Adjusted EBITDA was negative
Operating loss prior to restructuring and other items was
Highlights:
- Announced a
$35.9 million agreement to sell a 34% interest in a newly formed forestry Limited Partnership to four Vancouver Island First Nations - Celebrated one year anniversary of glulam business asset acquisition from
Calvert Company, Inc. with operations accretive to EBITDA in that year - Completed installation of machine stress rated lumber grader to support increased product value and mass timber market growth
- Recognized an export tax recovery of
$4.3 million on finalization of the softwood lumber duty rate
(millions of Canadian dollars except per share amounts and where otherwise noted) | Q3 2023 | Q3 2022 | Q2 2023 | YTD 2023 | YTD 2022 | ||||||||||||||
Revenue | $ | 231.1 | $ | 356.0 | $ | 276.0 | $ | 770.9 | $ | 1,153.0 | |||||||||
Export tax expense | 5.2 | 8.0 | 6.2 | 16.1 | 34.2 | ||||||||||||||
Export tax recovery | (4.3 | ) | (18.0 | ) | - | (4.3 | ) | (18.0 | ) | ||||||||||
Stumpage expense | 5.9 | 36.4 | 14.3 | 35.7 | 90.1 | ||||||||||||||
Adjusted EBITDA (1) | (11.6 | ) | 17.3 | (12.0 | ) | (28.7 | ) | 148.9 | |||||||||||
Adjusted EBITDA margin (1) | (5% | ) | 5% | (4% | ) | (4% | ) | 13% | |||||||||||
Operating income (loss) prior to restructuring and other items | $ | (25.8 | ) | $ | 4.7 | $ | (25.1 | ) | $ | (69.0 | ) | $ | 110.3 | ||||||
Net income (loss) | (17.4 | ) | 6.6 | (20.7 | ) | (55.8 | ) | 83.2 | |||||||||||
Earnings (loss) per share, diluted | (0.05 | ) | 0.02 | (0.07 | ) | (0.17 | ) | 0.25 | |||||||||||
Net debt (cash) (2), end of period | 59.5 | (35.4 | ) | 34.6 | |||||||||||||||
Liquidity (1), end of period | 170.2 | 269.1 | 195.5 | ||||||||||||||||
Commenting on the quarter, Western’s President and CEO
Summary of Third Quarter 2023 Results
We reported Adjusted EBITDA of negative
Net loss was
Sales
Lumber revenue was
Specialty lumber shipments represented 55% of total lumber shipment volumes in the third quarter of 2023, as compared to 39% in the same period last year, yielding a stronger sales mix. Industrial lumber shipment volumes remained flat compared to the same period last year with incremental volume from the acquisition of our Calvert engineered wood products division offset by lower volumes in certain other product lines. Cedar lumber shipment volumes increased 21% compared to the same period last year due to improved take-away through the home centre segment.
Log revenue was
By-products and other revenue were
Operations
Lumber production was 126 million board feet in the third quarter of 2023, as compared to 169 million board feet in the same period last year. During the third quarter of 2023 we curtailed certain sawmill operations to match production to market demand and manage inventory levels. A higher specialty mix of production led to increased secondary processing volumes and costs as compared to the third quarter of 2022.
We harvested 678,000 cubic metres of logs from our BC coastal operations in the third quarter of 2023, as compared to 800,000 cubic metres in the same period last year, due to an extended fire-risk season and reduced heli-logging contractor availability.
Despite lower harvest volumes, Timberlands operating cash costs per cubic metre declined 26% in the third quarter of 2023, compared to the same period last year, primarily as a result of lower stumpage per cubic metre. A reduction in more costly heli-logging harvest and management of road building activity also contributed to the lower unit costs.
BC Coastal sawlog purchases were 116,000 cubic metres in the third quarter of 2023, as compared to 302,000 cubic metres in the same period last year. We managed sawlog purchases to match fibre requirements at our BC manufacturing facilities.
Freight expense was
Adjusted EBITDA and operating income included
During the third quarter of 2023, we recognized a recovery of
Corporate and Other
Selling and administration expense was
Other income was
Finance costs were
Income Taxes
Income tax recovery was
Net Income (Loss)
Net loss was
Summary of Year to Date 2023 Results
We reported Adjusted EBITDA of negative
Net loss was
Sales
Lumber revenue was
Speciality lumber shipments represented 49% of total lumber shipment volumes in the first nine months of 2023, as compared to 45% in the same period last year, yielding a slightly stronger sales mix. Industrial lumber shipment volumes increased 22% compared to the same period last year with incremental volume from the acquisition of our Calvert engineered wood products division and growth primarily in
Log revenue was
By-product and other revenue were
Operations
Lumber production was 436 million board feet in the first nine months of 2023, as compared to 517 million board feet in the same period last year. During the first nine months of 2023 we took operating curtailments at certain sawmills to match production to market demand and manage inventory.
We harvested 2,234,000 cubic metres of logs from our BC coastal operations in the first nine months of 2023, as compared to 2,451,000 cubic metres in the same period last year, due to an extended fire-risk season, reduced heli-logging contractor availability in the third quarter of 2023 and matching harvest volumes to market conditions.
Despite lower harvest volumes, Timberlands operating cash costs per cubic metre declined 22% in the first nine months of 2023, compared to the same period last year, primarily as a result of lower stumpage per cubic metre and management of road building activity.
BC Coastal sawlog purchases were 475,000 cubic metres in the first nine months of 2023, as compared to 920,000 cubic metres in the same period last year. We managed sawlog purchases to match fibre requirements at our BC manufacturing facilities.
Freight expense was
Adjusted EBITDA and operating income included
Export tax expense declined due to lower average duty rates, lumber prices and US-destined lumber shipment volumes.
Corporate and Other
Selling and administration expense was
Restructuring costs were
Other income was
Finance costs were
Income Taxes
Income tax recovery was
Net Income (Loss)
Net loss was
Alberni Pacific Division
The Company previously announced we would not restart our APD facility in its current configuration and had established a multi-party working group to explore viable industrial manufacturing solutions for the site over a 90-day period. On
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. For details of our progress in 2022, please see “Indigenous Relationships” in our Management’s Discussion and Analysis for the year ended
TFL 39 Block 2 Transaction
On
Regulatory Environment
Since 2020, the Province of BC (“the Province”) has introduced various policy initiatives and regulatory changes that impact the BC forest sector, including: fibre recovery, lumber remanufacturing, old growth forest management, forest stewardship and the exportation of logs.
Tripartite Framework Agreement on Nature Conservation (“Nature Agreement”)
On
TFL 44
In
The TFL 44 licence is held by the
TFL 19
We expect the Provincial
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
In response to the weaker lumber market conditions and corresponding financial results, Western is suspending its quarterly dividend until further notice, effective
Dividends of
Normal Course Issuer Bid (“NCIB”)
On
During the first nine months ended
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. For more detail on our strategic initiatives and actions, refer to “Strategy and Outlook” in our Management’s Discussion and Analysis for the year ended
Market Outlook
Near-term we expect lumber markets to remain volatile as we head into the typically slower fall and winter seasons. Consumers continue to adjust to higher interest rates and macroeconomic conditions which is driving a rebalancing of lumber supply and demand.
Demand and prices for Cedar timber and premium appearance products are expected to remain stable, while Cedar decking, trim and fencing products are expected to remain weaker. In
We expect sawlog markets to follow conditions in the lumber markets, while residual chip pricing is expected to modestly improve in the fourth quarter of 2023 due to stronger northern bleached softwood kraft prices to
We remain excited about the long-term growth opportunity for wood products and the positive impacts they have 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 | Q3 2023 | Q3 2022 | Q2 2023 | YTD 2023 | YTD 2022 | ||||||||||
Net income (loss) | $ | (17.4 | ) | $ | 6.6 | $ | (20.7 | ) | $ | (55.8 | ) | $ | 83.2 | ||
Add: | |||||||||||||||
Amortization | 14.1 | 12.7 | 13.2 | 40.4 | 38.2 | ||||||||||
Changes in fair value of biological assets | - | (0.2 | ) | (0.1 | ) | (0.2 | ) | 0.3 | |||||||
Operating restructuring items | (0.2 | ) | (0.2 | ) | 1.6 | 6.6 | 0.6 | ||||||||
Other expense (income) | (2.2 | ) | (4.0 | ) | 0.8 | (1.3 | ) | (4.1 | ) | ||||||
Finance costs | 0.5 | (0.7 | ) | 0.5 | 1.2 | - | |||||||||
Income tax expense (recovery) | (6.5 | ) | 3.0 | (7.3 | ) | (19.7 | ) | 30.6 | |||||||
Adjusted EBITDA | $ | (11.6 | ) | $ | 17.3 | $ | (12.0 | ) | $ | (28.7 | ) | $ | 148.9 | ||
Adjusted EBITDA margin | |||||||||||||||
Total revenue | $ | 231.1 | $ | 356.0 | $ | 276.0 | $ | 770.9 | $ | 1,153.0 | |||||
Adjusted EBITDA | (11.6 | ) | 17.3 | (12.0 | ) | (28.7 | ) | 148.9 | |||||||
Adjusted EBITDA margin | (5% | ) | 5% | (4% | ) | (4% | ) | 13% | |||||||
Net debt to capitalization | 2023 | 2022 | 2023 | ||||||||||||
Net debt (cash) | |||||||||||||||
Total debt | $ | 62.0 | $ | - | $ | 36.8 | |||||||||
Bank indebtedness | 0.5 | - | 1.0 | ||||||||||||
Cash and cash equivalents | (3.0 | ) | (35.4 | ) | (3.2 | ) | |||||||||
$ | 59.5 | $ | (35.4 | ) | $ | 34.6 | |||||||||
Capitalization | |||||||||||||||
Net debt (cash) | $ | 59.5 | $ | (35.4 | ) | $ | 34.6 | ||||||||
Total equity attributable to equity shareholders of the Company | 580.3 | 676.0 | 599.5 | ||||||||||||
$ | 639.8 | $ | 640.6 | $ | 634.1 | ||||||||||
Net debt to capitalization | 9% | 0% | 5% | ||||||||||||
Total liquidity | 2023 | 2022 | 2023 | ||||||||||||
Cash and cash equivalents | $ | 3.0 | $ | 35.4 | $ | 3.2 | |||||||||
Available credit facility | 250.0 | 250.0 | 250.0 | ||||||||||||
Bank indebtedness | (0.5 | ) | - | (1.0 | ) | ||||||||||
Credit facility drawings | (62.2 | ) | - | (37.0 | ) | ||||||||||
Outstanding letters of credit | (20.1 | ) | (16.3 | ) | (19.7 | ) | |||||||||
$ | 170.2 | $ | 269.1 | $ | 195.5 | ||||||||||
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 impact of the Nature Agreement on the Company’s operations; the impact of the determination of a new AAC for TFL 19; the Company’s pursuit of the TFL 44 AAC determination with government; the potential for viable industrial manufacturing solutions for the APD facility; the timing and outcome of the negotiation processes for the APD facility; the completion of and expected timing of the acquisition by the Nations; 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
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
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For further information, please contact:
Executive Vice President & Chief Financial Officer
(604) 648-4500
Source:
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