Canfor's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Canfor Corporation (CFPZF.PK)

Q1 2012 Earnings Call

April 27, 2012 11:00 a.m. ET

Executives

Don Kayne - President and Chief Executive Officer

Alan Nicholl - Chief Financial Officer

Alistair Cook - Senior Vice President, Wood Products Operations

Wayne Guthrie - Senior Vice President of Sales and Marketing

Analysts

Daryl Swetlishoff - Raymond James & Associates

Mark Kennedy - CIBC World Markets

Chris Damas - BCMI Research

Paul Quinn - RBC Capital Markets

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the Canfor Corporation First Quarter Results 2012 Conference Call. A recording of the call and a transcript will be available on Canfor’s website. During this call, Canfor’s Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of their website. Also the company would like to point out that this call will include forward-looking statements, so please refer to the press release for the associated risks and such statements.

I would now like to turn the meeting over to Mr. Don Kayne, President and CEO of Canfor Corporation. Mr. Kayne, Please go ahead.

Don Kayne

Thank you, operator and good morning everyone and welcome to Canfor’s conference call to discuss the company's first quarter results for 2012. Before I get started today I wanted to take few moments to reflect on the tragic explosion at Sinclar Group’s Lakeland Mill in Prince George on Monday night. Canfor holds a one-third ownership stake in Sinclar Group, so this incident is very very close to home.

24 employees from the mill were taken to hospital and 2 men have lost their lives to this tragedy. Of course are our concerns are with the entire Lakeland team and their families, most particularly those that were injured. We are also conscious of the fact that this is second serious fire in six months in the BC Interior sawmill. While it is much too early to speculate on the possible cause of the Lakeland fire, this combined with the recent explosion at Babine Forest Products in Burns Lake has caused to redouble our focus on safety.

Now returning to the quarter, I will speak briefly about our quarter one highlights before turning the call over to our Chief Financial Officer, Alan Nicholl. Alistair Cook, our Senior Vice President of Wood Products Operations and Wayne Guthrie, our Senior Vice President of Sales and Marketing are also available today as well to answer any questions you may have specific to their responsibility area.

Canfor reported a net loss of $16.2 million over the first quarter of 2012, on sales of $607.6 million. Improving lumber market conditions in the U.S. are encouraging and we did see some positive pressure on North American lumber prices over the quarter. These gains were unfortunately offset by continued weakness in offshore low-grade prices with inventories in China returning to more normal levels. We expect to see market improvement in low-grade prices over quarter one.

Also encouraging is that we continue to see a steady improvement in productivity and unit conversion cost at our lumber operations. These gains reflect our targeted capital expenditures and a strong focus on continuous improvement across our operations. In quarter one we successful completed our acquisition of Tembec Southern BC solid wood assets, adding approximately 1.1 million cubic meters of annual timber harvesting rights and 420 million board feet of lumber production to our capacity.

This acquisition is a significant element in continuing to strengthen our overall fibre quality across the company. We were pleased to complete that deal and welcome the new divisions to Canfor in March. We also completed further capital projects in the quarter as part of our $300 million three-year strategic capital investment program. Investment in quarter one included a planer upgrade at the Grande Prairie sawmill, which was completed on time and on budget and is currently exceeding expected targets.

Overall quarter one shows slow but steadily improving operating performance and market conditions, and as we look ahead we are reasonably optimistic that continued steady gains in the U.S. housing market and the rebound of low grade prices in China will lead to improved results in quarter two.

I will now turn things over to Canfor’s Chief Financial Officer, Alan Nicholl, to provide more details concerning our Q1 financials.

Alan Nicholl

Thank you, Don, and good morning everyone. My comments will be principally focused on our financial performance for the first quarter of 2012 by reference to the previous quarter. In my comments I will be referring to our first quarter over a few slide presentation, which you will find on our website in the Investor Relations section on the webcast. Full details on the (inaudible) are contained in our news release issued on Wednesday evening.

For the first quarter of 2012, we reported an equity shareholder net loss of $16 million of $0.11 per share. This compares to shareholder net loss of $44 million or $0.31 per share for the fourth quarter of 2011, and a shareholder net income of $7 million or $0.05 a share for the first quarter of 2011.

On slide three of our presentation we highlight various non-operating items net of tax and non-controlling interest, which effect comparability of our results between the fourth and first quarters. The net impact of these items in the first quarter was to improve net earnings by $6 million or $0.05 a share. The more significant items in the first quarter included foreign exchange gains on long-term debt and gains on various financial derivatives as well as the transaction costs related to the acquisition of Tembec Southern BC Wood Product assets. And more on this transaction in a few moments.

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