Western Forest Products Inc. (TSX: WEF) (“Western” or the
“Company”) reported a net loss of $17.7 million in the first
quarter of 2023, as compared to a net loss of $21.4 million in the
fourth quarter of 2022, and net income of $38.0 million in the
first quarter of 2022. Results in the first quarter of 2023 reflect
more challenging macroeconomic conditions, resulting in lower
lumber prices and reduced demand compared to the same period last
year.
Adjusted EBITDA was negative $5.0 million in the
first quarter of 2023, as compared to Adjusted EBITDA of negative
$11.9 million in the fourth quarter of 2022, and adjusted EBITDA of
$65.4 million in the first quarter of 2022.
Operating loss prior to restructuring and other
items was $18.1 million in first quarter of 2023, as compared to
income of $52.2 million in the first quarter of 2022. The first
quarter of 2023 included $5.2 million in restructuring costs
primarily related to our Alberni Pacific Division (“APD”).
Highlights:
- Advanced BC
Coastal strategic investments at our Saltair sawmill and Duke Point
facility
- Progressed
integrated resource management and forest landscape planning
initiatives with First Nations
- Engineered wood
products business continues to perform to expectations
- Returned $4.0
million to shareholders through dividends
- Maintained
liquidity of $205.4 million to support our strategic priorities and
balanced capital allocation
(millions of Canadian dollars
except per share amounts and where otherwise noted) |
|
Q12023 |
|
Q12022 |
|
Q42022 |
Revenue |
|
$ |
263.8 |
|
|
$ |
359.6 |
|
|
$ |
291.0 |
|
Export tax expense |
|
|
4.7 |
|
|
|
11.5 |
|
|
|
4.7 |
|
Stumpage expense |
|
|
15.5 |
|
|
|
18.8 |
|
|
|
27.9 |
|
Adjusted EBITDA(1) |
|
|
(5.0 |
) |
|
|
65.4 |
|
|
|
(11.9 |
) |
Adjusted EBITDA margin(1) |
|
|
(2% |
) |
|
|
18 |
% |
|
|
(4% |
) |
Operating income (loss) prior
to restructuring and other items |
|
$ |
(18.1 |
) |
|
$ |
52.2 |
|
|
$ |
(23.6 |
) |
Net income (loss) |
|
|
(17.7 |
) |
|
|
38.0 |
|
|
|
(21.4 |
) |
Earnings (loss) per share,
diluted |
|
|
(0.05 |
) |
|
|
0.11 |
|
|
|
(0.07 |
) |
Net debt (cash) (2), end of
period |
|
|
24.6 |
|
|
|
(74.9 |
) |
|
|
(15.8 |
) |
Liquidity (1), end of
period |
|
|
205.4 |
|
|
|
310.1 |
|
|
|
249.8 |
|
_______________________(1) Refer to Adjusted
EBITDA, Liquidity, Adjusted EBITDA margin in the Non-GAAP Financial
Measures section.(2) Net debt (cash), a supplemental measure, is
defined as cash and cash equivalents less long-term debt and bank
indebtedness.
“Our first quarter results reflect a challenging
global market environment driving lower demand and pricing across
all business segments, though we did see some increased stability
building through the quarter,” said Western’s President and CEO
Steven Hofer. “Despite the more challenging environment, we
continued to advance operational improvements in the first quarter
to best position the company for future success. This included
renewing our focus on solidifying key customer relationships and
improving on-time delivery performance and reliability. As a
company, we are focused on maintaining a strong balance sheet and
executing on operational plans and our overall strategy to drive
value and margin for every log harvested. Capital programs at our
Duke Point and Saltair facilities progressed well through the first
quarter, and are important initiatives to move our products further
up the value chain.”
Summary of First Quarter 2023
Results
We reported Adjusted EBITDA of negative $5.0
million in the first quarter of 2023, as compared to Adjusted
EBITDA of $65.4 million in the same period last year. Results in
the first quarter of 2023 reflect more challenging macroeconomic
conditions, resulting in lower lumber prices and reduced demand
compared to the same period last year.
Net loss was $17.7 million in the first quarter
of 2023, as compared to net income of $38.0 million in the same
period last year. Operating loss prior to restructuring and other
items was $18.1 million in first quarter of 2023, as compared to
income of $52.2 million in the same period last year. The first
quarter of 2023 included $5.2 million in restructuring costs
primarily related to APD.
Sales
Lumber revenue was $211.0 million in the first
quarter of 2023 as compared to $313.9 million in the same period
last year. The 33% decline was due to lower lumber shipment
volumes, lower average lumber prices and a weaker sales mix,
slightly offset by a stronger US Dollar (“USD”) to Canadian Dollar
(“CAD”) exchange rate.
Specialty lumber shipments represented 40% of
total lumber shipment volumes in the first quarter of 2023, as
compared to 51% in the same period last year. Cedar lumber shipment
volumes were down 35% compared to the same period last year due to
more cautious buyer activity and a slower start to the spring
building season. Japan lumber shipment volumes were down 53%
compared to the same period last year due to increased levels of
supply from domestic manufacturing, Europe and Russia.
Our average realized lumber price was $1,241 per
thousand board feet in the first quarter of 2023, as compared to
$1,688 per thousand board feet in the same period last year. The
decrease of 26% was due to a weaker lumber sales mix and lower
lumber prices, partially offset by a stronger USD to CAD exchange
rate.
Log revenue was $38.6 million in the first
quarter of 2023, as compared to $32.7 million in the same period
last year. The increase of 18% was due to higher log sales to
balance log inventories to lumber market conditions and fibre
requirements of our manufacturing facilities, partially offset by
lower average domestic log prices.
By-products and other revenue were $14.2
million, as compared to $13.0 million in the same period last year.
The increase of 9% was due to higher revenue from harvesting
services provided to third parties and product mix, partially
offset by lower chip volumes.
Operations
Lumber production was 162 million board feet in
the first quarter of 2023, as compared to 175 million board feet in
the same period last year. We took market-related curtailments at
several of our BC sawmills at the beginning of January to match
lumber production to market conditions and manage inventory
levels.
We harvested 621,000 cubic metres of logs from
our BC coastal operations in the first quarter of 2023, as compared
to 748,000 cubic metres in the same period last year, to match
harvest volumes to market conditions. In the first quarter of 2022
we capitalized on good harvesting conditions to rebuild log
inventory.
Timberlands operating costs per cubic metre
increased 4% over the same period last year due to lower harvest
volumes and general inflationary impacts on costs. Average stumpage
per cubic metre in the first quarter of 2023 was generally flat
compared to the same period last year. Average stumpage per cubic
metre in the first quarter of 2023 was 39% lower compared to the
fourth quarter of 2022.
BC Coastal sawlog purchases were 192,000 cubic
metres in the first quarter of 2023, as compared to 290,000 cubic
metres in the same period last year. We managed sawlog purchases to
match fibre requirements at our BC manufacturing facilities.
Freight expense was $22.6 million in the first
quarter of 2023 as compared to $26.0 million in the same period
last year. The decrease of 13% was due to lower lumber and export
shipments, partially offset by higher rail and trucking rates. In
addition, lack of container availability in the comparative period
necessitated the use of higher cost breakbulk vessels.
Adjusted EBITDA and operating income included
$4.7 million of countervailing duty (“CV”) and anti-dumping duty
(“AD”) expense in the first quarter of 2023, as compared to $11.5
million in the same period of 2022. Export tax expense declined due
to lower duty rates, lumber prices and US-destined lumber shipment
volumes.
Corporate and Other
Selling and administration expense was $12.0
million in the first quarter of 2023 as compared to $13.2 million
in the same period last year. The decrease was primarily due to
reductions in incentive-based compensation due to lower earnings
and declines in the Company’s share price.
Restructuring costs were $5.2 million in the
first quarter of 2023 and consisted primarily of retirement
bridging costs for workers of APD. The $0.6 million in
restructuring costs in the first quarter of 2022 related primarily
to closure costs of our Somass Division.
Other expense was $0.1 million in the first
quarter of 2023 as compared to $0.1 million in the same period last
year. The first quarter of 2022 included a $1.4 million gain from
the sale of the remaining non-core assets at our Somass operation,
offset by foreign exchange losses and other items.
Finance costs were $0.2 million in the first
quarter of 2023 as compared to $0.4 million in the same period last
year. Interest revenue from the export duty receivable was
partially offset by interest expense on higher borrowings in the
first quarter of 2023.
Income Taxes
Income tax recoveries were $5.9 million on a net
loss before tax of $23.6 million in the first quarter of 2023, as
compared to an expense of $13.1 million on income before tax of
$51.1 million in the same period last year. The effective tax rate
of 25% was relatively unchanged quarter over quarter.
Net Income (Loss)
Net loss was $17.7 million in the first quarter
of 2023, as compared to net income of $38.0 million for the same
period last year. More challenging macroeconomic conditions
resulted in lower lumber demand and prices and impacted results
year over year.
Alberni Pacific Division
In January 2023, the Company announced it would
not restart its APD facility in its current configuration and
established a multi-party working group. The working group, which
included representatives from Western, the United Steelworkers
union (“USW”), Indigenous partners and contractually-aligned
business, had a mandate to explore potential viable industrial
manufacturing solutions for the APD facility over a 90 day
period.
In February 2023, Western partnered with the
Government of British Columbia (the “Province”) and the USW to
offer voluntary severance and a bridging to retirement program for
APD employees over age 55, with 60 eligible employees opting into
the program. Western has recognized $5.0 million in restructuring
costs in first quarter of 2023 related to APD.
In April 2023, the Company announced it
concluded the 90-day working group process and had commenced
negotiations and due diligence processes related to proposals
received.
The mill was curtailed at various times in 2022
due to a combination of market demand and log availability and did
not operate in the first quarter of 2023. The Company did not
recognize an impairment in respect of the APD assets as at March
31, 2023 as the estimated fair value of the assets is in excess of
the carrying value.
Indigenous Relationships
We respect the treaty and Aboriginal rights of
Indigenous groups, and we are committed to open dialogue and
meaningful actions in support of reconciliation. We are actively
investing time and resources in capacity building and fostering
positive working relationships with Indigenous groups with
traditional territories within which Western operates.
Integrated Resource Management/Forest Landscape
Planning Initiatives
Work continues on several Nation-led integrated
resource management planning initiatives across five of the Tree
Farm Licence (“TFL”) areas where Western operates. These
include:
-
The TFL 37 Forest Landscape Plan pilot project sponsored by 'Namgis
First Nation and Western, the most advanced of four ongoing Forest
Landscape Plan pilot projects being developed across the province
and sponsored by the Office of the Chief Forester of British
Columbia.
-
Ongoing development of an Integrated Resource Management Plan for
TFL 39 (Block 2) with Nanwakolas Council, representing four member
Nations, Wei Wai Kum, We Wai Kai, K’ómoks and Tlowitsis First
Nations.
-
Supporting Tla’amin Nation in the development of the Tla’amin
Territory Forest Resource Plan, the plan area of which includes TFL
39 (Block 1).
-
Supporting Huu-ay-aht First Nations development of the Hišuk ma
c̕awak Integrated Resource Management Plan for the Huu-ay-aht
Territory, including a portion of C̕awak ʔqin Forestry Limited
Partnership’s TFL 44. Development of an Integrated Resource
Management Plan for TFL 44 will be initiated this year after
pausing the process announced in early 2022 to allow time for other
Nation-led processes in the area to progress.
- Ongoing development of an
Integrated Resource Management Plan for the portion of TFL 6
located in Quatsino’s Territory with Quatsino First Nation.
Regulatory Environment
Since 2020, the Province introduced various
policy initiatives and regulatory changes that impact the BC forest
sector, including: fibre recovery, lumber remanufacturing, old
growth forest management and the exportation of logs.
In February 2023, the Province announced eight
new regional Forest Landscape Planning (“FLP”) tables throughout BC
with the participation of approximately 50 First Nations. The
Province’s stated objective of these FLP tables are to provide
greater clarity around the long-term, sustainable harvesting
activities in the areas.
Dividend and Capital
Allocation
We remain committed to a balanced approach to
capital allocation. We will continue to evaluate opportunities to
invest strategic and discretionary capital in jurisdictions that
create the opportunity to grow long-term shareholder value.
Quarterly Dividend
The quarterly dividend program is intended to
return a portion of the Company’s cash to shareholders, after
taking into consideration liquidity and ongoing capital needs. The
Company’s Board will continue to review our dividend on a quarterly
basis.
Dividends of $4.0 million were paid in the first
quarter of 2023, as compared to $3.3 million in the same period
last year.
Normal Course Issuer Bid (“NCIB”)
No shares were purchased under our NCIB in the
first quarter of 2023.
Strategy and Outlook
Western’s long-term business objective is to
create and grow shareholder value by building a sustainable,
margin-focused specialty products business of scale to compete
successfully in global markets.
Market Outlook
Near-term we expect lumber markets to remain
volatile, as consumers adjust to higher interest rates and
macroeconomic conditions. Temporary and permanent lumber production
curtailments are helping to bring supply and demand back into
balance. We are seeing some positive indications of demand and
pricing improving in certain lumber segments, but overall lumber
demand and prices remain below historical levels. We plan to
continue to match production to market demand.
Demand and prices for Cedar timber and premium
appearance products are expected to remain stable, while Cedar
decking, trim and fencing products continue to remain weaker. Japan
specialty lumber prices are expected to stabilize and demand should
benefit as channel inventories rebalance. Demand for our Industrial
lumber products will be product line specific but are expected to
remain stable. North American demand and prices for our commodity
products are expected to remain volatile.
We expect sawlog markets to follow conditions in
the lumber markets, while residual chip pricing is expected to
decline due to weaker northern bleached softwood kraft (“NSBK”)
prices to China.
Long-term we believe that housing market
fundamentals and growth in mass timber construction will drive
demand for lumber and specialty building products. We remain
excited about the long-term growth opportunity for mass timber
building in North America and the role and contribution wood
products have to play in a low carbon world.
Non-GAAP Financial Measures
Reference is made in this news release to the
following non-GAAP measures: Adjusted EBITDA, Adjusted EBITDA
margin, Net debt to capitalization and total Liquidity are used as
benchmark measurements of our operating results and as benchmarks
relative to our competitors. These non-GAAP measures are commonly
used by securities analysts, investors and other interested parties
to evaluate our financial performance. These non-GAAP measures do
not have any standardized meaning prescribed by IFRS and may not be
comparable to similar measures presented by other issuers. The
following table provides a reconciliation of these non-GAAP
measures to figures as reported in our unaudited condensed
consolidated financial statements:
(millions of Canadian dollars except where otherwise noted)
Adjusted EBITDA |
|
|
|
Q12023 |
Q42022 |
Q12022 |
Net income (loss) |
|
|
|
$ |
(17.7 |
) |
$ |
(21.4 |
) |
$ |
38.0 |
|
Add: |
|
|
|
|
|
|
Amortization |
|
|
|
|
13.1 |
|
|
12.0 |
|
|
12.7 |
|
Changes in fair value of biological assets |
|
|
|
|
- |
|
|
(0.2 |
) |
|
0.5 |
|
Operating restructuring items |
|
|
|
|
5.2 |
|
|
3.9 |
|
|
0.6 |
|
Other expense |
|
|
|
|
0.1 |
|
|
2.0 |
|
|
0.1 |
|
Finance costs (income) |
|
|
|
|
0.2 |
|
|
(0.1 |
) |
|
0.4 |
|
Income tax expense (recovery) |
|
|
|
|
(5.9 |
) |
|
(8.0 |
) |
|
13.1 |
|
Adjusted EBITDA |
|
|
|
$ |
(5.0 |
) |
$ |
(11.9 |
) |
$ |
65.4 |
|
Adjusted EBITDA margin |
|
|
|
|
|
|
Total revenue |
|
|
|
$ |
263.8 |
|
$ |
291.0 |
|
$ |
359.6 |
|
Adjusted EBITDA |
|
|
|
|
(5.0 |
) |
|
(11.9 |
) |
|
65.4 |
|
Adjusted EBITDA margin |
|
|
|
|
(2% |
) |
|
(4% |
) |
|
18 |
% |
Net debt to capitalization |
|
|
|
Mar. 312023 |
Dec. 312022 |
Mar. 312022 |
Net debt |
|
|
|
|
|
|
Total debt |
|
|
|
$ |
25.9 |
|
$ |
- |
|
$ |
- |
|
Bank indebtedness |
|
|
|
|
1.0 |
|
|
- |
|
|
- |
|
Cash and cash equivalents |
|
|
|
|
(2.3 |
) |
|
(15.8 |
) |
|
(74.9 |
) |
Net debt (cash) |
|
|
|
$ |
24.6 |
|
$ |
(15.8 |
) |
$ |
(74.9 |
) |
Capitalization |
|
|
|
|
|
|
Net debt (cash) |
|
|
|
$ |
24.6 |
|
$ |
(15.8 |
) |
$ |
(74.9 |
) |
Total equity attributable to equity shareholders of the
Company |
|
|
|
|
626.5 |
|
|
647.2 |
|
|
640.9 |
|
Capitalization |
|
|
|
$ |
651.1 |
|
$ |
631.4 |
|
$ |
566.0 |
|
Net debt to capitalization |
|
|
|
|
4 |
% |
|
- |
|
|
- |
|
Total liquidity |
|
|
|
Mar. 312023 |
Dec. 312022 |
Mar. 312022 |
Cash and cash equivalents |
|
|
|
$ |
2.3 |
|
$ |
15.8 |
|
$ |
74.9 |
|
Available credit facility |
|
|
|
|
250.0 |
|
|
250.0 |
|
|
250.0 |
|
Bank indebtedness |
|
|
|
|
(1.0 |
) |
|
- |
|
|
- |
|
Total debt |
|
|
|
|
(25.9 |
) |
|
- |
|
|
- |
|
Outstanding letters of credit |
|
|
|
|
(20.0 |
) |
|
(16.0 |
) |
|
(14.8 |
) |
Total liquidity |
|
|
|
$ |
205.4 |
|
$ |
249.8 |
|
$ |
310.1 |
|
Figures in the table above may not equal or sum to figures
presented elsewhere due to rounding.
Forward Looking Statements and Information
This press release contains statements that may
constitute forward-looking statements under the applicable
securities laws. Readers are cautioned against placing undue
reliance on forward-looking statements. All statements herein,
other than statements of historical fact, may be forward-looking
statements and can be identified by the use of words such as
“will”, “commit”, “project”, “estimate”, “expect”, “anticipate”,
“plan”, “target”, “forecast”, “intend”, “believe”, “seek”, “could”,
“should”, “may”, “likely”, “continue”, “pursue” and similar
references to future periods. Forward-looking statements in this
press release include, but are not limited to, statements relating
to our current intent, belief or expectations with respect to:
domestic and international market conditions, demands and growth;
economic conditions; our growth, marketing, production, wholesale,
operational and capital allocation plans, investments and
strategies, including but not limited to payment of a dividend or
repurchase of shares; fibre availability and regulatory
developments; changes to stumpage rates and the expected timing
thereof; the impact of COVID-19; the execution of our sales and
marketing strategy; the development and completion of integrated
resource management plans or forest landscape plan pilots by First
Nations; the potential for viable industrial manufacturing
solutions for the APD facility; and the expected timing and cost of
completion of the Company’s announced strategic investments.
Although such statements reflect management’s current reasonable
beliefs, expectations and assumptions as to, amongst other things,
the future supply and demand of forest products, global and
regional economic activity and the consistency of the regulatory
framework within which the Company currently operates, there can be
no assurance that forward-looking statements are accurate, and
actual results and performance may materially vary.
Many factors could cause our actual results or
performance to be materially different including: economic and
financial conditions including inflation, international demand for
forest products, the Company’s ability to export its products, cost
and availability of shipping carrier capacity, competition and
selling prices, international trade disputes and sanctions, changes
in foreign currency exchange rates, labour disputes and
disruptions, ability to recruit workers, natural disasters, the
impact of climate change, relations with First Nations groups,
First Nations’ claims and settlements, the availability of fibre
and allowable annual cut, the ability to obtain operational
permits, development and changes in laws and regulations affecting
the forest industry including as related to old growth timber
management and the Manufactured Forest Products Regulation, changes
in the price of key materials for our products, changes in
opportunities, information systems security, future developments
relating to COVID-19 and other factors referenced under the “Risks
and Uncertainties” section of our MD&A in our 2022 Annual
Report dated February 16, 2023. The foregoing list is not
exhaustive, as other factors could adversely affect our actual
results and performance. Forward-looking statements are based only
on information currently available to us and refer only as of the
date hereof. Except as required by law, we undertake no obligation
to update forward-looking statements.
Reference is made in this press release to
Adjusted Earnings Before Interest, Tax, Depreciation and
Amortization (“Adjusted EBITDA”). Adjusted EBITDA is defined as
operating income prior to operating restructuring items and other
income (expense) plus amortization of plant, equipment, right of
use and timber licence assets, impairment adjustments, and changes
in fair value of biological assets. Adjusted EBITDA margin is
Adjusted EBITDA as a proportion of revenue. Western uses Adjusted
EBITDA and Adjusted EBITDA margin as benchmark measurements of our
own operating results and as benchmarks relative to our
competitors. We consider Adjusted EBITDA to be a meaningful
supplement to operating income as a performance measure primarily
because amortization expense, impairment adjustments and changes in
the fair value of biological assets are non-cash costs and vary
widely from company to company in a manner that we consider largely
independent of the underlying cost efficiency of their operating
facilities. Further, the inclusion of operating restructuring items
which are unpredictable in nature and timing may make comparisons
of our operating results between periods more difficult. We also
believe Adjusted EBITDA and Adjusted EBITDA margin are commonly
used by securities analysts, investors and other interested parties
to evaluate our financial performance.
Adjusted EBITDA does not represent cash
generated from operations as defined by IFRS and it is not
necessarily indicative of cash available to fund cash needs.
Furthermore, Adjusted EBITDA does not reflect the impact of certain
items that affect our net income. Adjusted EBITDA and Adjusted
EBITDA margin are not measures of financial performance under IFRS,
and should not be considered as alternatives to measures of
performance under IFRS. Moreover, because all companies do not
calculate Adjusted EBITDA in the same manner, Adjusted EBITDA and
Adjusted EBITDA margin calculated by Western may differ from
similar measures calculated by other companies. A reconciliation
between the Company’s net income as reported in accordance with
IFRS and Adjusted EBITDA is included in this press release.
Also in this press release management may use
key performance indicators such as net debt, and net debt to
capitalization. Net debt is defined as long-term debt and bank
indebtedness less cash and cash equivalents. Net debt to
capitalization is a ratio defined as net debt divided by
capitalization, with capitalization being the sum of net debt and
equity. These key performance indicators are non-GAAP financial
measures that do not have a standardized meaning and may not be
comparable to similar measures used by other issuers. They are not
recognized by IFRS, but are meaningful in that they indicate the
Company’s ability to meet its obligations on an ongoing basis, and
indicate whether the Company is more or less leveraged than in the
past.
Western is an integrated forest products company
building a margin-focused log and lumber business to compete
successfully in global softwood markets. With operations and
employees located primarily on the coast of British Columbia and
Washington State, Western is a premier supplier of high-value,
specialty forest products to worldwide markets. Western has a
lumber capacity in excess of 1.0 billion board feet from seven
sawmills, as well as operates four remanufacturing facilities and
two glulam manufacturing facilities. The Company sources timber
from its private lands, long-term licenses, First Nations
arrangements, and market purchases. Western supplements its
production through a wholesale program providing customers with a
comprehensive range of specialty products.
TELECONFERENCE CALL
NOTIFICATION:
Thursday, May 4, 2023 at 12:00 p.m. PDT (3:00 p.m.
EDT)
To participate in the teleconference please dial
416-340-2217 or 1-800-952-5114 (passcode: 6443863#). This call will
be taped, available one hour after the teleconference, and on
replay until June 4, 2023 at 8:59 p.m. PDT (11:59 p.m. EDT). To
hear a complete replay, please call 905-694-9451 / 1-800-408-3053
(passcode: 1672093#).
For further information, please contact:Stephen
WilliamsExecutive Vice President & Chief Financial Officer(604)
648-4500
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