dollars)
Land
Pulp &
paper mills
Solid wood
operations
Logging assets &
other equipment
Facilities &
other
Total
Cost
Balance at January 1, 2023
$
3.8
$
9.2
$
114.6
$
9.4
$
52.6
$
189.6
Additions
-
0.8
49.2
3.3
6.7
60.0
Disposals and transfers
-
(0.7)
(15.1)
(2.3)
(0.5)
(18.6)
Effect of movements in exchange rates
(0.1)
-
(2.5)
(0.1)
(0.1)
(2.8)
Balance at December 31, 2023
$
3.7
$
9.3
$
146.2
$
10.3
$
58.7
$
228.2
Additions
0.3
0.6
38.6
3.8
0.8
44.1
Disposals and transfers
(0.4)
(0.4)
(19.4)
(4.1)
(13.7)
(38.0)
Effect of movements in exchange rates
0.2
-
12.7
0.3
0.6
13.8
Balance at December 31, 2024
$
3.8
$
9.5
$
178.1
$
10.3
$
46.4
$
248.1
Amortization
Balance at January 1, 2023
$
(1.2)
$
(7.4)
$
(58.3)
$
(5.5)
$
(18.1)
$
(90.5)
Amortization for the year
(0.2)
(0.9)
(24.7)
(2.2)
(4.2)
(32.2)
Disposals and transfers
-
0.7
13.5
1.8
0.2
16.2
Effect of movements in exchange rates
-
-
1.3
-
0.1
1.4
Balance at December 31, 2023
$
(1.4)
$
(7.6)
$
(68.2)
$
(5.9)
$
(22.0)
$
(105.1)
Amortization for the year
(0.7)
(30.4)
(2.8)
(4.4)
(38.3)
Disposals and transfers
0.2
-
18.1
2.4
13.6
34.3
Effect of movement in exchange rates
-
-
(6.2)
(0.2)
(0.4)
(6.8)
Balance at December 31, 2024
$
(1.2)
$
(8.3)
$
(86.7)
$
(6.5)
$
(13.2)
$
(115.9)
Carrying Amounts
At January 1, 2023
$
2.6
$
1.8
$
56.3
$
3.9
$
34.5
$
99.1
At December 31, 2023
$
2.3
$
1.7
$
78.0
$
4.4
$
36.7
$
123.1
At December 31, 2024
$
2.6
$
1.2
$
91.4
$
3.8
$
33.2
$
132.2
Canfor Corporation
74
(b) Lease Obligations
Contractual, undiscounted cash flows associated with the Company’s lease obligations are as follows:
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Within one year
$
38.4
$
35.9
Between one and five years
78.4
71.7
Beyond five years
44.6
48.0
Total undiscounted lease obligations
$
161.4
$
155.6
Interest expense on lease obligations for 2024 was $7.1 million (2023 – $5.3 million) and is included in ‘Finance income net’ on the
consolidated statement of income (loss) (Note 19).
Operating lease expenses relating to short-term and low-value leases not included in the measurement of lease obligations for 2024
were $12.0 million (2023 – $11.6 million). The variable lease expense not included in the measurement of lease obligations for 2024
was $0.1 million (2023 – nominal).
Total cash outflows for leases in 2024 were $47.3 million, including $12.1 million for short-term and low-value leases, as well as
variable lease expenses (2023 – $44.1 million and $11.6 million, respectively)
7. Timber Licenses
(millions of Canadian dollars)
Cost
Balance at January 1, 2023 and December 31, 2023
$
765.9
Disposals (Note 20)
(33.8)
Balance at December 31, 2024
$
732.1
Amortization and impairment
Balance at January 1, 2023
$
(408.1)
Amortization for the year
(11.0)
Balance as at December 31, 2023
$
(419.1)
Amortization for the year
(10.8)
Disposals (Note 20)
20.8
Balance at December 31, 2024
$
(409.1)
Carrying Amounts
At January 1, 2023
$
357.8
At December 31, 2023
$
346.8
At December 31, 2024
$
323.0
Canfor Corporation
75
8. Goodwill and Other Intangible Assets
(millions of Canadian dollars)
Goodwill
Other intangible
assets
Total
Cost
Balance at January 1, 2023
$
498.5
$
122.7
$
621.2
Additions
-
4.9
4.9
Disposals
-
(0.8)
(0.8)
Effect of movement in exchange rates
(4.6)
(0.5)
(5.1)
Balance at December 31, 2023
$
493.9
$
126.3
$
620.2
Additions
-
0.5
0.5
Derecognition of goodwill
(7.7)
-
(7.7)
Disposals
-
(1.2)
(1.2)
Effect of movement in exchange rates
24.4
2.2
26.6
Balance at December 31, 2024
$
510.6
$
127.8
$
638.4
Amortization
Balance at January 1, 2023
$
-
$
(89.1)
$
(89.1)
Amortization for the year
-
(13.0)
(13.0)
Disposals
-
0.8
0.8
Effect of movement in exchange rates
-
0.4
0.4
Balance at December 31, 2023
$
-
$
(100.9)
$
(100.9)
Amortization for the year
-
(6.9)
(6.9)
Disposals
-
1.1
1.1
Effect of movement in exchange rates
-
(2.0)
(2.0)
Balance at December 31, 2024
$
-
$
(108.7)
$
(108.7)
Carrying Amounts
At January 1, 2023
$
498.5
$
33.6
$
532.1
At December 31, 2023
$
493.9
$
25.4
$
519.3
At December 31, 2024
$
510.6
$
19.1
$
529.7
Canfor’s goodwill at December 31, 2024 relates to its US ($303.0 million), European ($181.1 million) and Canadian ($26.5 million)
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 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 volumes, log and production costs. For the
2024 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) (unchanged from 2023) 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, 2024, with no
impairment of goodwill required for 2024.
9. Long-Term Investments and Other
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Duty deposits recoverable, net (Note 29)
$
98.2
$
289.5
Other deposits, loans, advances and long-term assets
52.7
54.2
Other investments (Note 27)
116.9
90.8
Retirement benefit surplus (Note 14)
16.5
10.8
Deferred income taxes, net (Note 21)
42.7
9.4
$
327.0
$
454.7
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, 2024, including interest receivable of $54.5
million (December 31, 2023 – $60.8 million) (Note 29).
Canfor Corporation
76
Included in this $54.5 million is $6.5 million in interest receivable from the US government on certain CVD and ADD related accounts
receivable balances secured under the terms of the duty deposits loan related to the period from September 27, 2024 to December
31, 2024 and payable to Farallon Capital Management L.L.C. (“Farallon”) (Note 13). A similar amount has been recognized as interest
payable within ‘Accounts payable and accrued liabilities’ at December 31, 2024 (Note 10).
During the year ended December 31, 2024, the Company had net purchases of investments in certain funds at a cost of $16.5 million
(2023 — $59.4 million). 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 27).
10. Accounts Payable and Accrued Liabilities
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Trade payables and accrued liabilities
$
608.5
$
540.5
Accrued payroll and related liabilities
115.6
124.0
$
724.1
$
664.5
Trade payables and accrued liabilities includes a total of $10.1 million in interest payable to Farallon under the terms of the
Company’s duty deposit loan (Note 13). This $10.1 million includes $6.5 million in interest payable to Farallon upon receipt from the
US government on certain CVD and ADD related accounts receivable balances secured under the terms of the duty deposits loan
related to the period from September 27, 2024 to December 31, 2024. A similar amount has been recognized as interest receivable
within ‘Long-term investments and other’ at December 31, 2024 (Note 9).
11. Operating Loans
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Canfor (excluding Vida and CPPI)
Available operating loans:
Operating loan facility
$
925.0
$
775.0
Revolving credit facility (US$150.0 million)
216.2
198.4
Facilities for letters of credit
80.0
80.0
Total operating loan facilities
1,221.2
1,053.4
Letters of credit covered under operating loan facility
(1.4)
(2.7)
Letters of credit covered under facilities for letters of credit
(46.8)
(53.9)
Total available operating loan facilities - Canfor
$
1,173.0
$
996.8
Vida
Available operating loans:
Operating loan facilities
$
67.1
$
67.2
Overdraft facilities
34.3
44.0
Total operating loan facilities
101.4
111.2
Operating loan facilities drawn
(8.8)
(3.6)
Total available operating loan facilities – Vida
$
92.6
$
107.6
CPPI
Available operating loans:
Operating loan facility
$
160.0
$
160.0
Letters of credit
(6.0)
(6.9)
Operating loan facility drawn
(98.0)
(107.0)
Total available operating loan facility – CPPI
$
56.0
$
46.1
Consolidated:
Total operating loan facilities
$
1,482.6
$
1,324.6
Total operating loan facilities drawn
$
(106.8)
$
(110.6)
Total letters of credit
$
(54.2)
$
(63.5)
Total available operating loan facilities
$
1,321.6
$
1,150.5
Canfor Corporation
77
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.
Canfor’s principal committed operating loan facility matures on April 16, 2028. Canfor’s committed revolving credit facility matures
on June 28, 2025. On June 28, 2025, 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, 2030.
CPPI’s operating loan facility is repayable on May 2, 2027, with interest payable at floating rates that vary depending on the ratio of
net debt to total capitalization and based on the lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base rate or US-dollar
floating rate, plus a margin.
Vida’s operating loan facilities are denominated in various currencies, with interest payable at fixed rates ranging from 4.4% to 8.3%.
Vida also has separate overdraft facilities with fixed interest rates ranging from 4.0 % to 7.6 %.
Canfor and CPPI’s operating loan facilities have certain financial covenants, including a maximum net debt to total capitalization ratio
of 50.0% and a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) interest coverage ratio test of two
times, which becomes effective if the net debt to total capitalization ratio exceeds 42.5%.
In December 2024, CPPI amended certain of the covenants under its operating loan facility. Key amendments included the
establishment of a covenant relief period during which the maximum net debt to total capitalization ratio increases from 50.0% to
60.0% for 2025 and 55.0% for 2026. In addition, if the net debt to total capitalization reaches a certain threshold, this amendment
introduces a general security agreement on the property of CPPI and lowers the minimum EBITDA interest coverage ratio to one and
a half times. Other terms of the operating loan facility remain unchanged, including the repayment date of May 2, 2027.
Vida is also subject to certain financial covenants, including minimum equity and interest coverage ratios. As at December 31, 2024,
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)
As at
December 31,
2024
As at
December 31,
2023
Canfor (excluding Vida and CPPI)
US$50.0 million, floating interest, repayable on June 28, 2031
$
72.1
$
66.1
US$33.3 million, fixed interest of 4.4%, repayable on October 2, 2025 (US$33.3 million repaid on
October 3, 2024)
48.1
88.2
Other
-
5.1
Vida
AUD$0.5 million, floating interest, repayable between January 23, 2025
and February 12, 2027
0.4
0.5
Term debt at end of year
$
120.6
$
159.9
Less: Current portion
(48.1)
(44.8)
Long-term portion
$
72.5
$
115.1
In combination with the amendment of its operating loan facility, CPPI’s $80.0 million of non-revolving term debt was cancelled
undrawn. This term debt had been restricted for use, specifically for upgrades to Northwood Northern Bleached Softwood Kraft pulp
mill’s (“Northwood”) recovery boiler number one (“RB1”).
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 net 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, 2024, 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, 2024, the fair value of the Company’s term debt is $119.9 million (December 31, 2023 – $153.7 million), determined
based on prevailing market rates for term debt with similar characteristics and risk profile.
Canfor Corporation
78
13. Duty Deposits Loan
On September 27, 2024, Canfor entered into a secured loan agreement for approximately $424.9 million (US$315.0 million) with an
affiliate of Farallon and received all advances thereunder, totaling approximately $313.8 million (US$232.4 million) at that time. The
loan is secured by certain accounts receivable related to CVD and ADD paid to the US government (Notes 9 and 29). The borrowings
under the loan have terms of four and eight years, with an effective interest rate of 7.5% and 3.9%, respectively.
Under the terms of the agreement, interest accrues annually, and to the extent it is not paid in cash annually, is to be added to the
outstanding balance of the principal at each anniversary date. As a result, the Company recognized $3.6 million in interest expense
for the year ended December 31, 2024 (Note 19), with the same amount recorded within ‘Accounts payable and accrued liabilities’ as
at December 31, 2024.
Principal and interest on the loan is payable at the end of the respective terms with the repayment of the loan, including all interest
and principal payments, anticipated to be met by refunds and interest receivable out of duty refunds from the US government. The
loan is repayable to Farallon at the time certain accounts receivable balances are received from the US government. To the extent
duty refunds have not been received at the end of each respective term, the terms can be extended, at Canfor’s option, for two
additional ten-year terms.
In addition, interest received by Canfor on the secured accounts receivable balances from September 27, 2024, to the date of duty
refunds from the US government, will also be payable to Farallon at the end of the respective terms of the borrowings under the loan.
Under this term of the agreement, as at December 31, 2024, $6.5 million has been recognized as interest receivable within ‘Long-
term investments and other’ (Note 9) and as interest payable within ‘Accounts payable and accrued liabilities’ (Note 10). This interest
component also accrues annually, and to the extent it is not paid in cash annually, will also be added to the outstanding balance of the
principal at each anniversary date.
As this duty deposit loan is denominated in US-dollars, it is translated into the Company’s functional currency at each reporting date
with foreign exchange differences arising on translation recognized in net income (loss). As at December 31, 2024, the duty deposit
loan was translated to $335.1 million, with a foreign exchange loss of $21.3 million recognized in net income (loss) for the year ended
December 31, 2024.
14. 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 2024 were $41.7 million (December 31, 2023 – $59.4 million), consisting of
cash contributed by Canfor to its funded pension plans, cash payments directly to beneficiaries for its 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, 2024, 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 completed 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, 2023 were completed in 2024 for the three plans. The next required actuarial valuation for
funding purposes is currently scheduled for December 31, 2026, to be completed in 2027. 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, 2024, which was completed in 2025.
Canfor Corporation
79
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.
2024
2023
(millions of Canadian dollars)
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Beginning of year
$
308.1
$
-
$
282.2
$
-
Interest income on plan assets
8.3
-
13.1
-
Return on plan assets greater than discount rate
0.9
-
10.5
-
Employer contributions
7.8
3.7
20.9
3.3
Employee contributions
0.3
-
0.3
-
Benefit payments
(17.0)
(3.7)
(17.2)
(3.3)
Surplus distributions to employees
(9.1)
-
-
-
Settlement of buy-out annuity contracts
(154.5)
-
-
-
Administration costs
(1.1)
-
(1.1)
-
Other
(0.1)
-
(0.6)
-
End of year
$
143.6
$
-
$
308.1
$
-
Plan assets consist of the following:
As at
December 31,
2024
As at
December 31,
2023
Asset category
Percentage of Plan Assets
Equity securities
59%
44%
Debt securities
39%
55%
Other
2%
1%
100%
100%
Accrued benefit obligations.
2024
2023
(millions of Canadian dollars)
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Beginning of year
$
361.8
$
61.6
$
356.7
$
68.4
Current service cost
3.8
0.6
4.2
0.8
Interest cost
10.6
2.6
16.0
3.0
Benefit payments
(17.0)
(3.7)
(17.2)
(3.3)
Employee contributions
0.3
-
0.3
-
Settlement of buy-out annuity contracts
(159.1)
-
3.5
-
Actuarial loss (gain)
(1.8)
(0.2)
2.8
(7.3)
Change in plan surplus
(8.2)
-
(8.0)
-
Settlement loss and other
-
1.0
3.5
-
End of year
$
190.4
$
61.9
$
361.8
$
61.6
Of the defined benefit pension plan obligation of $190.4 million (December 31, 2023 – $361.8 million), $126.6 million (December 31,
2023 – $297.3 million) relates to the registered plans that are partially funded and $63.8 million (December 31, 2023 – $64.5 million)
relates to the supplemental plans that are unfunded, with letters of credit securing $36.8 million (December 31, 2023 – $43.0 million)
of the unfunded liability.
The total obligation for the non-pension post-retirement benefit plans of $61.9 million (December 31, 2023 – $61.6 million) is
unfunded.
Annuity contracts.
In 2024, the Company purchased buy-out annuities for a portion of its defined benefit pension plans. As a result, $159.1 million of the
Company’s accrued benefit obligation and a similar amount of plan assets were derecognized from the Company’s consolidated
balance sheet.
Canfor Corporation
80
Reconciliation of funded status of defined benefit plans to amounts recorded in the consolidated financial statements.
December 31, 2024
December 31, 2023
(millions of Canadian dollars)
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Fair market value of plan assets
$
143.6
$
-
$
308.1
$
-
Accrued benefit obligations
(190.4)
(61.9)
(361.8)
(61.6)
Funded status of plans – deficit
(46.8)
(61.9)
(53.7)
(61.6)
Other pension plans
(8.2)
-
(6.8)
-
Total accrued benefit liability, net
$
(55.0)
$
(61.9)
$
(60.5)
$
(61.6)
The net accrued benefit liability is included in Canfor’s consolidated balance sheet as follows:
December 31, 2024
December 31, 2023
(millions of Canadian dollars)
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Retirement benefit surplus
$
16.5
$
-
$
10.8
$
-
Retirement benefit obligations
(71.5)
(61.9)
(71.3)
(61.6)
Total accrued benefit liability, net
$
(55.0)
$
(61.9)
$
(60.5)
$
(61.6)
Of the net defined benefit pension plan obligation of $55.0 million, $36.8 million (December 31, 2023 – $43.0 million) is secured by
letters of credit.
At December 31, 2024 and December 31, 2023, 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 2024 and 2023. 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:
2024
2023
(millions of Canadian dollars)
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Recognized in net income (loss)
Current service cost
$
3.8
$
0.6
$
4.2
$
0.8
Administration cost
1.1
-
1.1
-
Interest cost, net (Note 19)
2.3
2.6
3.5
3.0
Settlement loss (gain)
(4.6)
-
3.5
-
Surplus distribution to employees
9.1
-
-
-
Other
-
1.0
2.9
-
Total expense included in net income (loss)
$
11.7
$
4.2
$
15.2
$
3.8
2024
2023
(millions of Canadian dollars)
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Recognized in other comprehensive income (loss)
Actuarial loss (gain) – experience
$
0.1
$
0.4
$
(0.1)
$
(1.1)
Actuarial loss (gain) – financial assumptions
(1.9)
(0.6)
2.9
(6.2)
Return on plan assets greater than discount rate
(0.9)
-
(10.5)
-
Change in plan surplus
(8.2)
-
(8.0)
-
Administrative costs greater than expected and other
0.3
-
0.6
-
Total gain in other comprehensive income (loss)
$
(10.6)
$
(0.2)
$
(15.1)
$
(7.3)
During 2024, the Company settled one of its registered pension plans that was wound up in 2023. The defined benefit obligation was
determined based on actuarial assumptions at the date of wind-up, and the fair value of plan assets at the same date. The settlement
process involved discharging all obligations and distributing the remaining plan assets to plan members. As a result, on settlement,
Canfor Corporation
81
the Company recognized a $9.1 million expense in the consolidated statement of net income (loss). In addition, the Company
recognized a corresponding gain of a similar amount in the consolidated statement of other comprehensive income (loss), as the
asset ceiling provision associated with this registered pension plan was reversed.
Significant assumptions.
The actuarial assumptions used in measuring Canfor’s benefit plan provisions and benefit costs are as follows:
December 31, 2024
December 31, 2023
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Discount rate
4.7%
4.7%
4.6%
4.6%
Rate of compensation increases
2.0%
n/a
2.0%
n/a
Initial medical cost trend rate
n/a
5.0%
n/a
5.0%
Ultimate medical cost trend rate
n/a
4.5%
n/a
4.5%
Year ultimate rate is reached
n/a
2031
n/a
2031
In addition to the significant assumptions listed in the table above, the average life expectancy of a 65-year-old at December 31, 2024
is between 21.4 years and 24.5 years (December 31, 2023 – 21.4 years and 24.4 years). As at December 31, 2024, the weighted
average duration of the defined benefit plan obligation, which reflects the average age of the plan members, is 13.0 years (December
31, 2023 – 12.4 years). The weighted average duration of the other benefit plans is 11.1 years (December 31, 2023 – 11.2 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 2024:
(millions of Canadian dollars)
1% Increase
1% Decrease
Defined benefit pension plan liabilities
Discount rate
$
(20.0)
$
24.2
Other benefit plan liabilities
Discount rate
$
(6.2)
$
7.4
Initial medical cost trend rate
$
2.8
$
(2.7)
With respect to the discount rate sensitivity effect on the defined benefit pension plan liabilities, it is noted that 39% (December 31,
2023 – 41%) is partially offset through the plan’s investment in debt securities.
As at December 31, 2024, estimated contribution payments of $8.2 million will be made to the Company’s defined benefit pension
plans in 2025 based on the last actuarial valuation for funding purposes.
Defined contribution and other plans.
The total expense recognized in 2024 for Canfor’s defined contribution plans was $14.9 million (December 31, 2023 – $17.6 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 $15.3 million in 2023 (December 31, 2023 – $17.6 million).
Canfor Corporation
82
15. Deferred Reforestation Obligations
The following table provides a reconciliation of the deferred reforestation obligations as at December 31, 2024 and December 31,
2023:
(millions of Canadian dollars)
2024
2023
Reforestation obligations at beginning of year
$
100.0
$
104.2
Expense for year
49.0
47.2
Accretion expense
1.7
1.6
Changes in estimates
(0.3)
2.6
Paid during the year, net
(45.9)
(55.6)
Reforestation obligations at end of year
104.5
100.0
Less: Current portion
(57.6)
(52.6)
Long-term portion
$
46.9
$
47.4
The total undiscounted amount of the estimated cash flows required to settle the obligations at December 31, 2024 is $111.0 million
(December 31, 2023 – $106.6 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 2.6% to 3.4% at December 31, 2024
(December 31, 2023 – 3.1% to 4.7%).
16. Asset Retirement Obligations
The following table provides a reconciliation of the asset retirement obligations included in ‘Other long-term liabilities’ on the
consolidated balance sheet as at December 31, 2024 and December 31, 2023:
(millions of Canadian dollars)
2024
2023
Asset retirement obligations at beginning of year
$
13.1
$
12.2
Accretion expense
0.4
0.4
Changes in estimates
(1.2)
0.5
Asset retirement obligations at end of year
$
12.3
$
13.1
Canfor’s asset retirement obligations (excluding CPPI) represent estimated undiscounted future payments of $14.6 million
(December 31, 2023 – $15.7 million) 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 42 years and have been discounted at risk-free rates ranging from 3.0% to 3.4%
(December 31, 2023 – 3.0% to 3.7%).
CPPI’s asset retirement obligations include $9.3 million (December 31, 2023 – $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 27 years and have been discounted at risk-free rates ranging from 3.0% to 3.4% (December 31, 2023 – 3.0% to
3.9%).
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.
Canfor Corporation
83
17. 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.
2024
2023
(millions of Canadian dollars, except number of shares)
Number of Shares
Amount
Number of Shares
Amount
Common shares at beginning of year
118,931,779
$
938.3
121,059,579
$
955.1
Common shares purchased
(526,700)
(4.2)
(2,127,800)
(16.8)
Common shares at end of year4
118,405,079
$
934.1
118,931,779
$
938.3
4. Based on trade date.
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 2024 is 118,586,844 (December 31, 2023 – 120,153,152).
Normal course issuer bid.
On March 19, 2024, 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 5,942,508 common shares, or approximately 5% of its issued and outstanding
common shares as at March 15, 2024. The renewed normal course issuer bid is set to expire on March 20, 2025.
During the year ended December 31, 2024, the Company purchased 526,700 common shares for $8.4 million (an average of $15.95
per common share), before tax of $0.6 million, all of which was paid during the year. 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), all of which was paid
during the year.
As at December 31, 2024 and March 6, 2025, based on the trade date, there were 118,405,079 common shares of the Company
outstanding and Canfor’s ownership interest in CPPI and Vida was 54.8% and 77.0%, respectively (December 31, 2023 – 54.8% and
70.0%).
18. 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, 2024
As at December 31, 2023
Lumber5,6
CPPI
Total
Lumber5,6
CPPI
Total
Current assets
$
186.1
$
97.6
$
283.7
$
279.8
$
113.6
$
393.4
Non-current assets
87.7
106.9
194.6
118.7
191.6
310.3
Total assets
$
273.8
$
204.5
$
478.3
$
398.5
$
305.2
$
703.7
Current liabilities
$
76.8
$
103.0
$
179.8
$
80.8
$
120.7
$
201.5
Non-current liabilities
27.8
22.0
49.8
39.7
32.2
71.9
Total liabilities
$
104.6
$
125.0
$
229.6
$
120.5
$
152.9
$
273.4
Total equity
$
169.2
$
79.5
$
248.7
$
278.0
$
152.3
$
430.3
Total liabilities and equity
$
273.8
$
204.5
$
478.3
$
398.5
$
305.2
$
703.7
Canfor Corporation
84
Summarized Statements of Income (Loss) and Other Comprehensive Income:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
Year ended December 31, 2024
Year ended December 31, 2023
Lumber5
CPPI
Total
Lumber5
CPPI
Total
Sales
$
463.4
$
360.6
$
824.0
$
431.2
$
395.4
$ 826.6
Net income (loss)
$
5.9
$
(73.1)
$
(67.2)
$
21.0
$
(43.4)
$
(22.4)
Other comprehensive income
-
0.3
0.3
-
2.6
2.6
Total comprehensive income (loss)
$
5.9
$
(72.8)
$
(66.9)
$
21.0
$
(40.8)
$
(19.8)
Distributions paid to non-controlling interests, net
$
65.4
$
-
$
65.4
$
62.3
$
-
$
62.3
During the year ended December 31, 2024, Vida paid dividends of $223.1 million (SEK 1,722 million) to its shareholders, which
included distributions to non-controlling interests of $66.9 million (December 2023 – dividend of $199.5 million, which included
distributions to non-controlling interests of $59.9 million).
Summarized Statements of Cash Flows:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
Year ended December 31, 2024
Year ended December 31, 2023
Lumber5
CPPI
Total
Lumber5
CPPI
Total
Cash flows from operating activities
$
12.4
$
26.4
$
38.8
$
38.6
$
16.4
$
55.0
Cash flows from (used in) in financing activities
$
(56.0)
$
(10.1)
$
(66.1)
$
(65.0)
$
13.5
$
(51.5)
Cash flows used in investing activities
$
(19.6)
$
(18.9)
$
(38.5)
$
(11.5)
$
(27.0)
$
(38.5)
5. Lumber non-controlling interest includes non-controlling interest related to Houston Pellet Limited Partnership (HPLP) (40%), and CSP Moultrie Investment, L.L.C. (5%)
for the year ended December 31, 2024. Includes cash distributed to HPLP for capital calls ($3.2 million). Lumber non-controlling interest also included Vida, at 30% for the
period between January 1, 2024 and December 10, 2024 and at 23% from December 10, 2024 to December 31, 2024.
6. Lumber total equity includes a $23.3 million foreign exchange loss arising from the translation of foreign operations, recognized in 'Accumulated other comprehensive
income' on the consolidated balance sheet (December 31, 2023 – $28.9 million foreign exchange loss).
19. Finance Income (Expense), Net
(millions of Canadian dollars)
2024
2023
Interest expense on borrowings
$
(32.7)
$
(27.3)
Interest expense on lease obligations (Note 6(b))
(7.1)
(5.3)
Interest expense on retirement benefit obligations, net (Note 14)
(4.9)
(6.5)
Interest expense on duty deposits loan (Note 13)
(3.6)
-
Interest income (expense) from duty deposits recoverable, net (Note 29)
(18.3)
19.7
Interest income
17.7
32.4
Other finance expenses
(2.8)
(2.6)
Finance income (expense), net
$
(51.7)
$
10.4
20. Restructuring, Asset Write-Downs and Impairments, and Other Items
Restructuring.
In April 2024 the Company announced its decision to permanently close its Jackson, Alabama facility. In May 2024, the Company
announced its decision to permanently close its Polar facility, suspend its planned reinvestment in Houston, BC and indefinitely curtail
one production line at CPPI’s Northwood pulp mill. In August 2024, the Company announced its decision to permanently close its
Plateau sawmill as well as its Fort St John sawmill and pellet plant facilities. Additionally, during the fourth quarter of 2024 the Mobile,
Alabama sawmill was permanently closed in conjunction with the commissioning of the new facility in Axis, Alabama.
As a result, the Company recognized restructuring costs of $76.7 million for the year ended December 31, 2024 (2023 — $12.2 million
related to the closure of the Chetwynd sawmill and pellet plant and the temporary closure of Houston sawmill).
Asset Write-Downs and Impairments.
In connection with the closure announcements, as well as the ongoing uncertainty with respect to the availability of economic fibre,
the Company determined there were indicators of impairment at certain of its Western Canadian lumber operations for the year
ended December 31, 2024, in accordance with IAS 36, Impairment of Assets.
Canfor Corporation
85
The recoverable amount of the timber licenses and property, plant and equipment within the Western Canadian lumber operations
was determined based on the higher of fair value less costs to sell and value in use. A discounted cash flow model was used to
estimate value in use. This discounted cash flow model was projected based on past experience as well as Management’s
assessment of future trends in the forest industry, based on external and internal sources of data. Assumptions include future
production volumes, commodity prices, log and production costs, the discount rate, applicable foreign exchange rates, operating
rates of the assets, and the future capital required to maintain the assets for their current operating conditions. Estimated future cash
flows were discounted at a rate of 11% (15% before tax), based on the Company’s weighted average cost of capital in that area for
2024 (unchanged from 2023).
In addition, because of ongoing uncertainty surrounding economic fibre availability, heightened by the recent sawmill closure
announcements in the BC Interior, an impairment assessment was also performed on the Company’s property, plant and equipment
of its pulp and paper segment for the year ended December 31, 2024.
The recoverable amount of CPPI’s property, plant and equipment within its pulp and paper operations was determined based on the
higher of fair value less costs to sell and value in use. A discounted cash flow model was used to estimate value in use. This
discounted cash flow model was projected based on past experience as well as Management’s assessment of future trends in the
pulp industry, based on external and internal sources of data. Significant assumptions include future production volumes, commodity
prices, fibre and production costs, as well as the discount rate. Other assumptions include applicable foreign exchange rates,
operating rates of the assets, and the future capital required to maintain the assets for their current operating conditions. Estimated
future cash flows were discounted at a rate of 9% (12% before tax), based on CPPI’s weighted average cost of capital for 2024
(unchanged from 2023).
As a result of these assessments, an asset write-down and impairment charge of $131.9 million (which includes write-downs for
property, plant and equipment of $112.1 million and materials and supplies inventory of $19.8 million) was recognized in the
Company’s lumber segment as a reduction of the carrying value of the Company’s Western Canadian lumber operations for the year
ended December 31, 2024. An additional $211.0 million (which includes write-downs for property, plant and equipment of $206.5
million, and materials and supplies inventory of $4.5 million) was recognized as a reduction to the carrying value of CPPI’s pulp
assets within the pulp and paper segment for the year ended December 31, 2024.
Other Items.
In August 2024, the Company completed the sale of its Chetwynd sawmill lands and equipment to a third party for proceeds of $5.0
million, which were received in 2024.
Also in August 2024, the Company completed its previously announced sale of the Mackenzie sawmill assets to Peak Mackenzie, and
sale of the forest tenure in the Mackenzie region to the McLeod Lake Indian Band and Tsay Key Dene Nation for combined proceeds
of $66.5 million, of which $56.5 million was received in 2024.
As a result of these transactions, the Company recognized a gain of $34.9 million in the consolidated statement of income (loss) for
the year ended December 31, 2024.
21. Income Taxes
The components of income tax recovery (expense) are as follows:
(millions of Canadian dollars)
2024
2023
Current
$
47.5
$
64.5
Deferred
199.8
77.0
Income tax recovery
$
247.3
$
141.5
The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:
(millions of Canadian dollars)
2024
2023
Income tax recovery (expense) at statutory rate of 27.0% (2023 – 27.0%)
$
265.5
$
132.3
Add (deduct):
Non-taxable loss related to non-controlling interests
(2.1)
(1.1)
Entities with different income tax rates and other tax adjustments
(11.4)
9.7
Permanent difference from capital gains and losses and other non-deductible items
(4.7)
0.6
Income tax recovery
$
247.3
$
141.5
In addition to the amounts recorded to net income, a tax expense of $2.9 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, 2024 (December 31, 2023 – $6.0
million).
Canfor Corporation
86
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)
As at
December 31,
2024
As at
December 31,
2023
Deferred income tax assets
Accruals not currently deductible
$
54.3
$
46.4
Loss carryforwards
116.4
87.0
Retirement benefit obligations
31.1
32.5
Lease obligations
34.6
31.6
Other
13.2
10.5
$
249.6
$
208.0
Deferred income tax liabilities
Depreciable capital assets
$
(222.6)
$
(330.7)
Goodwill and other intangible assets, net
(11.2)
(7.1)
Untaxed reserves
(78.4)
(77.3)
Duty deposits recoverable, net
(26.0)
(76.7)
Right-of-use assets
(32.4)
(30.2)
Other
(5.1)
(6.6)
$
(375.7)
$
(528.6)
Total deferred income tax liabilities, net
$
(126.1)
$
(320.6)
Less: entities in a deferred income tax asset position (Note 9)
42.7
9.4
Net deferred income tax liabilities
$
(168.8)
$
(330.0)
CPPI has non-capital loss carry-forwards of approximately $172.7 million (2023 - $186.3 million) in Canada which expire between
2042 and 2043.
In accordance with IAS 12, Income Taxes, the Company reviewed future taxable profits of Canfor and its subsidiaries on a legal entity
basis and recognized a deferred income tax asset as at December 31, 2024 to the extent that it is probable that the related tax benefit
will be received. 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.
22. Net Change in Non-Cash Working Capital
(millions of Canadian dollars)
2024
2023
Trade and other receivables
$
(12.2)
$
23.1
Inventories
59.3
175.2
Prepaid expenses and other
(1.4)
9.9
Accounts payable and accrued liabilities, and current portion of deferred reforestation obligations
(49.2)
(42.1)
Net change in non-cash working capital
$
(3.5)
$
166.1
23. Related Party Transactions
Canfor undertakes transactions with various related entities. These transactions are in the normal course of business and are
generally on similar terms as those accorded to unrelated third parties, except where noted otherwise. The Jim Pattison Group is
Canfor’s largest shareholder with an ownership interest of 53.8% at December 31, 2024 (December 31, 2023 – 53.6%). During 2024,
subsidiaries owned by The Jim Pattison Group provided lease, insurance, and other services to Canfor totaling $6.5 million
(December 31, 2023 – $6.6 million).
During 2024, CPPI sold paper to subsidiaries owned by The Jim Pattison Group totaling $3.8 million (December 31, 2023 – $4.5
million). CPPI also made purchases from subsidiaries owned by The Jim Pattison Group totaling $0.5 million (December 31, 2023 –
$0.7 million).
Also during 2024, Vida purchased sawlogs from former owners and current key management personnel totalling $2.0 million (SEK
15.1 million).
Canfor Corporation
87
At December 31, 2024, an outstanding balance of $0.2 million was owed to subsidiaries owned by The Jim Pattison Group
(December 31, 2023 – $0.2 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)
2024
2023
Short-term benefits
$
10.8
$
12.7
Post-employment benefits
0.8
1.4
$
11.6
$
14.1
Short-term benefits for members of the Board of Directors include an annual retainer.
24. 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 NBSK, 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.
(millions of Canadian dollars)
Lumber
Pulp and
Paper
Unallocated and
other
Elimination
adjustment
Consolidated
Year ended December 31, 2024
Sales from contracts with customers
$
4,454.3
$
798.5
$
-
$
-
$
5,252.8
Sales to other segments
123.8
0.1
-
(123.9)
-
Operating loss
(660.4)
(226.5)
(55.3)
-
(942.2)
Amortization
367.1
58.8
3.2
-
429.1
Capital expenditures7
472.1
50.8
4.2
-
527.1
Total assets
4,496.2
397.4
678.3
-
5,571.9
Year ended December 31, 2023
Sales from contracts with customers
$
4,551.1
$
875.5
$
-
$
-
$
5,426.6
Sales to other segments
153.1
-
-
(153.1)
-
Operating loss
(348.7)
(127.5)
(55.4)
-
(531.6)
Amortization
332.7
85.0
2.7
-
420.4
Capital expenditures7
510.4
60.5
16.1
-
587.0
Total assets
4,270.9
654.0
1,206.5
-
6,131.4
7. Capital expenditures represent cash paid for capital assets during the periods, excluding assets purchased as part of acquisitions (Note 28). Pulp & Paper includes capital
expenditures by CPPI that were partially financed by government grants.
Canfor Corporation
88
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)
2024
2023
Sales by location of customer
Canada
10%
$
548.9
12%
$
637.4
United States
50%
2,605.9
52%
2,799.0
Europe
24%
1,250.7
19%
1,051.1
Asia
14%
723.7
15%
806.8
Other
2%
123.6
2%
132.3
100%
$
5,252.8
100%
$
5,426.6
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Property, plant and equipment, ROU assets, timber licenses, goodwill and other intangible assets
by location
Canada
29%
$
991.0
41%
$
1,417.5
United States
55%
1,877.2
43%
1,447.5
Europe
16%
557.2
16%
553.9
Asia and Other
0%
0.4
0%
0.1
100%
$
3,425.8
100%
$
3,419.0
25. 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.
Commitments.
At December 31, 2024, Canfor had contractual obligations of $242.5 million (December 31, 2023 – $363.0 million) reflecting
commitments for the construction of capital assets, and other working capital items. The majority of these commitments are
expected to be settled within five 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 $242.5 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, 2024, 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 $9.2 million was recognized in 'Accounts payable and accrued liabilities' as at December 31, 2024 (December
31, 2023 – $6.5 million).
26. 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 Corporation
89
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 receivables, as well as 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,
2024 was $259.3 million (December 31, 2023 – $627.4 million).
Canfor utilizes credit insurance to mitigate the risk associated with some of its trade receivables. As at December 31, 2024,
approximately 68% (December 31, 2023 – 64%) of the outstanding trade receivables are covered by credit insurance. Canfor’s trade
receivable balance at December 31, 2024 was $322.7 million, before a loss allowance of $4.4 million (December 31, 2023 – $302.2
million, before a loss allowance of $4.3 million).
At December 31, 2024, approximately 94% (December 31, 2023 – 94%) of the trade receivable balance was 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, 2024, Canfor had $106.8 million drawn on its operating loans and facilities (December 31, 2023 – $110.6 million) and
$54.2 million reserved for several standby letters of credit (December 31, 2023 – $63.5 million), leaving $1,321.6 million available and
undrawn (December 31, 2023 – $1,150.5 million). As a result, including cash and cash equivalents of $259.3 million (December 31,
2023 – $627.4 million), Canfor had available liquidity of $1,580.9 million (December 31, 2023 – $1,777.9 million, excluding CPPI’s
$80.0 million non-revolving term debt, which was restricted for use on the re-investment of Northwood’s RB1, and cancelled in 2024).
The Company also had accounts payable and accrued liabilities of $724.1 million (December 31, 2023 – $664.5 million), term debt of
$120.6 million (December 31, 2023 – $159.9 million) and a duty deposit loan of $335.1 million (December 31, 2023 – nil) as at
December 31, 2024.
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.
(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, 2024 and 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 $1.8 million in relation to working capital balances denominated in US-dollars at year end (including cash,
trade receivables and accounts payable); and a (ii) gain (loss) of approximately $5.4 million in relation to term debt and the
duty deposits loan 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, 2024 and
December 31, 2023, the Company had no foreign exchange collar contracts outstanding.
Canfor Corporation
90
Although Vida primarily transacts in SEK, the Company also sells certain products in US-dollars, British Pounds (“GBP”),
Australian Dollars (“AUD”), 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, 2024 and December 31, 2023, the following
forward foreign exchange contracts were outstanding.
As at December 31, 2024
Maturity Date
Notional Amount
Currency
Notional Amount
Exchange Rates
Forward Foreign Exchange Contracts
(millions)
(rate of SEK to
notional currency)
0-6 months
GBP
£ 40.0
13.54
0-12 months
USD
$ 66.0
10.16
0-6 months
EUR
€ 15.0
11.43
As at December 31, 2023
Maturity Date
Notional Amount
Currency
Notional Amount
Exchange Rates
Forward Foreign Exchange Contracts
(millions)
(rate of SEK to
notional currency)
0-6 months
GBP
£40.0
13.35
0-18 months
USD
$99.0
10.31
0-6 months
EUR
€15.0
11.62
(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.
Canfor had the following lumber futures contracts at December 31, 2024 and December 31, 2023:
As at December 31, 2024
As at December 31, 2023
Maturity Date
Notional
Amount
Average
Rate
Notional
Amount
Average
Rate
Lumber Future Contracts
(MMfbm)
(US-dollars
per Mfbm)
(MMfbm)
(US-dollars
per Mfbm)
Future sales contracts
0-6 months
14.5
$ 601.4
19.3
$565.2
(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, 2024 and December 31, 2023, 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.
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91
Canfor’s capital is comprised of net cash and total equity:
(millions of Canadian dollars)
As at
December 31,
2024
As at
December 31,
2023
Total debt (including operating loans)
$
227.4
$
270.5
Duty deposits loan
335.1
-
Less: cash and cash equivalents
(259.3)
(627.4)
Net debt (cash)
303.2
(356.9)
Total equity
3,583.8
4,277.4
Total capitalization
$
3,887.0
$
3,920.5
The Company has certain financial covenants on its debt obligations, including a maximum net 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, 2024 and December
31, 2023.
The Company manages its capital structure through rigorous planning, budgeting and forecasting processes, and ongoing
management of operations, investments and capital expenditures. In 2024, 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.
27. Financial Instruments
Canfor’s cash and cash equivalents, trade and other receivables, certain long-term investments and advances, accounts payable and
accrued liabilities, other liabilities, operating loans, term debt and duty deposits loan are classified as measured at amortized cost in
accordance with IFRS 9 Financial Instruments. The carrying amounts of these instruments, excluding term debt and duty deposits
loan, approximate fair value at December 31, 2024 and December 31, 2023.
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 2024 or 2023.
The following table summarizes Canfor’s financial instruments measured at fair value at December 31, 2024 and December 31, 2023,
and shows the level within the fair value hierarchy in which they have been classified:
(millions of Canadian dollars)
Fair Value
Hierarchy
Level
As at
December 31,
2024
As at
December 31,
2023
Financial assets measured at fair value
Investments
Level 1
$
114.5
$
89.1
Derivative financial instruments
Level 2
1.1
4.4
Duty deposits recoverable, net (Notes 9 and 29)
Level 3
98.2
289.5
$
213.8
$
383.0
Financial liabilities measured at fair value
Derivative financial instruments
Level 3
$
5.2
-
Put liability
Level 3
110.7
187.7
$
115.9
$
187.7
Canfor Corporation
92
During the year ended December 31, 2024, the Company had net purchases of investments in certain funds at a cost of $16.5 million
(2023 — $59.4 million). 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, 2024, the fair value of derivative financial instruments includes an asset of $1.1 million which is included in ‘Other
receivables’ and a liability of $5.2 million which is included in ‘Accounts payable and accrued liabilities’ on the Company’s
consolidated balance sheet (December 31, 2023 — $4.4 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)
2024
2023
Lumber futures
$
(0.4)
$
(0.4)
Foreign exchange forward contracts
(11.5)
7.2
Gain (loss) on derivative financial instruments
$
(11.9)
$
6.8
At December 31, 2024, the fair value of duty deposits recoverable is a net asset of $98.2 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 19).
At the acquisition date of Vida in 2019, Canfor recorded an initial put liability of $118.6 million (SEK 830.1 million) relating to Vida’s non-
controlling shareholders’ option to sell their remaining 30.0% ownership interest to the Company in 3 to 10 years’ time. Subsequent
changes to the measurement of the put liability have been recognized in ‘Other Equity’ over time. In December 2024, Vida’s non-
controlling shareholders exercised a portion of their put option and Canfor purchased an additional 7.0% of the outstanding shares in
Vida (Note 30). At the date of these options being exercised the put liability was reduced by $82.7 million, with an offsetting gain
recognized in ‘Other Equity’.
For the year ended December 31, 2024, a total gain of $74.3 million was recognized in ‘Other Equity’ on the Company’s consolidated
balance sheet consisting of the aforementioned gain on exercise of options, combined with remeasurement of the put liability for the
passage of time (December 31, 2023, loss of $12.1 million).
As a result of the option exercise and put remeasurement, combined with net foreign exchange gains of $2.7 million for the year
ended December 31, 2024, (December 31, 2023 – foreign exchange losses of $2.9), the balance of the put liability was $110.7 million
at December 31, 2024 (December 31, 2023 – $187.7 million).
28. Acquisition of El Dorado Sawmill
In August 2024, the Company completed the purchase of Resolute Forest Products Inc.’s El Dorado lumber manufacturing facility
located in Union County, Arkansas, for $100.6 million (US$72.6 million), including a net working capital adjustment of $4.2 million
(US$3.1 million). The facility, named internally as Iron Mountain after a nearby roadway, produces dimensional lumber and specialty
wood products and is expected to increase the Company’s annual SYP lumber production capacity by 175 million board feet after an
anticipated further $67.5 million (US$50 million) in planned upgrades. This transaction was accounted for as a business combination
under IFRS 3 Business Combinations and is include in Canfor’s lumber segment.
Of the purchase price, $96.4 million (US$69.5 million) was applied to the property, plant and equipment, which included a fair value
adjustment of $11.8 million (US$8.5 million). Final fair value of acquired property, plant and equipment was determined using
replacement cost estimates and physical depreciation assumptions. 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. No
goodwill was recognized as part of the purchase.
The table below summarizes the final recognized amounts of net assets acquired by Canfor at the acquisition date. There were no
changes from the preliminary fair value determinations.
Canfor Corporation
93
(millions of Canadian dollars)
CAD
US
Property, plant and equipment
$
96.4
$
69.5
Non-cash working capital, net
4.2
3.1
Total net identifiable assets
100.6
72.6
Total consideration
$
100.6
$
72.6
The Company incurred acquisition related costs of $1.6 million (US$1.2 million), largely for external legal fees and due diligence costs,
which have been expensed as incurred and included in ‘Selling and administration costs’ on the consolidated statement of income
(loss) for the year ended December 31, 2024.
29. 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, 2024, Canfor has
paid cumulative cash deposits of $996.9 million.
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. 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. Most
recently, on September 9, 2024, the Canadian Federal Government launched two legal challenges against the US DOC related to the
final rates for POR5. The results of this dispute could potentially result in adjustments to Canfor’s prescribed duties and therefore its
consolidated statement of income (loss).
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%.
In August 2024, the DOC completed the final administrative review and finalized the rates for POR5. Canfor’s final combined rate was
determined to be 16.58% (CVD of 6.14% and ADD of 10.44%). As a result of the rate finalization, an expense of $67.2 million (US$48.6
million), was recognized in the Company’s consolidated financial statements to reflect the difference between the combined accrual
rate (11.42% between January and July 2022 and 9.95% for August through to December 2022), and the DOC’s final combined rate
for POR5 of 16.58%.
Also in August 2024, the Company’s combined cash deposit rate of 6.61% was reset to the final DOC rates for POR5 of 16.58%. 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 sixth period of review (anticipated in the third quarter of 2025). Despite the finalized rates for POR5, 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.
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%.
Subsequent to year-end, in March 2025, the DOC announced the preliminary anti-dumping results POR6, which indicated that the
Company’s preliminary ADD rate for 2023 was 34.61%. Upon finalization of this rate (anticipated in the third quarter of 2025), a
recovery, estimated at $2.8 million (US $1.9 million) will be recognized in the Company’s consolidated financial statements to reflect
the difference between the ADD accrual rate of 35.00% and the preliminary ADD rate for POR6. In addition, once final, the Company’s
current combined cash deposit rate of 16.58% will be reset to incorporate the DOC ADD rate for POR6 (currently estimated to be
40.75%, based on this preliminary ADD rate determination of 34.61% combined with the Company’s current CVD cash deposit rate
of 6.14%). The DOC is anticipated to release preliminary countervailing results for POR6 on or before May 2025.
Canfor Corporation
94
Seventh Period of Review (“POR7”)
On January 1, 2024, the Company moved into the seventh period of review (“POR7”), which is based on sales and cost data in 2024.
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 1.36% for January to July, and 6.14% thereafter, while ADD was expensed at
an estimated accrual rate of 22.00%. This resulted in a combined accounting rate of 23.36% for January to July and 28.14% for
August to December (versus the DOC’s combined cash deposit rate of 6.61% for January to July and 16.58% for August to
December).
Despite cash deposits being made in 2023 and 2024 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.
Summary
A summary of the various combined rates is as follows:
Time Period
Deposit Rate
Accrued Rate
DOC Rate
Description
April 2017 – December 2018
20.52%
15.84%
4.62%
First Period of Review (“POR1”)
January 2019 – December 2019
20.52%
29.24%
19.54%
Second Period of Review (“POR2”)
January 2020 – November 2020
20.52%
18.24%
5.87%
Third Period of Review (“POR3”)
December 2020
4.62%
7.63%
5.87%
POR3
January 2021 – November 2021
4.62%
9.63%
6.61%
Fourth Period of Review (“POR4”)
December 2021
19.54%
9.42%
6.61%
POR4
January 2022 – July 2022
19.54%
11.42%
16.58%8
POR5
August 2022 – December 2022
5.87%
9.95%
16.58%8
POR5
January 2023 – July 2023
5.87%
35.95%
40.75%9
POR6
August 2023 – December 2023
6.61%
36.36%
40.75%9
POR6
January 2024 – July 2024
6.61%
23.36%
Anticipated in 2026
POR7
August 2024 – December 2024
16.58%
28.14%
Anticipated in 2026
POR7
8. Reflects the DOC’s final combined rate for POR5
9. Reflects the DOC’s preliminary ADD rate for POR6; subject to change following the release of the preliminary CVD rate for POR6.
During 2024, the Company refined its estimate of the fair value measurement of net duty deposits recoverable based on evidence of
fair value through the Farallon loan transaction (Note 13). In accordance with IFRS guidance, this change in accounting estimate was
applied prospectively, with $53.4 million (US$39.6 million) recorded as a reduction to net duty deposits recoverable as at December
31, 2024 (Note 9) and as an incremental duty expense for the year ended December 31, 2024.
After taking the above into consideration, for accounting purposes, a net duty deposits recoverable of $98.2 million is included on the
Company’s consolidated balance sheet (Note 9) as at December 31, 2024 (December 31, 2023 – $289.5 million) reflecting
differences between the cash deposit rates and the Company’s combined accrual rates for each period of review, including interest
of $54.5 million (December 31, 2023 - $60.8 million).
Included in this $54.5 million is $6.5 million in interest receivable from the US government on certain CVD and ADD related accounts
receivable balances secured under the terms of the duty deposits loan related to the period from September 27, 2024 to December
31, 2024 and payable to Farallon (Note 13). A similar amount has been recognized as interest payable within ‘Accounts payable and
accrued liabilities’ at December 31, 2024 (Note 10).
For the year ended December 31, 2024, the Company recorded a net duty expense of $260.6 million (2023 – net duty expense of
$143.8 million), comprised of the following:
(millions of Canadian dollars)
2024
Cash deposits paid
$
65.9
Duty expense attributable to POR7 - combined CVD and ADD10
74.1
Duty expense attributable to POR5 – combined CVD and ADD11
67.2
Refined fair value measurement
53.4
Duty expense, net
$
260.6
10. Reflects Canfor’s combined accrual rate (23.36% from January to July 2024, 28.14% thereafter) compared to the DOC’s deposit rate for POR7 of 6.61% from January to
July 2024, 16.58% thereafter.
11. Reflects Canfor’s combined accrual rate (11.42% from January to July 2022 and 9.95% from August to December 2022) compared to the DOC’s final combined rate
(16.58% for the entirety of 2022) in POR5.
Canfor Corporation
95
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).
30. Partial Acquisition of Vida
On December 10, 2024, the Company announced the acquisition of an additional 7.0% interest in Vida, increasing its ownership from
70.0% to 77.0% for total consideration of $118.3 million (SEK 916.6 million). The shares were acquired from certain minority
shareholders who utilized their option privileges outlined in the February 2019 agreement, through which Canfor had initially
purchased 70.0% of Vida (Note 27). As control was retained, the transaction was accounted for as an equity transaction with owners.
The carrying amount of Vida’s net assets in the Company’s consolidated financial statements on the date of the partial acquisition
was $799.8 million.
(millions of Canadian dollars)
Carrying amount of non-controlling interest acquired ($799.8 million x 7.0%)
$
55.9
Consideration paid to non-controlling interest
118.3
Foreign exchange gain
8.1
A decrease in equity attributable to the shareholders of the Company
$
(70.5)
Additional Information.
96
Directors and Officers.
The name and municipality, province/state and country of residence of the Directors of the Company and their principal occupations as at
March 6, 2025 are as below. For more information visit canfor.com.
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 March 6, 2025 are as below. For more information visit canfor.com.
Directors
Officers
1. Member of the Audit Committee.
2. Member of the Joint Management Resources and Compensation Committee.
3. Member of the Joint Governance and Sustainability Committee (formerly the Joint Governance Committee).
4. Member of the Joint Environmental, Health and Safety Committee.
5. Member of the Joint Capital Expenditure Committee.
6. All committees of the Company, other than the Audit Committee, have as members one or more directors of CPPI and are joint committees with CPPI. For more information on the
power, responsibilities and composition of the joint committees, see the Company’s Information Circular dated March 20, 2025, which can be found on SEDAR+ at sedarplus.com.
7. Ms. Yurkovich became a Director on January 1, 2025 following the resignation of Mr. Don Kayne as a Director and officer of the Company as at December 31, 2024. For more information
regarding the principal occupation and background of Mr. Kayne, see the Company’s Information Circular dated March 13, 2024, which can be found on SEDAR+ at sedarplus.com
The term of office of each Director expires on the date of the next Annual General Meeting of the Company.
John Baird
Chairman
Canfor Corporation
Toronto, ON, Canada
Ryan Barrington-Foote, FCPA, FCA1, 2
President
The Jim Pattison Group
Vancouver, BC, Canada
Santhe Dahl5
Chairman, Vida
Växjö, Sweden
Dieter Jentsch1, 5
Senior Advisor
Corporate Director
King City, ON, Canada
Conrad Pinette5
President
Condor Holdings
Vancouver, BC, Canada
Dallas Ross1, 2, 5
Founder and General Partner
Kinetic Capital Partners
Vancouver, BC, Canada
Ross Smith, FCPA, FCA 1, 2
Member of the Board of Directors of
Rotherham Holdings Ltd.
West Vancouver, BC, Canada
Frederick Stimpson III2, 4
Senior Advisor
Mobile, AL, United States
William Stinson2, 3, 5
Chairman and Chief Executive Officer
Westshore Terminals Investment Corporation
Vancouver, BC, Canada
Sandra Stuart 3, 4
Senior Advisor
Vancouver, BC, Canada
Dianne Watts 3, 4
Senior Advisor
Corporate Director
Surrey, BC, Canada
Susan Yurkovich 7
President and Chief Executive Officer
Canfor Corporation
Vancouver, BC, Canada
John Baird
Chairman, Canfor Corporation
Toronto, ON, Canada
Susan Yurkovich
President and Chief Executive Officer
Vancouver, BC, Canada
Patrick Elliott
Chief Financial Officer and Corporate Secretary
Vancouver, BC, Canada
Stephen Mackie
Chief Operating Officer, and
President and Chief Executive Officer, Canfor Pulp
Kelowna, BC, Canada
Kevin Pankratz
Senior Vice President, Sales and Marketing
North Vancouver, BC, Canada
Katy Player
Senior Vice President, People
North Vancouver, BC, Canada
David Trent
Senior Vice President, Business Development
West Vancouver, BC, Canada
Måns Johansson
President, Canfor Europe
Växjö, Kronobergs Iän, Sweden
Lee Goodloe
President, Canfor Southern Pine
Mobile, AL, United States
Ross Lennox
Vice President, Sustainability and Partnerships
Prince George, BC, Canada
Andreas Kammenos
Vice President, Business Optimization
Abbotsford, BC, Canada
Katrina Wilson
Vice President, Controller
Surrey, BC, Canada
Mathew Parras
Vice President, Canadian Operations
Prince George, BC, Canada
Mina Laudan
Vice President, Corporate Affairs
Vancouver, BC, Canada
Lilac Bosma
Vice President, Legal and General Counsel
Richmond, BC, Canada
Nick Ott
Vice President, Technology and Digital
Mobile, AL, United States
Corporate and Shareholder Information.
The Annual General Meeting of Canfor Corporation will be held via webcast on May 8, 2025.
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/investors.
Annual General Meeting
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
Investor Contacts
Patrick Elliott
Chief Financial Officer & Corporate
Secretary
Canfor Corporation
(604) 661-5441
patrick.elliott@canfor.com
Dan Barwin
Head of Corporate Development
Canfor Corporation
(604) 661-5390
daniel.barwin@canfor.com
Media Contact
Mina Laudan
Vice President, Corporate Affairs
Canfor Corporation
(604) 661-5241
mina.laudan@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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