Canfor Corp Aktie

Good morning. My name is Michelle and I will be your host today. Welcome to Canfor Corporation Second Quarter Analyst Call. [Operator Instructions] During this call, Canfor's Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of the company's website.

Also, the companies would like to point out that this call will include forward-looking statements. So please refer to the press release for the associated risks of such statements.

I would now like to turn the meeting over to Susan Yurkovich, Canfor Corporation President and Chief Executive Officer. Please go ahead, Susan.

Thanks, Michelle. Good morning, everyone. Thanks for joining our Q2 results conference call. I'll start off with a few comments before I turn things over to Pat Elliott, Canfor's Chief Financial Officer. I'm also joined by Stephen MacKie, our Chief Operating Officer; Kevin Pankratz, our Senior Vice President of Sales and Marketing; and Brian Yuen, our Vice President of Pulp Sales; [indiscernible] paper sales, who are available and can help with questions following our remarks.

Our lumber business generated solid EBITDA in the second quarter with improved pricing driven by leaner inventories, industry capacity rationalizations over the last several years and ongoing transportation constraints in the U.S. South. While supply reductions have supported lumber pricing in 2026, we do remain cautious on our near-term outlook as demand continues to be impacted by global economic uncertainty, ongoing trade disputes and persistent affordability challenges. Pulp markets also remain under significant pressure with elevated inventories and a structural shift in market dynamics contributing to weak pricing over the last several quarters. Despite these headwinds, we are seeing improvements in our underlying performance, supported by the significant [indiscernible] we've made to our operating platform over the last several years. While we're encouraged by our second quarter results, we remain focused on strengthening our platform and positioning the bids to navigate the challenges facing our industry. As part of these efforts, we recently announced the closures of our Northwood Pulp mill later this year, along with 2 sawmills in Sweden and our [ Fox Creek ] [indiscernible] in Alberta. These are incredibly difficult decisions that impact our employees, their families and our local communities. We've made changes across our platform that are got reaching, but we are putting our business in a more sustainable footing. The changes will allow us to utilize the economically viable cyber supply across our operating regions more effectively and support a stronger, more competitive platform going forward.

In the case of Northwood, reducing our pulp capacity will improve our cost structure, lower our corbon intensity and enhance the long-term competitiveness of our Intercon facility and specialty paper business, which continues to perform well.

In our lumber business, the closure of [ Ersolt/Orfr ] and along with Fox Creek sawmills will allow us to optimize fiber procurement efforts support our cost structure and overall profitability as we concentrate production in fewer, more productive facilities.

As we optimize our operating platform, we're also investing in higher-value opportunities. Earlier this month, we completed the acquisition of Pinkwood, which we believe will strengthen our asset base in Western Canada, further diversify our earnings profile through increased exposure to value-added products. Taken together, these actions reflect our continued focus on building a stronger, more resilient company positioned to create long-term value through the cycle.

With that, I'll turn it over to Pat [indiscernible] for an overview of our financial results.

Thanks, Susan, and morning, everyone. In my comments this morning, I'll speak to our second quarter financial highlights. And as always, this is included in our overview slide presentation in the Investor Relations section of our website. Our lumber business generated adjusted EBITDA of $145 million in the second quarter, $116 million higher than the previous quarter. These results have been adjusted to onetime items totaling $16 million, comprised of restructuring and impairment charges net of a $7 million recovery of previously recorded inventory write-downs. Results included $37 million of adjusted EBITDA in our European lumber business, reflecting moderately higher pricing, increased shipments and modest log cost growth. In North America, improved lumber pricing, increased volume and cost structure improvements supported solid earnings, particularly in the U.S. South. Our pulp and paper business reported an adjusted EBITDA loss of $12 million, $4 million lower than the prior quarter, reflecting the impact of planned maintenance downtime and weakness in global pulp markets. As Susan mentioned, we announced the closure of our Northwood pulp mill later this year, driven by a structural shift in pulp market fundamentals and challenges securing economically viable fiber supply. As a result, we anticipate recording restructuring costs of approximately $30 million in the third quarter. .

In addition, we announced the closure of our Fox Creek sawmill due to challenging market conditions, elevated duties and declining fiber availability in the region. As a result, we anticipate recording an asset write-down and impairment charge of approximately $35 million also in the third quarter.

Turning to our balance sheet. Canfor ended the second quarter with available liquidity of approximately $1.2 billion and net debt, excluding the duty loan of $316 million, available liquidity improved by $215 in the second quarter, supported by solid earnings and a seasonal working capital unwind. We anticipate capital spend of approximately $210 million for 2026, including approximately $35 million for our Pulp business and the remaining spend associated with our Bruza facility in Sweden and our Iron Mountain facility in Arkansas. Following completion of these projects, Capital spend will moderate supported by our strong lumber platform and rightsized pulp footprint.

And with that, Michelle, we are now ready to take questions from the analysts.

[Operator Instructions] And our first question is going to come from Ben Isaacson with Scotiabank.

Two questions, both on closures. First, could you give a little bit more color on the Fox Creek closure and specifically the Alberta fiber basket, how rapidly is it declining? Are there any other assets in your portfolio that are at risk or are on the fence?

Ben, it's Stephen here. Thanks for the question. Well, maybe I'll sort of work backwards, but I would say there's no other assets in our Alberta portfolio that are at risk. We think that this move as difficult as it is, really a result of the wildfires that we've experienced in Alberta over recent years and that impact of the fiber supply along with some other sort of regulatory constraints that are being applied on the land base. And when we look at our overall portfolio of assets in Alberta, this strengthens it, and we're confident that we've got sufficient fiber supply to support the remaining facilities.

That's great. And then just a broader question. So you've done a lot of footprint rationalization recently. And presumably, you're only shutting those assets that are losing money. And so if that's correct, then what is the uplift to normalized EBITDA? Or how do all these closures improve the earnings power for the company?

Matt, it's Pat. Yes, hard and probably not properly give you too good guidance [indiscernible] than to say, clearly, there's a lot of this that's been baked in since we started rationalizing in 2023. But I guess I would just guide to there's more to come. You mentioned -- we mentioned Fox Creek with the North with closure, that pulp cost structure changes materially. We're still doing an upgrade and finishing upgrade at Bruza in Sweden. We're still doing an upgrade at our Iron Mountain facility in Arkansas. So as we get into 2027, I would just say that there's more to come. And so I just have to wait for those results, but it's still come.

And the next question will come from Sean Steuart with TD Cowen.

Just to build on that last response. When you say more to come, you're talking about savings to come in '27, not necessarily more closures, correct?

Yes. Thank you for clarifying. That's exactly right, Sean. Thank you.

Okay. Okay. I wanted to make sure. You guys had really -- you had really strong Q2 lumber price gains in North America, which as comps and the published benchmarks. I know there was disproportionate strength for wider dimension stuff in the South. But any further comment you can give on mix that might have helped this quarter? And if mix was a factor, is that a sustainable trend into the back half of the year?

Yes. Sean, it's Kevin here. Yes, I think you noted the wide widths, especially in 6-inch and 10 and 12 inch, and we're seeing it across all species to there, Sean. So it might -- we'll expect those spreads to maybe moderate somewhat because it is out of the normal pattern, but we expect that to continue through Q3 and then typically come off there by Q4.

Okay. That helps. Susan, the recent I-joist acquisition you found in Alberta, just outside Calgary, I know it's a small deal, but I guess can you qualify the company's broader interest in EWP expansion? Is this a precursor to interest -- M&A interest in other deals on that side of the business?

Yes. We're constantly looking at things. This is a really good fit for us. Of course, we operate in Alberta. We provide a lot of furnish to that facility already. So we know these folks culturally a really good fit for us. We think it adds nicely to our portfolio. We're continuing to look at a number of opportunities. We're fortunate that we have a balance sheet where we can be opportunistic. Of course, we're being prudent. But we like this acquisition and we see opportunity to grow that business.

Organically or through M&A or both.

Would you like -- as usual. We're looking at all kinds of things and when we're ready to share something with you, we'll be happy to do.

Got it. Okay. Understood. One last one. The Northwood closure, I understand the context. I guess the question is how concentrated let's say, over the last few years, how concentrated were the losses in the pulp segment at Northwood versus, [ Entercom ]. And can you give some context on broader benefits tied to residual procurement for Intercon going forward, as Northwood is taken out of the mix?

Yes. I'll start, Sean, and my colleague, Stephen, would help me here. So yes, I think we didn't -- the procurement was done jointly, I guess, is what I would say. So it's a balanced balance losses, if you call it that, the opportunity here of sort of tightening the supply, reducing kind of some of that further distance, fibers like residual supply and/or whole log supply in combination with kind of, I guess, an increased focus on a smaller site really allows us to generate, I would say, material synergy and material improvement to that structure. Again, not ready to quantify that. We'll see that as we get into 2027. But I'd just say that it's a material step down in the cost structure for [ Intercos Specialty Paper ] relative to the balanced portfolio we have today.

Yes. I think the only thing I would add there, Sean, and Pat is just that it proportionally changes our mix quite dramatically as well and leverages the greater exposure to the paper business. which has been quite solid and stable and has generated positive returns for a long period, a number of years. So I think it reduces our exposure to market pulp, which along with the cost structure improvements that Pat referenced are going to position that business, we think, quite well going forward.

And our next question will come from Ketan Mamtora with BMO Capital Markets.

Maybe to start with on the European lumber business, really nice improvement in the second quarter. Can you talk about sort of what is driving this trend there? And sort of what trends you are seeing so far in July?

Sure, Ketan. Yes, so it's kind of a balanced -- it's a balanced trend, I'd say, as I said in my comments, we saw both improvement in the lumber price, and we saw a reduction in the low cost. I think you'll know for the last number of quarters, we've seen rapid escalation of the log cost in Sweden in our operating, and that is starting to moderate as we hope and suggested that it would do. And I think as we look to the rest of the year, Q2 is probably a good proxy for where we'll be. I think there's continuing pressure that fiber supply is pretty balanced in South Sweden, and the markets obviously are -- as the markets here in North America are sort of subject to the broader global situation. So -- but we do think that we've kind of entered a period where we can have sort of standards for the remainder of 2026.

Understood. In fact, generally, Q3, just seasonally, volumes are lower in Europe, is that should still be sort of consistent with the seasonal trend?

Yes, exactly. There's usually $100 million or more fee that come out as a result of the July downtime in Sweden.

Understood. Okay. That's helpful. And then switching to North America. But can you talk about sort of the transportation freight bottlenecks? What was just order of magnitude, how much of a drag that was on your results, how much of an impact on costs just on the lumber side? On the cost just on the lumber side.

Well, yes, for sure. Like so on transportation, we did not have any real issues at all in Canada. It was predominantly a U.S. South situation and largely in trucking. It's probably hard to quantify the cost. But obviously, we're dealing with fuel surcharges that are somewhat embedded in the pricing. I think that helped support the elevated pricing in SYP. And partially offset their, Ketan, with increased rail shipments that allowed us to reach to markets and customers. And so I don't really see the -- I mean, the trucking has moderated somewhat, but it's still at an elevated of tightness. And we don't really see that fundamentally changing for the balance of the year. But as far as the Costco, it's kind of hard to quantify other than the fuel surcharges that are still elevated.

Okay. No, that's helpful. And then just last 1 from me. On the [indiscernible] acquisition, is there any part of the business that's exposed to kind of the tale just recently announced?

No. [indiscernible] are not subject to tariffs. They're not paying tariffs now, and they are not subject to the 338 or 301.

[Operator Instructions] our next question comes from Hamir Patel with CIBC Capital Markets.

[indiscernible] Just related to Northwood. How do you think about long-term environmental liabilities associated with the pulp business? .

Hamir, can you repeat your question because it only -- we only heard about half of it.

Sure. Yes. Pat, in your prepared remarks, you referenced the Q3 restructuring charges you'll recognize related to the Northwood mill. How should we think about longer-term environmental liabilities associated with the site?

Yes, Hamir. A lot of that will have to do with what happens to the site in the longer term. And at this point, we're just focused on sort of a safe wind down of Northwood Pulp, we'll see, but I think that's quite a ways out in terms of dealing with that. So too early to say, Hamir.

Okay. Fair enough. And Susan, we've seen 1 of your peers decided to shrink its corporate presence in D.C. and consolidate functions in the U.S. just given some of your own portfolio changes, do you see some cost saving opportunities to perhaps do something similar? .

We have no plans to move our corporate office.

I am showing no further questions at this time. I will now turn the call back over to Susan for closing remarks. Susan, go ahead. .

Thanks, Michelle, and thanks all for joining the call, and we'll see you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good morning. My name is Kevin, and I'll be your host today. Welcome to Canfor's First Quarter 2026 Analyst Call. [Operator Instructions] During this call, Canfor's Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of the company's 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 of such statements. I would now like to turn the meeting over to Susan Yurkovich, Canfor's Corporation President and Chief Executive Officer. Please go ahead, Susan.

Thank you, Kevin. Good morning, and thanks for joining Canfor's Q1 2026 Results Conference Call. I'm going to open with a few comments this morning before turning things over to Patrick A. Elliott, our Chief Financial Officer. We're also joined by Stephen MacKiey, Canfor's Chief Operating Officer; Kevin Pankratz, our Senior Vice President of Sales and Marketing; and Brian Yuen, our Vice President of Pulp Sales -- Pulp and Paper Sales, who are going to be available and happy to take questions at the end.

Our lumber business generated modest EBITDA in the first quarter with improved pricing supported by seasonally higher demand and more limited supply, partly reflecting the significant capacity reductions in our industry we've seen in the last couple of years. While supply has been somewhat constrained, lumber prices have started to moderate in recent weeks, particularly for Southern Yellow Pine as demand continues to be impacted by the uncertainty facing the global economy.

Similarly, our pulp business continues to face significant headwinds with elevated inventories and weak global pulp demand offsetting modest cost improvements realized in the first quarter.

Now, withstanding the current economic landscape, we continue to position the business to navigate the challenges facing our industry. Our goal remains to be more resilient and better able to deliver more stable returns over the cycle, and we are focused on executing our strategy, strengthening our operating platform, improving our cost competitiveness and diversifying our business.

Looking ahead, we anticipate further reductions to our cost structure as we continue to ramp up our low-cost capacity in the U.S. South and see a reduction in our antidumping and countervailing duties beginning in October. In Europe, while results have been challenging for several quarters, we are beginning to see modest log cost relief, higher pricing and the benefits from our acquisition of the Karl Hedin assets last September.

Following significant capital investment in recent years, we're focused on operating our low-cost sawmills efficiently as we look to optimize regional fiber supply and maximize the returns on our investment. Going forward, we are anticipating significantly lower capital requirements due to the improvements in our underlying asset base.

So while markets are anticipated to remain challenging in the near term, our business is well positioned to generate strong free cash flow as the market recovers. In addition, we've maintained a solid balance sheet, which provides us with flexibility to pursue strategic growth should the right opportunities present themselves.

Now I'll turn it over to Pat to provide an overview of our financial results.

Thanks, Susan, and good morning, everyone. In my comments this morning, as always, I'll speak to our first quarter financial highlights, which included an overview slide presentation located in the Investor Relations section of our website. Our lumber business generated adjusted EBITDA of $29 million in the first quarter, $37 million higher than the previous quarter.

These results have been adjusted to exclude a $20 million recovery of a previously recorded inventory write-down. Improved earnings in the first quarter largely reflected an increase in North American lumber pricing, particularly for Southern Yellow Pine as well as lower unit manufacturing costs. While North American lumber prices benefited from tighter supply, global demand remains challenging.

As a result, our European lumber business generated an adjusted EBITDA loss of $12 million, $4 million lower than the prior quarter. Looking ahead, we anticipate a modest improvement in European lumber prices, driven by seasonally higher demand and reduced supply. In addition, log costs are anticipated to decrease slightly through the balance of 2026, which should support improved earnings going forward.

Our pulp business reported an adjusted EBITDA loss of $8 million in the first quarter, $8 million better than the prior. While our first quarter results benefited from improvements to our underlying cost structure, global pulp markets continue to be impacted by elevated inventories and weak demand, which we believe will persist.

Following Canfor's acquisition of Canfor Pulp in March, our pulp business is better positioned to manage through the current market dynamics. Turning to our balance sheet. Following a refinancing of our credit facility in March, Canfor ended the first quarter with available liquidity of approximately $970 million and net debt, excluding the duty loan of approximately $530 million.

We forecast capital spend of $210 million in 2026, and this includes $35 million for pulp and remaining spend associated with our Bruza facility in Sweden and our Iron Mountain facility in Arkansas. Following completion of these projects, we expect capital spend to moderate further over the next several years, supported by our strong lumber platform.

And with that, we're now ready to take questions from analysts.

[Operator Instructions] Our first question comes from Benjamin Isaacson with Scotia.

Susan or Pat, can you talk about where you are on your cost improvement journey on a portfolio-weighted basis? I think you mentioned you're looking to lower costs in the U.S. South, but is that to really wrap up a bigger program? How should we think about the magnitude and timing of those cost improvements going forward?

Ben, I'll get Pat to take that.

Yes. Thanks, Ben. Yes, obviously, the last number of years with the combination of rationalization of some of the higher cost assets that we had and the new investment that we made, the significant new investment that we made, particularly in the U.S. South, we've seen a continued drop in our operating cost footprint.

I would say we're the vast majority of the way through that. As you know, we're still going to be completing the Iron Mountain project here at the end of this year, which really goes live into next year. And there's still some efficiencies to be gained from like our Axis project in Twitter are doing great, but are still -- there's still probably a little bit more to squeeze there. So hard to quantify other than to say the majority of it is sort of baked into our results already in 2026.

Great. And then just two more, if I may. On Vida, can you talk about what the parameters are to consolidate that and to kind of finalize that transaction. Is there a valuation formula that set? Is now a good time considering the market outlook is weak? Would there be operational risk if you took full ownership of that? Can you just flesh that out a bit?

Sure. I'll keep going, Ben. Yes, so there's a fixed mechanism for that. Both the timing and the amount are fixed. They're not impacted by current events. So that is fixed. So there's no opportunity for either side to transact before that.

And I would kind of go back to the original intent with the minority ownership structure was to keep in place those sort of strong operators who have a great track record of success in our business. So we're not looking to make any change. And frankly, the agreement doesn't allow for it.

Great. And then just finally, on the 25% net debt to cap ratio. Can you just remind us how your creditors treat that duty deposit loan as it relates to covenant calculations? Do we subtract 9% or 10%? Is that the right way to think about?

They include it, Ben. It's included in our accounts. So yes, it's included.

Our next question comes from Sean Steuart with TD Cowen.

Question -- a follow-up question on Europe. It sounds like you have some visibility that things are going to get better gradually there. Wondering if the slump though that we've seen over the last three quarters and presuming that's representative of what's going on across the industry in that part of Europe.

Has that changed the M&A opportunity set at all as more opportunities come to the fore? And is your ambition there at all tempered by what you've seen over the last few quarters?

Sean, it's Susan. Yes, we still really like and believe in Sweden. And of course, we did make the acquisition of the 3 additional [indiscernible] mills last year closed, I think, in September. And those are really good additions to our portfolio and also move us into sort of middle Sweden and we have a concentration of assets in Southern Sweden, and this sort of takes us into a different region, less populated, I would say, with sawmills.

So we still like that. We have seen our log costs moderate. And I think the industry there is taking maybe in total, is taking a bit of more disciplined approach to the purchase of fiber. So we see that coming we see those prices moderating. It's going to take some time, but we do see that coming back in line.

And we still do like that market or that jurisdiction because there's just so many -- they've got a lot of market opportunities there. I don't know if Kevin may want to add a couple of comments, but we do have a lot of options for our products. We have a lot of different markets and a lot of opportunities to be able to reach a lot of different customers. I don't know, Kevin, if you want to add anything else?

No, that's good too.

And the ambition would be strictly to Sweden still or broader Scandinavian interest?

Yes. We continue to look at a variety. We look at surrounding areas. We're continuing to evaluate opportunities. We like having the diversified portfolio where we've got assets in Canada and also in the U.S. and now in Europe, and we like that mix for us. So we'll continue to evaluate things as we move forward.

Okay. One other one, Susan, on the trade file. I know you're close to it. Any perspective on lumber potentially being brought into the broader USMCA renegotiation? Any perspective on that front?

Yes. So just the USMCA or CUSMA, it's not a renegotiation. It's a review. It's a 16-year agreement, and we are in year six. And so this is a review of that agreement. So I know that lumber is definitely in the mix in these discussions. It's going to be -- it's a complicated environment to have those discussions.

And so I know certainly it is certainly one of the top issues that the government continues to raise from Canada's perspective. But it is going to take some time. I know there's a focus on not only the duties that we are paying -- that we are familiar with paying, but also the 232 tariffs, which have that, of course, 10% to burden to our business and also picked up other industries.

But it's going to take some time. I don't see anything imminent, but of course, discussions are continuing on both sides of the border, and there will be a formal process that kicks off here. Well, it's underway now, but the formal portion of those discussions will kick off this summer.

Our next question comes from Matthew McKellar with RBC Capital Markets.

Can I maybe stick with trade for a moment. The preliminary AR7 results would suggest your duty rate could step significantly lower later this year with a tighter spread to the all others rate compared to today.

What should we understand about what that step lower means for your business? And I guess, how you run your Canadian business in particular and market your lumber?

Well, obviously, the duty is coming down, our perspective, the duty shouldn't be there in the first place, but coming down is a good thing for our business. Obviously, at 56% and 57%, it's very challenging to operate our Canadian business. We've done a really good job of focusing on alternate markets.

But of course, the U.S. is still a very big market for our product. They need our product. They want our product. And so we are still selling some there. And of course, having the duties come down by 16-ish percent is going to be helpful to our Canadian business for sure. And then, of course, as we move forward, we expect that duty rate to come down even further. So that's a good thing for our business. We are at the peak.

It's been a very challenging time to operate, but we are making our way through it, and we do see a light on the -- at the end of the tunnel here.

Maybe next, just in North American lumber, your outlook talked about an expectation that prices may soften as supply increases with the run of better lumber prices we've seen. I guess we've seen Southern Yellow Pine come under some pressure over the last couple of weeks.

But could you speak to the supply response that you're seeing so far at an industry level and maybe what that has looked like to this point after a pretty healthy run for Southern Yellow Pine.

Sure. Matthew, it's Stephen here. Maybe I'll start and then I can let Kevin talk a little bit about the market more broadly from a price perspective. I think on the supply side, it's really difficult for us to sort of comment on what others are doing or may be doing.

We do still believe that the operating rates in -- across the U.S. South are lower than historical norms generally for the industry. However, within our own operations, which is really all we can comment on. You know that we have made a lot of challenging decisions over the last number of years to rationalize higher cost capacity across our operating platform and optimize our portfolio of assets, make investments in additional low-cost capacity.

And so our focus has been to run our remaining operating facilities at full capacity. And that's what we've been working to do is maximize utilization rates across our fleet, and we -- that was true in Q1 and will be true going forward. So I think there's probably some capacity that we may have seen folks add a few hours and take advantage of a little bit higher pricing in Southern Pine.

But Kevin, I don't know if you want to add anything.

Yes. No, just from the -- Matthew, you nailed it there with the run-up in pricing from the lows that we saw in mid-December, a real rapid increase in pricing -- and what really was the big catalyst, of course, was extremely low customer inventories in the field, coupled with a demand response that we hadn't seen in a while, like a fairly strong Q1 demand supported by the housing start numbers that we've recently seen.

And then going into Q2, we do typically see a seasonal down drop in pricing. And of course, we're starting to see some cracks happen in that space there. And so I think what housebuilders and our customers are guiding to us to is just a bit more moderated demand given the uncertainty that we're seeing as a result of energy and Iran war issues.

Great. And if I can maybe just sneak one last one in. Is there any differences we should understand about the implications of the Iran war as it relates to cost pressures or maybe even demand implications that would be different between your North American and European operations? Is there any difference to call out between the 2 segments?

Well, I mean, there's a lot of cost pressures in all parts of our business. And certainly, we've had uncertainty in sort of -- because of tariff on tariff off and a lot of volatility in the decisions coming out of the U.S. Of course, the Iran conflict adds additional uncertainty in the globe and sort of that -- that's certainly having an impact.

It's kind of hard to estimate what that would be and what the split would be between our European operations and our North American operations. But again, as Stephen mentioned, the focus for us is really just running as efficiently as we possibly can. I don't know, Stephen, if you want to add anything.

No, I think that's good, Susan.

Our next question comes from Hamir Patel with CIBC Capital Markets.

Pat, you referenced CapEx this year of $210 million stepping down in '27. How should we think about just how steep that decline could be in '27? And would that sort of be a new normal?

Yes. Thanks, Hamir. Yes, obviously, the '27 capital plan is not finalized yet. But in terms of guidance, I think you're around in that $150 million plus level. So kind of another 20% to 25% lower than where we are today.

Okay. Great. And I guess a question for Susan. Now that you've taken in Canfor Pulp, how do you think about some of the sort of longer strategic decisions that you might need to do to rightsize that pulp platform and where sort of maybe mid-cycle production for Canfor Pulp likely settles?

Yes. Thanks, Hamir. Of course, we've just concluded that in March, I guess it was about March 17. We're obviously doing that work right now. We're looking at all the options for that business. Certainly, it's a challenging business, and that's the work that we're doing right now.

At this time, I'm not showing any further questions. I'd like to turn the call back to Susan for any closing remarks. Please go ahead, Susan.

Thanks very much for joining us. We'll see you all next quarter.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good afternoon, and welcome to the 2026 Annual Meeting of Shareholders of Canfor Corporation. Please note that the meeting is being recorded. I would like to introduce John Baird, Director and Chairman of the Board and Chair of today's meeting. Mr. Baird, the floor is yours.

Good afternoon. It's now 12 noon, and I would like to ask this meeting to please come to order. I will be acting as Chairman for this meeting. I'm very pleased to extend a warm welcome to all of you today for Canfor Corporation's 44th AGM. Please ensure you remain connected to the Internet during the course of this meeting. If you need technical systems, please see the section entitled Voting Process and Meeting Technical Assistance and the management information circular respecting this meeting.

This meeting has been convened as the Annual General Meeting of Shareholders has been called for the principal purposes of receiving the consolidated financial statements for the year ended December 31, 2025, together with the auditor's report and the report of the directors to the shareholders. Fixing the number of directors at 10, electing the directors for the coming year and appointing the auditors for the coming year.

I've asked Pat Elliott, Chief Financial Officer and Corporate Secretary to act as Secretary of this meeting. I would now like to introduce you to the other directors of Canfor Corporation joining us at this meeting. Ryan Barrington-Foote, Cheryl Yaremko, Santhe Dahl, Dieter Jentsch, Dallas Ross, Frederick T. Stimpson, Sander Stuart, Dianne Watts, and Susan Yurkovich. They have all worked diligently and effectively with the management team at Canfor, and we appreciate their wise counsel.

On behalf of both the Board and the management of Canfor, I wish to extend our sincere thanks to Fred Stimpson and Santhe Dahl, who are retiring from the board and will not be standing for reelection. Fred has been a Director of Canfor since 2021, and Santhe has been a director since 2023.

We are grateful for your service as directors. At this time, it's a pleasure to introduce you to Mr. Michael Garcia and Mr. Måns Johansson, who are proposed nominees for the Board of Directors of Canfor. On behalf of the Board, I'm very pleased to acknowledge our appreciation for the contribution that all of the company's personnel have made during the last year.

With the consent of the meeting, I hereby appoint TSX Trust Company to act as scrutineer of the meeting. I will now call on Mr. Elliott to deal with the notice of this meeting.

Mr. Chairman, a notice calling the meeting was mailed to all shareholders of the company entitled to receive such notice. TSX Trust Company has provided us with a certificate as to the mailing and a copy of the certificate will be kept with the records of the meeting.

Mr. Secretary, would you please summarize the preliminary scrutineers' report?

Pleased to report that there are 57 shareholders holding 100,880,084 common shares represented in person or by proxy at this virtual meeting. This represents 85.2% of the total 118,405,079 shares issued and outstanding.

As Chairman of the meeting, I adopt the preliminary scrutineers' report and declare the attendance at this meeting to be as they are set forth. I direct that when delivered, the final scrutineers' reports be kept with the records of this meeting.

In accordance with the preliminary scrutineers' report, I declare a quorum to be present and the meeting to be duly constituted for the transaction of business. Based on the preliminary scrutineers' report, a sufficient number of proxies have been deposited with TSX Trust Company voting in favor of all resolutions of the circular in order to pass each item of business in this meeting.

I propose that we deal first with all of the formal business requirements of the meeting after the formal portion of the meeting has concluded, Susan Yurkovich, the company's President and CEO, will say a few words, and there will be a final opportunity for questions from registered shareholders and proxy holders, which can be submitted online.

As this meeting is being held virtually, I would like to remind you that voting -- on all matters described in the management's information circular for the meeting will be conducted by electronic ballot. To allow sufficient time for voting, the polls for all matters being voted on will be opened following the introductory remarks and closed at the end of the formal portion of the meeting. Only registered shareholders and duly appointed proxy holders who have been properly logged in to the meeting will be able to vote at this meeting.

I also remind you that if you are a registered shareholder and you have already voted by proxy, you do not need to vote again unless you wish to change your vote. If you plan to vote at the meeting, you may choose to vote on each resolution immediately or wait to cast your vote until after the motion for an item as is proposed.

Once all items of business before the virtual meeting have been put forward, I will give registered shareholders and proxy holders an opportunity to discuss these items of business, make comments and ask questions and to provide an opportunity to enter their votes on the open poll if they haven't already done so and then declare the voting closed on all resolutions.

In order to expedite the proceedings today, I will be proposing and seconding all motions. And for any motions, not included in the circular, the motions will be determined based on the preliminary scrutineers' report and reliance on the discretionary authority granted in the proxies deposited for this meeting or on a poll at my discretion.

I now declare the polls open for all resolutions, including the management information circular for the meeting.

The first item of business is to place before the meeting the consolidated financial statements of the company for the year ended December 31, 2025, together with the auditor's report and the report of the directors to shareholders. These statements and reports are contained in the company's annual report and are available on SEDAR+ or from the company upon request. I will regard the statements and reports as received by the meeting.

Next item of business is to fix the number of directors of the company. I propose the number of directors be fixed at 10. I direct that a poll be conducted on the motion and that the scrutineer report the results. If you haven't already cast your vote online or by proxy, please cast your vote now.

The next item of business is the election of directors. I propose the following individuals be nominated to act as directors of the company to hold office until the next Annual General Meeting. John R. Baird; Ryan Barrington-Foote; Michael Garcia, Dieter Jentsch, Dallas Ross, Sandra Stuart, Dianne L. Watts, Måns Johansson, Cheryl Yaremko, and Susan Yurkovich. These persons are management's nominees for election, as was stated in the information circular mailed to shareholders of the company. There will be no further nominations, I declare the nominations closed. I direct that a poll be conducted on the motion and that the scrutineer report the results. If you haven't already cast your vote online or by proxy, please cast your vote now.

The next item of business is the appointment of auditors, and it is the Board's recommendation that KPMG LLP, chartered accounts, be appointed as auditors of the company. I propose that KPMG LLP, chartered accounts, be appointed as auditors of the company. I direct that a poll be conducted on the motion and that the scrutineer report the results. If you haven't already cast your vote online or by proxy, please cast your vote now.

That concludes the matters to be voted on. For those registered shareholders and proxy holders who have not yet raised matters or discussion, make comments, ask their questions or voted on all of the resolutions for which the polls remain open. Please do so now as I will shortly close all such polls.

[Voting]

There being no further discussion at this time, the polls on all such resolutions are now closed. I direct the scrutineer to provide a report on the results of the poll.

Based on the scrutineers' initial meeting report, I declare that the number of directors of the company has been set at 10. As only the required number of persons have been nominated to be elected as directors of the company, I declare that those persons nominated have been duly elected by acclamation as the directors of the company to hold office until the next Annual General Meeting and that KPMG LLP, chartered accounts, has been appointed as the auditors of the company.

After the meeting, upon receipt of the scrutineer's final meeting report on the polls conducted during this meeting, I direct the recording secretary of this meeting. to attach the scrutineer's final meeting report to the minutes of the meeting.

All other business for which this meeting was called have been completed. Following termination of the formal part of this meeting, Susan Yurkovich, the company's President and CEO, will say a few words regarding the company's developments and registered shareholders and proxy holders who wish to ask questions or to make comments will be subsequently invited to do so. I propose that the formal portion of this meeting be terminated.

Based on the preliminary scrutineers' report, I declare the motion carried, and the formal part of this meeting is now terminated.

I would now like to call upon Susan Yurkovich the company's President and CEO, to address the meeting. After Susan's remarks, registered shareholders or duly appointed proxy holders can ask questions using the messaging icon on the top of the virtual interface.

Thank you, John. Good afternoon, and thank you for joining us for today's Annual General Meeting. Over the past year, Canfor has continued to have navigated challenge in global environment as the forest sector faced turbulence driven by geopolitical changes, trade tensions and soft market demand. The weak global market conditions we experienced in 2024 continued through 2025 across our operating regions.

In North America, concerns around affordability and interest rates contributed to lower housing starts. While in Sweden, elevated fiber costs impacted our cost profile and operations. At the same time, ongoing political and economic uncertainty, together with increased trade tensions and U.S. imposed lumber duties led customers to take a more cautious approach to purchasing continuing to put pressure on demand and pricing.

With these pressures weighing on our results, Canfor reported an operating loss of $904 million in 2025 as compared to an operating loss of $942 million in 2024. For the first quarter of 2026, the company reported an adjusted operating loss of $93 million compared to an operating loss of $104 million in the fourth quarter of 2025.

For our lumber business, despite ongoing demand challenges, tighter supply conditions helped carry the North American pricing momentum that began in December into 2026 and resulted in an uplift in North American lumber benchmark pricing, particularly for Southern Yellow Pine in the first quarter. For the pulp business, global softwood pulp markets remained weak through Q1, although global pulp supply disruptions gave rise to a modest uplift in U.S. dollar global softwood prices to China.

In the face of these extremely challenging times, we have remained laser-focused on the things within our control, making disciplined decisions and consciously evolving in ways that reinforce our long-term competitiveness across our operating regions. We continue to advance key strategic priorities, making targeted capital investments in our existing operations to improve efficiency and performance.

In addition, we expanded our global footprint into Central Sweden with the purchase of 3 high-quality mills that enhance Vida's ability to serve our global customer base. And in December, we initiated the acquisition of the outstanding shares of Canfor Pulp, not already owned by Canfor. This transaction was completed in the spring of 2026 and work is underway to strengthen this business for the long term.

Together, these actions reflect a balanced and disciplined approach to managing our portfolio with a clear focus on improving our competitiveness and resilience. While we are focused on challenges of today's business, we are also looking ahead, refreshing our corporate strategy this year, building on our nearly 90-year history, lumber will remain at the core of our business while we look to optimize our adjacent businesses and selectively expand our value-added products and solutions in the years ahead. As always, sustainability remains at the center of what we do.

To that end, we've updated our sustainability strategy this year to ensure it reflects the broader shifts in the world around us. The result is a more practical and integrated plan that better aligns with our business ambitions, customer expectations, regulatory and disclosure requirements and the evolving social and political landscape. You can find more information on our 2025 sustainability report on our website. As always, we will continue to manage in accordance with internationally recognized standards, including the sustainable forestry initiative, reflecting our commitment to responsible fiber sourcing and environmental stewardship.

Looking ahead, we expect uncertainty to persist. Market volatility and trade disruptions will continue to challenge our industry. However, we believe the medium to long-term lumber fundamentals remain strong, and the improvements we've made to our asset base will enable us to capitalize on stronger market dynamics going forward. Guided by our strategy, we'll continue to pursue strategic growth opportunities where they make sense, employing a patient and disciplined approach to capital allocation.

As we navigate these challenging times, I'm grateful to our employees for their dedication and unwavering commitment and for the care they bring each day to delivering the high-quality products our customers rely on. I'd also like to thank our customers and partners for their continued trust, our shareholders for their long-term support and our directors for their steady guidance.

Thank you, John. I'll turn it back to you.

Thank you very much, Susan. It is now an appropriate point in the meeting to deal with any final discussion or questions from shareholders. Are there any questions or discussion from shareholders?

As there is no further discussions or questions, this meeting is now concluded. I want to thank everyone for attending today's meeting. You may now disconnect.

Good morning. My name is Carmen, and I will be your host today. Welcome to Canfor and Canfor Pulp's Fourth Quarter Analyst Call. [Operator Instructions] During this call, Canfor and Canfor Pulp's Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of the company's website. Also, the companies would like to point out that this call will include forward-looking statements. So please refer to the press releases for the associated risk for such statements.

I would now like to turn the meeting over to Susan Yurkovich, Canfor Corporation's President and Chief Executive Officer. Please go ahead, Susan.

Thank you, Carmen, and good morning, everyone. Thanks for joining the Canfor and Canfor Pulp Q4 2025 Results Conference Call. I'll kick off with a few comments this morning before I turn things over to Stephen MacKie, Canfor's Chief Operating Officer and the CEO of Canfor Pulp; and Pat Elliott, Chief Financial Officer of Canfor Corporation and Canfor Pulp. I'm also joined by Kevin Pankratz, our Senior Vice President of Sales and Marketing for Canfor; and Brian Yuen, Vice President of Sales and Marketing for Canfor Pulp, who will be available to take questions as well.

Before discussing our fourth quarter results, I just want to highlight the significant transformation that Canfor has undertaken over the past several years. Our strategy is focused on strengthening our operating platform to reduce the impact of elevated duties, further diversify our asset base and product offering and improve our cost competitiveness. In that vein, since 2023, we've made the difficult but necessary decisions to close 9 high-cost sawmills, including 2 in 2025, with a total capacity of 2.3 billion board feet.

At the same time, we've invested heavily in new facilities in the U.S. South, expanded our operations in Sweden and proactively managed our Canadian business in response to the challenges we are seeing accessing economic fiber in BC and elevated countervailing and antidumping duties as well as the more recent Section 232 tariffs.

While 2025 was another challenging year, we have started to see the benefit of these strategic actions. And although the near-term uncertainty is likely to persist, Canfor is well positioned to navigate the challenging markets, supported by our high-quality globally diversified operating platform. Looking ahead, we continue to believe the medium- to long-term lumber demand fundamentals remain strong and the improvements to our asset base will enable us to capitalize on stronger market dynamics going forward.

Finally, notwithstanding the current market uncertainty, we have maintained a strong balance sheet and have the flexibility to pursue strategic growth should the right opportunities present themselves, although we will continue to remain patient and disciplined in our approach.

I'd now like to turn it over to Stephen to provide an overview of Canfor Pulp.

Thanks, Susan, and good morning, everyone. Canfor Pulp continues to be impacted by weak global pulp and paper markets with ongoing trade disputes and broader economic uncertainty contributing to elevated inventory levels and weak pricing through much of 2025 and continuing into 2026. Against a challenging market backdrop, we continue to focus on achieving targeted cost reductions and improving our operating performance.

While we have made some progress on identified initiatives in recent months, weak market conditions continue to weigh on our financial results and available liquidity with results in the fourth quarter further impacted by scheduled maintenance downtime at Northwood.

Notwithstanding the pending transaction with Canfor, Canfor Pulp's management team remains committed to mitigating the impact of global trade dynamics and economic uncertainty by closely managing factors within our control. This includes managing our balance sheet, preserving available liquidity and continually assessing our operating footprint based on our cost structure, the availability of economically viable fiber and market demand.

I will now turn it over to Pat to provide an overview of our financial results.

Thanks, Steve, and good morning, everyone. In my comments this morning, I'll speak to our fourth quarter financial highlights, a summary of which is included in our overview slide presentation, as always, in the Investor Relations section of Canfor's website. Our lumber business generated an adjusted EBITDA loss of $8 million in the fourth quarter, $6 million lower than the prior quarter. These results continue to reflect weak lumber market conditions, particularly for Southern Yellow Pine as well as lower sales realizations in Canada following the introduction of Section 232 tariffs in the fourth quarter.

Our European lumber business generated adjusted EBITDA of $42 million in 2025. However, weak demand and elevated log costs have contributed to losses in recent quarters. Given ongoing cost pressures in the region, we recorded a $214 million (sic) [ $250.6 million ] asset write-down and impairment charge in the fourth quarter, which has been excluded from our adjusted EBITDA.

Looking ahead, we have started to see improvements in our underlying cost structure in Sweden and remain well positioned to navigate the current market challenges. While we expect European demand to remain relatively flat in the first quarter, constrained lumber supply across the region is anticipated to support higher pricing heading into the second quarter.

In North America, industry-wide downtime in December has contributed to stronger lumber pricing to start the year, particularly for Southern Yellow Pine. Although near-term volatility is expected to persist, our lumber business is well positioned to navigate the current market dynamics, the transformation of our operating platform Susan previously mentioned.

Turning to our pulp business. Canfor Pulp reported an adjusted EBITDA loss of $17 million in the fourth quarter, $14 million lower than the prior quarter, reflecting the ongoing impact of weak global markets as well as scheduled maintenance at Northwood. Canfor Pulp ended the quarter with net debt of $104 million and $40 million of available liquidity, while Canfor, excluding Canfor Pulp and the duty loan completed in 2024, ended the fourth quarter with net debt of approximately $226 million and available liquidity of $1.2 billion.

Looking ahead to 2026, we anticipate capital spend of approximately $175 million in our lumber business with $35 million for Canfor Pulp, inclusive of capitalized maintenance. In addition, Canfor has also entered an agreement to acquire all of Canfor Pulp's issued and outstanding shares not already owned by the company and will receive the results of the shareholder vote later today.

Following a write-down and impairment charge in the fourth quarter, it's highly probable that Canfor Pulp will reach its financial covenants in the first quarter, absent a successful transaction with Canfor. As Stephen mentioned, regardless of ownership structure, Canfor Pulp continues to review its underlying business as it looks to optimize and mitigate financial losses.

Despite challenging market conditions and elevated capital spending in recent years, Canfor's balance sheet remains solid. With lower capital spending over the next several years, we believe our financial position provides flexibility to manage current market uncertainty and support potential strategic investments should the right opportunity arise.

And with that, we are now ready to take questions from analysts.

[Operator Instructions] For our first question that comes from the line of Ben Isaacson with Scotiabank.

Just a couple of questions. First one, Susan, for you. Just in the lumber market in North America overall, since the last conference call 3 months ago, have you seen an uptick in distressed assets and potential assets available for sale in the marketplace? And sorry, if not, are you surprised by that?

Well, I think there's no question, Ben, that the elevated duties that we're all paying is -- it's a big challenge for every company. It's putting a lot of pressure on companies across the country as we -- because those are cash deposits. So we know that, that's a challenge. Have I done an inventory or have asked all of our competitors exactly what their position is? No, but I know it's a challenge for us, and it's a challenge for everybody across the business.

And then, Pat, for you, the $210 million in '26 CapEx guidance, I saw the split between lumber and pulp. But can you give a little bit more detail in terms of maintenance versus growth? Or maybe asking it in a different way, how much of that is discretionary?

Yes, Ben, thanks. I think we've already identified one project, the sawmill we bought in El Dorado, Arkansas, there's a rebuild going on there. There's a number of other sort of smaller discrete projects with -- I'd say about 40% of the budget is on the discretionary side. The remainder is maintenance.

Okay. And -- but on that discretionary, I mean, that seems quite committed. There's really not an opportunity for a pullback if markets deteriorate. Is that fair to say?

Well, look, there's always opportunity to do that. I think we're committed to doing it. The balance sheet supports it. It's strategic, particularly in Arkansas as it relates to our facility there at Urbana as well and the synergies that come with doing it and kind of having 2 mills in that region. So I think we are going to proceed with it, but that's more of a choice.

Understood. And then just final question is on the pulp inventory days of about 47, I think, you mentioned. Can you just give some historical context in terms of how much that has swung around in good times and bad?

Yes. So Ben, thanks for the question. I would say for sure, inventories on the softwood side are well above the balance range. And if you use historically, that range has been in the high 30s to mid-40s at most. So again, assuming that balance is in terms of a balanced supply-demand fundamental, 40 days, we've got about a week's worth of inventory overhang sitting in the producers' hands. And when you're talking about a 25 million tonne market, that's about 0.5 million tonnes in there.

[Operator Instructions] Our next question comes from Hamir Patel with CIBC Capital Markets. I do not hear any audio from Mr. Patel.

No, we can't hear him either.

Well, at this time, there are no further questions. I will turn the call back to Susan Yurkovich for any closing comments. Please go ahead, Susan.

Sure. Thanks, operator. And Hamir, if you're having trouble with your phone, maybe just give us a call, and we'll try and help you out there. Thanks very much for joining us on today's call, and we'll see you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good morning. My name is Constantine, and I will be your conference operator today. Welcome to Canfor and Canfor Pulp's Third Quarter Analyst Call. [Operator Instructions] During this call, Canfor and Canfor Pulp's Chief Financial Officer will be referring to a slide presentation that is available in the Investor Relations section of the company's website. Also, the companies would like to point out that this call will include forward-looking statements, so please refer to the press releases for the associated risks of such statements.

I would now like to turn the meeting over to Susan Yurkovich, Canfor Corporation's President and Chief Executive Officer. Please go ahead, Susan.

Thanks, Constantine, and good morning, everybody. Thanks for joining the Canfor and Canfor Pulp Q3 2025 Results Conference Call.

I'm going to start off with a few comments before turning it over to Stephen Mackie, Canfor's Chief Operating Officer and CEO of Canfor Pulp; and Pat Elliott, Chief Financial Officer of Canfor Corporation and Canfor Pulp. Kevin Pankratz, our Senior Vice President of Sales and Marketing, would normally be with us as well, but he's traveling in the market today with customers. And so we will do our best to handle your lumber market questions. But of course, if there's any that need follow-up, we can do that after the call. However, we do have Brian Yuen, our Vice President of Sales and Marketing for Canfor Pulp with us, and he can take any questions related to the pulp market.

As we've indicated in previous calls, over the last several years, Canfor has taken significant actions to further diversify our portfolio, improve our underlying cost structure and prepare for the challenging duty environment that our industry is facing. And this has included making difficult decisions to permanently close some of our higher cost operating assets, including the recent closure of our Estill and Darlington sawmills in South Carolina this last quarter.

At the same time, we've largely completed a significant modernization of our fleet in the U.S. South and expanded our presence in Sweden with the acquisition of 3 additional sawmills from Karl Hedin, a transaction that closed in September. As a result, while global lumber market conditions remain very challenging, we have better aligned our production capacity with market demand and significantly improved our cost competitiveness and leveraged our balance sheet strength to opportunistically acquire strategic assets. This transformation has been hard work. However, we now have a diverse portfolio of assets that are better positioned to both serve our customers and withstand these difficult market conditions.

And with approximately 70% of our business located out of Canada, we are also able to mitigate some of the impacts of the punishing duty environment we are currently facing. While we expect the economic uncertainty is likely to persist in the near term, Canfor is well positioned to navigate these turbulent times. And importantly, our balance sheet remains strong. And with over $1.2 billion of available liquidity, we have significant financial flexibility to withstand current market conditions while also pursuing opportunistic strategic investments at the bottom of the cycle.

I'd now like to turn it over to Stephen to provide an overview of Canfor Pulp.

Thanks, Susan, and good morning, everyone. Canfor Pulp continues to be impacted by challenging global pulp markets with elevated inventories and weak demand weighing on our financial results in the third quarter. While our paper business continued to perform well, we also experienced subdued demand for bleached kraft paper.

With challenging market fundamentals and current economic uncertainty, Canfor Pulp continues to focus on achieving targeted cost reductions and improving our operating performance. We have made progress on several operating initiatives in recent quarters, including sourcing additional fiber supply to support our current operating footprint, enhancing reliability and productivity and improving our cost structure.

Notwithstanding recent operational improvements, results in the fourth quarter will continue to reflect the impact of weak global pulp markets and results will also be impacted by a scheduled maintenance outage at Northwood. This outage was recently completed and the Northwood operation is currently in the process of restarting. As a management team, we remain focused on mitigating the impacts of global trade and economic uncertainty as we closely manage factors within our control.

Given the challenging financial position of Canfor Pulp, management has introduced additional cost-saving measures, working capital reductions and the deferral of some capital expenditures in 2026 as we continue managing our financial covenants, debt levels and available liquidity. I will now turn it over to Pat to provide an overview of our financial results.

Thanks, Stephen, and good morning, everyone. In my comments this morning, I'll speak to our third quarter financial highlights, a summary of which is included in our overview slide presentation located in the Investor Relations section of Canfor's website.

Our lumber business generated an adjusted EBITDA loss of $2 million in the third quarter, which was $70 million lower than the prior quarter. These results reflect weak lumber market conditions, particularly for Southern Yellow Pine in addition to seasonal downtime in Europe in the quarter. Notwithstanding current market conditions and the impact of elevated duties and tariffs, we've seen a notable improvement in our underlying cost structure in recent quarters. While markets are expected to remain challenging in the near term, our lumber platform is well positioned to navigate the current market dynamics, supported by a solid balance sheet and actions taken in recent years to transform our operating platform.

As Susan mentioned, during the third quarter, we completed the acquisition of 3 sawmills in Sweden for total consideration of $171 million, which included $22 million of cash and $44 million of noncash net working capital. With the completion of this acquisition, diversification of our portfolio and optimized sales strategy, approximately 15% of our production capacity is currently exposed to duties and tariffs.

Turning to our pulp business. Canfor Pulp reported an adjusted EBITDA loss of $2 million in the quarter, which was $9 million lower than the prior quarter, reflecting the impact of lower pulp and paper sales realizations, which more than offset a modest reduction in pulp manufacturing costs and improved productivity.

Canfor Pulp ended the third quarter with net debt of $89 million and $64 million of available liquidity. While Canfor, excluding Canfor Pulp and the duty loan, which we completed in 2024, ended the third quarter with net debt of approximately $247 million and available liquidity of $1.2 billion. On a consolidated basis, capital expenditures were approximately $40 million in the third quarter, of which $4 million was for Canfor Pulp.

We anticipate capital spend of approximately $240 million in our lumber business for 2025, with approximately $45 million remaining to be spent in the fourth quarter. For Canfor Pulp, we anticipate capital spend, including capitalized maintenance of approximately $45 million in 2025. Of that $27 million remains in the fourth quarter. As Stephen mentioned, given current pulp market conditions, operational downtime at Northwood due to its scheduled maintenance and remaining capital spend in the fourth quarter, Canfor Pulp has implemented several cost-saving measures to improve its financial position.

We have noted in our financial statements the material uncertainty that exists in the current business given the significant debt load, remaining capital spend for the year and market conditions. As we have disclosed, we are in active negotiations with our lenders around additional covenant relief.

Looking ahead to 2026, we anticipate capital spend of approximately $175 million in our lumber business and approximately $35 million for Canfor Pulp, including capitalized maintenance. In addition, we anticipate Canfor will continue to allocate a modest amount of capital to opportunistically repurchase shares throughout the year under its normal course issuer bid.

And with that, Constantine, we're ready to take questions from analysts.

[Operator Instructions] Your first question comes from the line of Ketan Mamtora from BMO.

Maybe to start with, can you talk a little bit about the European performance in Q3? If I'm reading this correctly, to me, it seemed like there was an EBITDA loss in Europe in Q3. Can you just talk about some of the sort of the big moving pieces there?

Kate, it's Pat. Thanks for the question. Yes, you're right. We've had great performance in Europe the whole time since we've owned them back in 2019. So it's a little surprising to see the situation. I would note that there's an inventory deval in Vida, which is about $9 million of the $10 million. So it's the vast majority. But your point is correct. We're continuing to see log cost pressure in Europe. We think that's going to moderate as we move into next year, but it has been significant over the last number of quarters.

I think additionally, we've seen inventory levels in Europe building and pricing as a result has been depressed. And so I think the operating conditions in Europe are the most challenging we've seen since we've owned Vida, but we continue to be encouraged by how well they perform on a relative basis. And we think as we move into next year and we see some of the downtime that's happening start to take hold, we'll see better results. But you're right, this is sort of a first of a kind since we've owned Vida.

That's right. I was looking at my model, and I don't think I've seen like a negative EBITDA. Got it. So when do you expect sort of things to start getting better in Europe patch.

Yes. Well, I think it's a global story, right, Ketan. I mean I think that we're definitely seeing some retrenchment in Europe and the shipments into North America have declined somewhat certainly since the peak. I think they're trending kind of at 2.5 billion board feet. And so it's really going to be a question of how quickly that inventory can be run down. And I think as in North America, we're definitely hearing about lots of downtime, not so many kind of big announcements, but we definitely know that downtime is being taken.

And so I think as we move into -- certainly, we're more like into 2026 than in the fourth quarter here, we think things will rebalance and we'll start to see improving conditions. And on the log side, we're definitely seeing that stop rising, which is an encouraging sign and the trend is definitely down. But of course, that takes a number of months to work through our system.

Got it. And order of magnitude, what kind of log inflation are we talking about here in Europe, Pat?

Well, over the course of the last number of quarters, it's been 30%, 40%. I mean it's been significant. And so that's really not sustainable, and that's why we're starting to see it turn the other way.

Understood. And then just switching to North America. Can you just give us sort of your approach to managing production here over the next, I don't know, couple of quarters. One is, of course, the seasonal component in Q4, but just cyclically as well, things seem to be a little slow. So can you just talk about sort of what trends you are seeing here into October and your approach to managing production?

Sure, Ketan, it's Stephen here. Yes, we're -- with respect to the Q4 production levels, our intent is to run our facilities. We have -- as you know, we've made a number of difficult decisions and really worked hard to optimize our operating portfolio across North America over the last several years, including the recent closures of our Estill and Darlington facilities in South Carolina this past quarter, which removed about 350 million board feet. So we're comfortable with where we are. We've got a solid asset base, competitive facilities and our intent is to operate across North America.

So I think you can expect to see that through Q4 and into next year. Now of course, we're always continuously assessing the situation relative to demand and pricing levels, but our intent is to run.

Your next question comes from the line of Sean Steuart from TD Cowen.

First question is on Canfor Pulp. If you don't get waivers from the lenders, can you give us the path forward for Canfor Pulp as a stand-alone entity? How might this play out, I suppose, over the next few quarters?

Sean, that fills a question for me. It's Pat. Certainly, hard to -- speculating here is a bit dangerous. So what I would say is that Stephen mentioned, I mentioned where we've got significant cash and margin improvement program going inside the business. We are certainly not in a place from a liquidity point of view that feels comfortable, but we are really working to do what we can to kind of get through the near-term challenge that we're in, which is really the market conditions.

And I think if we look at going forward, I'm not sure we have prices rocketing up, but certainly, the trend line is for improving prices and with sort of some decent operational performance and improving prices, it puts us in a better position. So we're just -- we're tighter than we want to be, and that's why we've kind of got to go back and deal with our lenders here, particularly at the end of the year. But I think that we'll just have to see how things play out because it will be very dependent on how markets perform over the next number of quarters.

Okay. Understood. Second question is on your North American lumber operations this quarter. The price realizations actually surprised the upside versus what we were expecting. And I'm hoping you can sort of connect some dots. Your shipments skewed more heavily to the U.S. South this quarter than they did in Q2, which all else equal, I would think would hurt your price realizations. Any context you can give on mix this quarter, certain dimensions outperforming others? Can you explain that at all?

Yes. Like I think, Sean, there's some -- and without Kevin here, it's a bit dangerous for the finance guys to have more marketing. But the -- we do have a broader sort of go-to-market strategy that and how we ship to different jurisdictions and the widths that we produce. With the new kind of new and improved mills that we have, we have much more flexibility to be, I would say, a bit more dynamic about that, and we've been able to sort of optimize our profile. I think additionally, some of the products that we produce in BC and Alberta are maybe of a higher quality than some of the mills that were further north that were more of a call it a standardized profile.

So I think it's really a little bit of the fruition of all of the changes that we've made in our production footprint over the last number of years kind of coming together, particularly in tougher markets, kind of the opportunity to outperform when you have some of that higher value or you're a little more dynamic, I think, is pretty positive. And so I appreciate you noticing it because it's certainly something we're working on. But obviously, embedded in that is a bit of our own sort of formula of go-to-market that we sort of hesitate to get into beyond that.

[Operator Instructions] your next question comes from the line of Ben Isaacson from Scotia Bank.

I just have 2 of them. Susan or Pat, I was hoping you could spend a little bit of time just talking about Canfor's portfolio diversification, particularly in Europe. Why is the outlook -- you talked a little bit or maybe I'll phrase it this way. How disconnected or interconnected is the European business from your North American portfolio? Is the weakness in Europe coincidental to the weakness in the U.S.? Or are these just global commodities and that's having an impact all over?

So thanks, Ben. I mean there is -- we see weaknesses in markets across the globe. I think there's a lot of uncertainty. I don't have to sort of tell you that. It's a very volatile environment right now. And so we're seeing that in North America and also in Europe. I think the -- for us, the European piece is kind of -- it's a business -- that business has a lot of market optionality. So of course, we operate in Sweden, but we have access to many, many markets in Europe, Middle East, North Africa and Australia. So we've got a lot of options for our products. So when one market is tough, we can move to other markets. And so there's a lot of optionality and flexibility. We've got very high-quality fiber there. And that -- we've had a very good business. I mean we've talked about the fact that this is an anomaly.

Normally, the European business has been very, very steady, and we expect it to come back into that place. It's why we have added to our portfolio with the Hedin assets and was at the new mills a few weeks ago, 5 weeks ago, I guess, now. Those are really good assets to add to our portfolio. We like the fiber quality is phenomenal. And we've got really good -- we've acquired some really capable operators there that share a very similar culture to Vida. So we're very happy with that and happy to be able to have that in our portfolio.

Great. And then just a follow-up question for you. And perhaps you can think out loud on this. And it's not related to Canfor or any company at all. But it's clear to me that all management teams are controlling their controllables as best they can. But obviously, external market forces are still a meaningful overhang. So in your view, does the industry need to see meaningful sector consolidation? And is it possible that lumber pricing power can be taken back or at least improved even if this is a 5-, 10-year process? In other words, philosophically speaking, is an industry consolidation path inevitable?

Well, that's a very big question, Ben. Yes, there's a lot of operators in our space. And I have my own views about what should or shouldn't happen. But I think what you hit the nail on the head, and we are focusing on the things that we can control. We're looking at our own portfolio. We want to have -- we are working to a place where we have very strong assets that are able to withstand all kinds of market volatility.

And I think you're seeing -- that's been a change that's been occurring over a number of years, but I think you're starting to see that play out. What if -- can we consolidate to the place where we can have more impact on price? Perhaps, but that's a long journey. I don't know how many operate lumber manufacturers there are in the U.S., but I bet there's 500 plus. So that would be a very long journey. So I think what we are really focused on is our portfolio where we want to position ourselves and the growth opportunities that we see.

Your next question is from the line of Hamir Patel from CIBC.

Susan, I imagine your Alberta operations are always in the black. But just given the large extended losses sawmills are experiencing here in BC and the greater duty headwinds Canfor is contending with, how do you think about whether you'd be better off just shutting all your BC mills until prices move above breakeven?

Well, we -- look, we've -- as you know, we've made a lot of changes to our BC portfolio, and those are really tough changes for us. We are a BC-based company. We've got a long history here, and we've made a lot of -- we've made a dramatic change here to try and optimize our portfolio. What we have in our portfolio now, we like. We've got -- we're in the Kootenays largely.

We've of course, got our Prince George sawmill, which is really useful in supporting our pulp business and is a good facility, but we also have our mills in the Kootenays, which has a different fiber mix and allows us to make a number of products that our customers are looking for. And so we have greater kind of optionality and flexibility there as well. We like Alberta. We've made changes, and we like the portfolio we have right now. So we don't have any intention to make further changes at this time.

Okay. Fair enough. And Pat, are you able to kind of comment on maybe how your operating rates have been faring this year, Alberta versus BC?

Hamir, it's Stephen. Yes, all of the mills across our operations, actually, I would say, broadly across North America, again, we're pleased with the progress. Susan referenced the modernization capital that we've done down in the U.S. South. Our facilities are running well down in the U.S. And I know your question is about BC and Alberta, and we're running well in the Canadian context as well. The mills are doing a great job. The teams out there, our folks are controlling what they can control, and we're happy with the operating performance across our suite of assets.

So again, we feel pretty good about -- not about the market conditions and obviously, the challenges that we're facing from a financial perspective, but the teams are performing well, and we know how tough it is out there for us and how tough it will be out there for others as well, given our current operating rates and how well our teams are performing.

[Operator Instructions] your next question comes from the line of Matthew McKellar from RBC Capital Markets.

First, it sounds like you're still quite positive on the European opportunity. Do you see further growth in Sweden and the Nordic countries more broadly over the medium term as continuing to be attractive here? And if so, could you maybe remind us what your checklist would be for any further acquisitions?

Yes. I mean we like Europe, and we are continuing to look. I would say that right now, we are razor-focused on integrating the assets that we just acquired from Karl Hedin, and we've got lots of work underway to do that. We're always looking around whether it's in Sweden or elsewhere in the Nordic countries, and we will continue to do that and fortunate -- as we do in North America, and we're fortunate to be able to do that given the strength of our balance sheet.

And then just one high-level question on market conditions in pulp. In your view, what is the pathway from here to a healthier pulp market look like either in the near term or the medium term? How do you think about how conditions improve from here?

Matthew, thank you. It's Brian here. Well, as Stephen highlighted earlier, we see markets to remain challenged for the balance of the year. Having just returned from overseas seeing our customers at the end of the day, given all the economic uncertainty, the situation right now for the remainder of the year, we see will remain unchanged. At the end of the day, there's just simply too much capacity supply in the system. And we all know at current price levels, they are not sustainable. So we need to see, I guess, material reduction on the supply side to see a change in the market conditions.

Okay. And do you have a sense of the magnitude of response you'd be looking for compared to where we are today that would maybe catalyze that stronger environment?

Yes, for sure. I mean if we look at the stats right now, rough and dirty in terms of producer stocks on the softwood side, we guesstimate there's roughly about 0.5 million tonnes of excess inventory in the system. If you add on top of that, some of the, I guess, data that we're picking up out of China, the domestic ramp-up of softwood kraft anywhere between 1 million to 1.5 million tonnes. I'd have to say you're looking at 1.5 million tonnes out of the system for unless there's a material uptick in demand, there needs to be 1 million, 1.5 million tonnes of supply that has to be taken out of the system.

There are no further questions at this time. I will now turn the call over back to Susan Yurkovich for closing comments. Please go ahead.

Thanks so much for joining us, and we look forward to hearing from you next quarter. Thank you, operator.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.