Western Announces First Quarter 2023 Results
Western Forest Products Inc. (“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”).
- 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
“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.
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.
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 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.
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 c?awak Integrated Resource Management Plan for the Huu-ay-aht Territory, including a portion of C?awak ?qin 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.
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.
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.
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.
For the full first quarter results, click here.
About Western Forest Products
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.
Stephen Williams – Executive Vice President & Chief Financial Officer – (604) 648-4500
Source: Western Forest Products Inc.