VANCOUVER, BC, Oct. 27, 2021 /CNW/ - West Fraser Timber Co. Ltd.
("West Fraser" or the "Company") (TSX: WFG) (NYSE:
WFG) reported today the third quarter results of 2021. All
dollar amounts in this news release are expressed in U.S. dollars
unless noted otherwise.
The results of operations presented and discussed below include
those of Norbord from February 1,
2021, the date of the completion of the acquisition of
Norbord.
Third Quarter Highlights
- Sales of $2.358 billion and
earnings of $460 million, or 20% of
sales
- Adjusted EBITDA of $786 million,
representing 33% of sales
- Record Adjusted EBITDA of $90
million for Europe EWP segment
- Repurchased $100 million of WFG
Common shares for cancellation under normal course issuer bid
("NCIB")
- Completed CAD$1.0 billion
substantial issuer bid ("SIB")
- Finished the quarter with liquidity at $3.130 billion and net debt to total capital
ratio of (27)%
- Hosted virtual Analyst & Investor Event
- Published 2020 Sustainability Report
- Announce agreement to acquire Angelina Forest Products lumber
mill for approximately $300 million
and Georgia Pacific OSB mill for approximately $280 million, both subsequent to quarter-end
"Despite a number of challenges, the third quarter of 2021 was
one of West Fraser's strongest quarter ever," said Ray Ferris, West Fraser's President & CEO.
"We operated responsibly across the business, managing the
complexities of transportation and mill disruptions in the face of
higher duties and B.C. stumpage and softer demand in a cyclical
commodity environment."
"The benefits of product and geographic diversification
following the Norbord acquisition were especially evident this
quarter in the relative strength of our North American OSB results
and the record performance from Europe EWP, where Adjusted EBITDA
more than doubled quarter-over-quarter. While demand for a number
of our products softened in the third quarter, fundamentals for
housing remain favourable and we are seeing early signs of a
recovery in repair and remodelling demand. As always, we remain
focused on the health and safety of our employees and will manage
the business to be flexible to meet the changing needs of our
customers."
Results Compared to Previous Periods
($ millions
except earnings per share ("EPS"))
|
Q3-211
|
Q2-211
|
YTD-211
|
Q3-20
|
YTD-20
|
Sales
|
2,358
|
3,779
|
8,480
|
1,268
|
3,079
|
Adjusted
EBITDA3,4
|
786
|
2,160
|
3,9542
|
418
|
590
|
Operating
earnings
|
630
|
1,986
|
3,495
|
366
|
436
|
Earnings
|
460
|
1,488
|
2,613
|
262
|
306
|
Basic EPS
($)
|
4.20
|
12.32
|
23.79
|
3.82
|
4.47
|
Diluted EPS
($)
|
4.20
|
12.32
|
23.79
|
3.82
|
4.47
|
1.
|
The results of the
operations of Norbord from the date of the acquisition of February
1, 2021, are included in West Fraser's financial
results.
|
2.
|
Cost of products sold
was increased and Adjusted EBITDA decreased by a one-time charge of
$93 million related to inventory purchase price
accounting.
|
3.
|
See section "Non-IFRS
Measures" in the Q3 2021 MD&A.
|
4.
|
4. Effective January
1, 2021, and for all comparative periods, export duties are no
longer excluded from the definition of Adjusted EBITDA.
|
Operational Results Summary
Our Lumber segment generated operating earnings in the quarter
of $52 million (Q2-21 - $955 million) and Adjusted EBITDA of $93 million (Q2-21 - $994
million). Adjusted EBITDA decreased due to lower lumber
prices, lower shipment volumes and increased duty rates. Our
British Columbia lumber mills operated at 79% of stated capacity in
the quarter. Adjusted EBITDA was also negatively affected by higher
manufacturing costs due in part to increased SPF log costs,
higher expenditures related
to increased employee costs in the U.S. South
associated with managing through
COVID-19 impacts and other input cost
inflation.
Our NA EWP segment generated operating earnings in the quarter
of $539 million (Q2-21 - $1,017 million) and Adjusted EBITDA of
$612 million (Q2-21 - $1,106 million). Adjusted EBITDA decreased due to
lower OSB and plywood prices and lower shipment volumes as a result
of reduced demand and due to wildfires in British Columbia, which disrupted
transportation services. Higher log costs from increased B.C.
stumpage rates and higher resin costs also negatively impacted
Adjusted EBITDA.
Our Pulp & Paper segment generated operating earnings in the
quarter of negative $15 million
(Q2-21 - $17 million) and Adjusted
EBITDA of negative $7 million (Q2-21
- $25 million) while the Europe EWP
segment generated record operating earnings in the quarter of
$67 million (Q2-21 – $15 million) and record Adjusted EBITDA of
$90 million (Q2-21 - $39 million). The increase in Europe EWP segment
Adjusted EBITDA was driven by higher panel prices, partially offset
by higher resin costs.
Capital Allocation
Available liquidity decreased slightly to $3,130 million at the end of the third quarter
from $3,392 million at the end of the
prior quarter. The balance sheet remains strong and continues
to afford significant flexibility to undertake strategic capital
investments, repay debt and repurchase shares.
Share Repurchases
In the third quarter of 2021, we repurchased approximately 1.3
million shares under the NCIB at an average share price of
CAD$97.56 ($77.60) for aggregate consideration of
$100 million. All shares purchased by
the Company under the NCIB will be cancelled.
On July 12, 2021, we commenced a
substantial issuer bid pursuant to which the Company offered to
purchase from shareholders for cancellation up to CAD$1.0 billion of common shares. On August 20, 2021, the SIB was completed and a
total of 10,309,278 common shares were taken up and purchased for
cancellation at a price of CAD$97.00
($76.84) per share.
Acquisition of Texas Lumber Mill and South Carolina OSB
Mill
On October 12, 2021, we
announced our entry into an agreement to
acquire the Angelina Forest Products' SYP lumber
mill located in Lufkin, Texas for
approximately $300
million subject to certain post-closing adjustments. We
intend to fund this acquisition using cash on
hand. The new turn-key facility began construction in
2018 and commenced operations in late 2019. The
facility is expected to progress toward production capacity of
approximately 305 million board feet over the next three to four
years. The transaction is anticipated to close following successful
completion of U.S. regulatory reviews and satisfaction of customary
closing conditions.
On October 26, 2021, we
announced our entry into an agreement to acquire
Georgia Pacific's OSB mill located
near Allendale, South Carolina for
approximately $280 million. We intend
to fund this acquisition using cash on hand. The Allendale facility commenced production in
2007, has been idle since late 2019 and has an estimated stated
capacity of approximately 760 million square feet (3/8-inch basis).
The Company intends to invest an estimated $70 million of additional capital to upgrade and
optimize the facility in preparation for its restart. The
transaction is anticipated to close following successful completion
of U.S. regulatory reviews and satisfaction of customary
conditions.
Dividend Currency Change
As the majority of our shareholder base is now outside
Canada, and the majority of our
cash flows are denominated in U.S. dollars, we have decided that
future dividends will be declared and payable in U.S.
dollars. Registered shareholders who wish to continue to
receive their dividends in Canadian dollars ("CAD") will
be able to elect to do so with our transfer
agent (see "Notice of Change of Transfer Agent and Registrar"
below). Beneficial shareholders who wish to continue to
receive their dividends in CAD should contact their brokers.
Further information will be posted on our website at
www.westfraser.com when available.
Outlook
Markets
The most significant uses for our lumber and OSB products are
residential construction, repair and remodelling, and industrial
applications. Low mortgage rates, low volumes of homes available
for resale and increasing acceptance of remote working appear to be
positively influencing the demand for new housing in North America. An aging housing stock and
repair and renovation spending should also continue to drive
lumber, plywood and OSB demand. Growing market penetration of mass
timber in industrial and commercial applications also stands to
support medium-to-longer term demand growth for wood building
products.
The demand for our European products is expected
to continue to be robust as demand for OSB as an alternative
to plywood in Europe continues to
grow. An aging European housing stock
is also expected to drive repair and renovation spending,
supporting the growing demand for our wood building
products.
Our balance sheet remains strong and well equipped to face
potential volatility in our markets over the coming quarters, to
support capital expenditure plans and to return capital to
shareholders.
Operations
Due to wildfires in British
Columbia, slowing orders for forest products, constraints on
the availability of resins used in the manufacture of panel
products, transportation service interruptions and overall
inventory levels, output was reduced at West Fraser's British
Columbia SPF, U.S. South SYP, North American OSB and Canadian
plywood facilities in the third quarter of 2021. West Fraser has
since begun to increase operating schedules and anticipates
increasing operating rates through the remainder of the fourth
quarter, depending on developments relating to the factors noted
above as well as economic log supply, weather conditions and
availability of labour due to the continuing impacts of
COVID-19.
On January 1, 2021, stumpage rates
increased in B.C. due to the market-based adjustments related
to lumber prices and purchase log
costs. Further increases in B.C. stumpage rates
occurred on July 1, 2021 and
October 1, 2021, but we expect
B.C. stumpage to decrease on January 1, 2022. In Alberta and Ontario, stumpage rates have declined
from levels earlier in the year, as they are closely linked to the
price of lumber and OSB and respond rapidly to changes in lumber
and OSB prices. We expect SYP log
costs to increase modestly in the fourth quarter.
We also have routine maintenance outages planned for the fourth
quarter at several of our EWP facilities.
British Columbia Wildfires
British Columbia faced extreme heat and dry ground
conditions, resulting in a significant number
of wildfires in the second and third quarters of 2021. By
September 30, approximately 869,000
hectares of area were burned from wildfires in British Columbia in 2021, trailing only the
provincial area lost from wildfires in 2017 and 2018. The
near-to-medium-term impact of these losses on our future production
and shipments is still to be determined.
Strategic Capital Program
We continue to expect to move forward with approximately
$180 million of additional capital
projects identified under West Fraser's strategic capital program.
Work on these projects has begun and will continue through
2023. This investment program will support safety, cost
improvements and strategic growth initiatives as we continue our
focus on capital execution and operational excellence. The
average project payback period for this strategic capital program
is expected to be three to four years. Notwithstanding the
addition of these capital projects, as a result of lengthening lead
times on projects currently underway, we are narrowing our 2021
capital expenditure target to be approximately $400 million, which is at the low end of the
range of our prior guidance of approximately $400 million to $450
million.
Norbord Integration Update
The integration of the Norbord business is progressing well and
continues to be a Company focus. We remain on track to
achieve targeted annual synergies of $61
million by the end of 2022.
Notice of Change of Transfer Agent and Registrar
Effective November 1, 2021,
Computershare Investor Services Inc. will replace AST Trust Company
(Canada) as the Transfer Agent
Registrar, and Dividend Disbursing Agent and Shareholder Rights
Plan Agent for West Fraser. No action is required as a result of
this transition. The contact information of the new transfer agent
will be available at www.westfraser.com under the "Investors/Stock
Information/Transfer Agent" section.
Risks and Uncertainties
Risk and uncertainty disclosures are included in our 2020 annual
MD&A, in our 2020 Annual Report, as well as in our public
filings with securities regulatory authorities, including those set
out in our Base Shelf Prospectus under the heading "Risk Factors".
These risks and uncertainties include risks and uncertainties
related to the business of Norbord, and the integration of the
business of Norbord into our business.
MD&A
Our third quarter 2021 MD&A, Financial Statements and Notes
to the Financial Statements are available on our website at
www.westfraser.com and the System for Electronic Document Analysis
and Retrieval ("SEDAR") at www.sedar.com and the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR") website at
www.sec.gov/edgar.shtml under the Company's profile.
Financial Information Related to the Norbord
Acquisition
We have applied purchase price accounting to the Norbord
acquisition, resulting in a significant increase from the
historical cost base of Norbord and $1,326
million of goodwill. Note 3 to our Financial
Statements provides details on the purchase price
allocation. For additional information, refer to the section
titled "Norbord Acquisition" in our third quarter 2021
MD&A.
Sustainability Report
West Fraser's full Sustainability Report is available on the
Company's website at www.westfraser.com. This report reviews
the Company's key Environmental, Social, and Governance (ESG)
topics, opportunities and performance and includes information
aligned with the Sustainable Accounting Standards Board (SASB),
Global Reporting Initiative (GRI), and the recommendations of the
Task Force on Climate-Related Disclosures (TFCD).
The Company
West Fraser is a diversified wood products company with more
than 60 facilities in Canada,
the United States, the
United Kingdom, and Europe. From responsibly sourced and
sustainably managed forest resources, the Company produces lumber,
engineered wood products (OSB, LVL, MDF, plywood, and
particleboard), pulp, newsprint, wood chips, other residuals and
renewable energy. West Fraser's products are used in home
construction, repair and remodelling, industrial applications,
papers, tissue, and box materials.
Conference Call
West Fraser will hold an analysts' conference call to discuss
the Company's third quarter 2021 financial and operating results on
Thursday, October 28, 2021, at
8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). To participate in
the call, please dial: 1-888-390-0605 (toll-free North America) or 416-764-8609 (toll) or
connect on the webcast. The call and an earnings presentation
may also be accessed through West Fraser's website at
www.westfraser.com. Please let the operator know you wish to
participate in the West Fraser conference call chaired by Mr.
Ray Ferris, President and Chief
Executive Officer.
Following management's discussion of the quarterly results,
investors and the analyst community will be invited to ask
questions. The call will be recorded for webcasting purposes and
will be available on the West Fraser website at
www.westfraser.com.
Forward-Looking Statements
This news release contains "forward-looking information" and
"forward-looking statements" within the meaning of Canadian
provincial securities laws and "forward-looking statements" within
the meaning of the U.S. Securities Act of 1933, the U.S.
Securities Exchange Act of 1934, and the "safe harbor"
provisions of the United States Private Securities Litigation
Reform Act of 1995. Forward-looking statements include
statements that are predictive in nature, depend upon or refer to
future events or conditions, include statements which reflect
management's expectations regarding the operations, business,
financial condition, expected financial results, performance,
prospects, opportunities, priorities, targets, goals, ongoing
objectives, strategies and outlook of West Fraser and its
subsidiaries, including Norbord, as well as the outlook for North
American and international economies for the current fiscal year
and subsequent periods, and include words such as "expects,"
"anticipates," "plans," "believes," "estimates," "seeks,"
"intends," "targets," "projects," "forecasts" or negative versions
thereof and other similar expressions, or future or conditional
verbs such as "may," "will," "should," "would" and
"could."
In particular, this news release contains forward-looking
statements under the headings "Capital Allocation" (regarding
flexibility to undertake strategic capital investments, repay debt
and repurchase shares and the funding and closing of the
Angelina Forest Products lumber mill and Georgia Pacific OSB mill
transactions and the capacities of the respective mills),
"Outlook - Markets" (regarding lumber, OSB and plywood
demand, lumber exports and the strength and ability of our balance
sheet to weather potential market volatility), "Outlook -
Operations" (regarding activity levels at our operations,
the impact on production and shipments and negative impacts on
operations and results, including COVID-19, fibre costs and other
factors), "Outlook - British Columbia Wildfires" (regarding
the estimated impact on production and shipments), "Outlook -
Strategic Capital Program" (regarding the amount and timing
of planned capital expenditures and payback period), and "Outlook -
Norbord Integration Update" (regarding achievement of
synergies and integration of Norbord).
By their nature, forward-looking statements involve numerous
assumptions, inherent risks and uncertainties, both general and
specific, which contribute to the possibility that the predictions,
forecasts, and other forward-looking statements will not
occur. Factors that could cause actual results to differ
materially from those contemplated or implied by forward-looking
statements include, but are not limited to: (1) assumptions in
connection with the economic and financial conditions in the U.S.,
Canada, Europe and globally and consequential demand
for our products; (2) risks inherent to product concentration and
cyclicality; (3) effects of competition and product pricing
pressures, including reductions or deferral of demand in response
to lumber and/or OSB price increases; (4) effects of variations in
the price and availability of manufacturing inputs, including
continued access to log supply and fibre resources at competitive
prices and the impact of third-party certification standards; (5)
availability of transportation services, including truck and rail
services, and port facilities, and impacts on transportation
services from wildfires; (6) various events that could disrupt
operations, including natural, man-made or catastrophic events
including wildfires and any state of emergency and/or evacuation
orders issued by governments, and ongoing relations with employees;
(7) risks inherent to customer dependence; (8) impact of future
cross border trade rulings or agreements; (9) implementation of
important strategic initiatives and identification, completion and
integration of acquisitions; (10) impact of changes to, or
non-compliance with, environmental or other regulations; (11) the
impact of the COVID-19 pandemic on our operations and on customer
demand, supply and distribution and other factors; (12) government
restrictions, standards or regulations intended to reduce
greenhouse gas emissions; (13) changes in government policy and
regulation; (14) impact of weather and climate change on our
operations or the operations or demand of its suppliers and
customers; (15) ability to implement new or upgraded information
technology infrastructure; (16) impact of information technology
service disruptions or failures; (17) impact of any product
liability claims in excess of insurance coverage; (18) risks
inherent to a capital intensive industry; (19) impact of future
outcomes of tax exposures; (20) potential future changes in tax
laws, including tax rates; (21) effects of currency exposures and
exchange rate fluctuations; (22) future operating costs; (23)
availability of financing, bank lines, securitization programs
and/or other means of liquidity; (24) integration of the Norbord
business; (25) the successful completion of U.S. regulatory reviews
and satisfaction of customary closing conditions related to the
Angelina Forest Products lumber mill acquisition; (26) the
successful completion of U.S. regulatory reviews and satisfaction
of customary closing conditions related to the Georgia Pacific OSB
mill acquisition; and (27) other risks detailed from time-to-time
in our annual information forms, annual reports, MD&A,
quarterly reports and material change reports filed with and
furnished to securities regulators.
In addition, actual outcomes and results of these statements
will depend on a number of factors, including those matters
described under "Risks and Uncertainties" in our 2020 MD&A, and
may differ materially from those anticipated or
projected. This list of important factors affecting
forward-looking statements is not exhaustive, and reference should
be made to the other factors discussed in public filings with
securities regulatory authorities. Accordingly, readers should
exercise caution in relying upon forward-looking statements, and we
undertake no obligation to update or revise any forward-looking
statements publicly, whether written or oral, to reflect subsequent
events or circumstances except as required by applicable securities
laws.
Non-IFRS Measures
Throughout this news release, reference is made to Adjusted
EBITDA, available liquidity, and total and net debt to total
capital ratio (collectively "these Non-IFRS measures"). We
believe that, in addition to earnings, these Non-IFRS measures are
useful performance indicators for investors with regard to
operating and financial performance. Adjusted EBITDA is also
used to evaluate the operating and financial performance of our
operating segments, generate future operating plans, and make
strategic decisions. These Non-IFRS measures are not generally
accepted financial measures under IFRS and do not have standardized
meanings prescribed by IFRS. Investors are cautioned that none
of these Non-IFRS measures should be considered as an alternative
to earnings, EPS, or cash flow, as determined in accordance with
IFRS. As there is no standardized method of calculating any of
these Non-IFRS measures, our method of calculating each of them may
differ from the methods used by other entities and, accordingly,
our use of any of these Non-IFRS measures may not be directly
comparable to similarly titled measures used by other
entities. Accordingly, these Non-IFRS measures are intended
to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with IFRS. The reconciliation of the Non-IFRS
measures used and presented by the Company to the most directly
comparable IFRS measures is set out in our Q3 2021 MD&A under
the title "Non-IFRS Measures".
For More Information
West Fraser Investors:
Robert B. Winslow, CFA
Director, Investor Relations & Corporate Development
Tel. (416) 777-4426
shareholder@westfraser.com
West Fraser Media:
Heather Colpitts
Director, Corporate Affairs
Tel. (416) 643-8838
shareholder@westfraser.com
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SOURCE West Fraser Timber Co. Ltd.